Alfred Kahn, chairman of the Council on Wage and Price Stability, appealed yesterday to union leaders to observe the administration's voluntary 7 percent wage standard "as an act of faith" until inflation tapers off later this year.
The 7 percent standard "may again look realistic" in a few months if the anti-inflation program works as expected and inflation abates, Kahn said in a speech to the Detroit Economic Club.
Administration officials are worried that the appearance of a mismatch between the wage standard and actual inflation rates could effectively ruin the anti-inflationary effort. Some observers suggest it could take only one major union settlement clearly breaching the standard to do in the program.
Despite the apparence of a mismatch between the two standards, top administration officials said no change in either standard is under consideration.
The "size and pervasiveness" of recent price increases indicates that some large companies are complying with the price standard but "not just as ceilings but floors," Kahn declared. Kahn called on business to observe not just the letter of the standard but its spirit as well.
Kahn promised that COWPS will launch a "greatly accentuated price monitoring effort" in the near future.
Last week, Barry Bosworth, COWPS director, told a congressional committee that January price statistics shows that small or medium-sized companies may not be complying with the price standard, which generally allows a firm to increase its prices by one-half a percentage point less than the firm's average increase in 1976 and 1977.
Workers observing the 7 percent wage standard, Kahn said, would not be getting any real wage increases for the next several months because inflation will be running higher than that.
Bosworth said there are 10 or 12 industries COWPS will be checking first in its new compliance check and that it will take about two months. Other administration sources said that two industries on the list are meat packing and cement.
Some administration officials expect that January's round of large, widespread price increases will not be repeated in coming months. They blame part of the bulge on the timing of the wage-price program itself.
Since it was at least November before final price standards were available, and there was a short lag while each company determined how it would apply its own case, many scheduled increases that became effective in January, those officials said.
Whatever the reason for the higher-than-expected increases -- the wholesale or producer price index rose at an annual rate of nearly 17 percent in January -- they make it harder for union leaders to agree to settlements within the 7 percent wage standard.
The administration is still hoping that Congress will approve President Carter's "real wage insurance" proposal that would reimburse workers who observe the wage standard for part of their loss in purchasing power if inflation is more than 7 percent.
Kahn yesterday gave real wage insurance only a 50-50 chance of passage. Asked at a press conference what he would do if it failed, he replied, "Cry and then try harder."