The administration's new Pay Committee will be a success if it does nothing more than keep workers' pay in 1980 from rising faster than the 8 1/2 rate in the first half of this year, Residential inflation adviser Alfred Kahn said yesterday.
"That's sort of where the committee begins," Kahn declared in an interview, trying to achieve "non-acceleration."
"We would regard it as an accomplishment for this next year if we could hold the rate of increase in total compensation to what it has been in the first half of this year, about 8 1/2 percent," he said. Total compensation includes both wages and fringe benefits.
But even with such an accomplishment Kahn acknowledged inflation in 1980 still will be high. "If I had to bet," he said, "I think 9 1/2 percent . . . and there will be some luck in that."
President Carter announced creation of the Pay Committee last week. It will have 15 members, five each representing the public, labor and business. The AFL-CIO has agreed to participate, but some business leaders have declined.
Kahn said he hoped administration policymakers would have a list of potential members ready to go to the President by Friday.
As part of the bargain struck to get labor's backing for the Pay Committee, the administration agreed to let the committee set the voluntary pay standards for the coming year to replace the 7 percent standard in effect for the past 12 months.
"The committee, in the first month, should address itself to the number," Kahn said, even if it ends up without a precise numerical standard, which is the preference of labor. In any event, he added, the committee must pick a number for the "low-wage" exemption. Workers with wages below such a cut-off -- $4 an hour this year -- are not subject to the pay standard.
Even a 9 1/2 percent inflation rate would be a substantial improvement over the 13 percent rate of the past seven months, Kahn said. But a comparison of the inflation rate and the 7 percent pay standard meant that some changes had to be made.
"What we are afraid of is that the 13 percent will drag up the 7 percent," Kahn explained.
Most economic forecasters believe that indeed will be the case, with total compensation increases running higher in 1980 than in 1979 even with a recession in the first part of the year.
Kahn said labor leaders have agreed that inflation is the most serious problem facing the economy, and he added, "The function of the Pay Committee is to induce restraint in wages."
Economists generally believe that inflation will not drop below the 8 percent or 9 percent range until the rate of increase in wages and fringe benefits slows, too.
Asked if labor had accepted the fact there would be a need for a deceleration in wage changes, Kahn replied, "I don't think we have quite gotten there . . . ."
Kahn also disagreed sharply with a statement by Labor Secretary Ray Marshall published yesterday in The Washington Post that some type of selective controls might be used if the voluntary wage-price standards do not curb inflation.
"Certainly that's not true," Kahn declared. There is complete hostility to any such idea among the administration's top policymakers, he said.
Marshall, who had made the comment in an interview, also put out a statement yesterday "to clarify my view."
"First, I strongly believe our new accord on inflation and other elements of economic policy is the only means of accomplishing a reduction in inflation and that it will be successful," the statement said.
"Secondly," it continued, "I stated my and the administration's opposition to economic controls . . . I did suggest if our new accord was unsuccessful public and private political pressure would begin to build for measures to control the inflation spiral in certain sectors in our economy. I do not believe that these measures are likely to be effective except in the case of hospital costs."