John Dunlop is back in town, A Harvard economics professor who belies the traditional academic image by being as crusty as a stale piece of bread, Dunlop floated in and out of Washington for most of the 1970s, and he recently floated back to assist the Carter administration in devising a new wage standard for its "voluntary" wage-price program. He ought to have stayed home.
This is just the sort of pointless exercise for which any spending can be classified as government waste. The entire direction of government wage policy is backwards. It curries the support of the large industrial unions and, consequently, gets bogged down in details designed to appeal to them when it ought to deal primarily with nonunion workers -- four-fifths of the total work force -- and aim at broad public understanding of the relation of wages to inflation. -
The basic problem with which public officials haven't learned to cope is this apparent paradox: What seems good for individual workers -- that is, large wage increases -- isn't necessarily good for the economy as a whole and therefore, ultimately may not be good for the individual workers. By the same token, what appears to be bad for the workers -- more modest wage increases -- may strengthen the economy and ultimately favor them.
As backwards as this reasoning seems, the experience of two decades fully supports it. In the 1960s, average gross weekly earnings rose 41 percent and, after an adjustment for increases in consumer prices, purchasing power climbed 15 percent. Between 1970 and 1978, average weekly earnings jumped 70 percent, but purchasing power increased hardly at all.
For a variety of reasons, the resulting inflation tends to discourage investment, which, in turn, tends to depress productivity increases -- greater amounts of output for individual workers -- and lead to more inflation. Stagnant productivity also has made coping with other inflationary pressures, such as rising energy and environmental costs, more difficult.
Getting out of this trap is not as easy as getting in. Part of the reason that the wage-price cycle has become self-perpetuating is that most workers and employers have come to take basic prosperity for granted. Therefore many of the normal economic checks that once existed -- worker fears of unemployment, employer fears of bankruptcy -- have weakened.
Thus the genuine paradox is political. Politicians like to promise prosperity and rising living standards. But the more the public takes the promise at face value, the more the system loses its self-restraint.
Believing that government simply can prescribe a wage guideline to unwind this spiral is mostly wishful thinking. In concept, the idea is flawed. The normal mechanics of the labor market ought to dictate that workers in short supply get larger relative wage increases and that expanding industries offer wages that are high enough to attract needed workers.
One of the nation's underlying economic problems is that this relationship has become twisted. Some of the biggest industries -- steel, automobiles, tires and railroads -- no longer are thriving growth industries, but their workers still regularly receive above-average wage increases. The increases simply reflect the market power and political power their unions have acquired over the years.
Consequently attempting to set a wage standard aimed at large industrial unions is preordained as an exercise in frustration. Given the large increases negotiated by these unions, the standard either must be set excessively high -- to win their support -- or be violated consistently. In these circumstances, even when the guidelines achieve a marginal drop in excessive wage increases, they do so at a huge cost in public confusion and cynicism.
Last year, when the overall wage standard was set at 7 percent, there was plenty of both. The Council on Wage and Price Stability riddled its regulations with provisions designed to accommodate union settlements -- most conspicuously, generous treatment of cost-of-living clauses that allowed increases far in excess of the standard -- that were patently unfair to other workers. When these didn't satisfy the unions, the council added new amendments -- as with the Teamsters' contract -- or simply contrived weak rationalizations for outright violations, such as those of the United Auto Workers and the Rubber Workers.
This year the process may become even more destructive. The 17-member pay advisory committee, headed by Dunlop, who was Labor secretary in the Ford administration, reportedly is considering recommending a 7.5 percent to 9.5 percent wage standard.
This standard may exert upward pressure subtly on nonunion settlements just when an economic slowdown ought to be pushing in the other direction. At the same time, it is questionable how much it will influence this year's important settlements, including those for 300,000 steelworkers, 700,000 telephone workers, 790,000 construction workers, 50,000 aerospace workers and 41,000 dock workers.
Wage issues are so politically sensitive and the problems of different industries so varied that perhaps the government ought to stay away from standard-setting altogether. But what it surely ought to do is withdraw some of its official sanction of large setlements in older industries.
The UAW now wants import restrictions against Japanese car imports to protect its latest wage settlement -- 30 percent or more -- which already has received quasi-official government approval in the form of the $1.5 billion federal loan guarantee for Chrysler Corp. The last steel industry settlement, which expires in August, will have produced an estimated 38 percent wage increase, and yet the steel industry has enjoyed substantial protection from imports.
Does anyone doubt that some of the problems of the whole steel-rubber-auto industry complex reflect excessively high wages, over-priced products and -- as a partial consequence -- excessive imports? Government wage standards don't cure either inflation or this economic distress.