The Carter administration's voluntary pay standard is on the ropes.
The standard about to be set for this year will be interpreted widely as allowing 9.5 percent increases in pay and fringe benefits, just about what many analysts -- including some in the administration -- think would be the case with no standard at all.
Last year the basic 7 percent standard probably helped hold down the average American worker's pay increase despite a high and accelerating inflation. As a result, the accompanying price standard probably was able to help keep inflation a bit below what it otherwise would have been.
But even the most ardent advocates of government intervention to restrain private wage and price increases always have agreed such programs can't be effective for long. Now the present program's usefulness may have run its course, a victim of economic and political realities no wage-price program could overcome.
The program is not about to be dumped in any formal sense, of course -- not in an election year. Rather, like its predecessors in other administrations, the Carter program may just gradually cease to be much of a factor in the decisions it is intended to influence.
Last week, the administration's Pay Advisory Committee, an 18-member group with labor, business and public representatives under the chairmanship of former Labor secretary John Dunlop, bowed to the reality of what the worst inflation since 1946 is doing to the purchasing power of worker's take-home pay.
To replace last year's reasonably tight 7 percent standard, to which there are only a limited number of exceptions, the committee recommended to Carter for the program's second year -- which actually began last Oct. 1 -- a higher and looser standard: a range of 7.5 percent to 9.5 percent.
A statement of principles adopted by the pay committee said that in deciding where they should fall within the range, parties to collective bargaining or managements determining pay unilaterally should consider, among other things, the following criteria: cost of living, ability to pay, profits, competitive conditions, productivity, labor availability and comparable compensation in other establishments.
Before the criteria were adopted, Robert Russell, director of the administration's Council on Wage and Price Stability, which runs the voluntary program, had said it was important to have criteria to establish "where a company falls in the range . . . What we can't allow is too much discretion."
The vagueness of what was in fact offered by the pay committee dismayed some administration officials, who have begun an effort to get COWPS to tighten the criteria considerably. "As it stands, people are going to take it as a 9 1/2 percent standard," one unhappy official complained. "With inflation as bad as it is, who couldn't find one of those reasons to justify that big a raise?"
Presidential inflation adviser Alfred Kahn, who is chairman of the COWPS, would give no hint last week whether the pay committee's recommendation would be altered.
"There's no question we have the final say," Kahn observed. "If we feel strongly enough to jeopardize the cooperation we have elicited and a particular recommendation or recommendations are harmful . . . we will reject them.
"Our job is to reduce inflation," Kahn declared.
One particular objection of some officials to the pay committee recommendations is that there is no explicitly different treatment for groups of workers who did better than average last year and those who did not. The recommendations, for instance, do no differentiate between workers who got raises well above last year's standard because of the way cost-of-living adjustment (COLA) clauses in their contracts were treated under the pay standard and those who did not.
For purposes of compliance with last year's standard, the value of a COLA clause was figured as if inflation were running at a 6 percent annual rate. With a 13.3 percent rate the reality, workers with good COLA protection were left much better off last year than workers who just got a raise meeting the standard. The COWPS itself recognized this problem in setting an interim pay standard, pending completion of the pay committee's work, that allows a special one-percentage-point catch-up for workers with COLAs.
Moreover, under the committee's recommendations, COLA clauses still will be priced out for compliance purposes as if infation were only 7 1/2 percent, another advantage for such workers, who still have to give up nothing as a result of doing better than others last year.
After reading news accounts of the committee's action last week, employers began calling COWPS offices for an interpretation of the new criteria. So far such questioners are being put off because neither the 7.5 percent-9.5 percent range nor the criteria has become official policy.
"Settlements or wage determinations in the normal circumstances should be expected to average about the midpoint of the range (8.5 percent)," the principles explained, offering no guidance whatsoever as to who should get the "average."
The attempt to tighten the criteria likely will run head-on into labor opposition. "If it has been any worse, we couldn't have taken it, and if it had been any better, we wouldn't have gotten it," AFL-CIO President Lane Kirkland, a member of the committee, declared at the meeting at which it was adopted.
Kirkland started the behind-the-scenes bargaining within the pay committee by demanding a 13 percent standard to cover the full increase in last year's consumer price index. But with inflation so high, some officials feel it is remarkable that Kirkland and the other labor members were willing to accept even a range with a 9.5 percent top.
Labor representatives' agreement last September to serve on the pay committee consituted a major improvement in the strained relations between the administration and the unions. A key element of the agreement was that Dunlop, a Harvard professor who is the country's most experienced mediator in dealing with top labor and management, would be chairman.
But Dunlop believes in negotiation, not numerical standards. His approach is, above all, pragmatic: A numerical standard which one party or the other cannot or will not accept to him is worse than no standard at all.
The pay committee's recommendations, in this case, are pure Dunlop.
In 1971, when he headed the Nixon administration's Construction Industry Stabilization Committee, Dunlop pointedly refused to be bound by the basic 5.5 percent limit on pay increases set under mandatory wage-price controls. Instead Dunlop pursued a longer-term stratergy of re-establishing traditional wage relationships among the different construction unions and, within about three years, indeed slowed construction wage increases from about 18 percent a year to about 5 percent.
When Dunlop First publicly suggested to the Pay Advisory Committee that it consider using a range for a standard, he trotted out data on last year's major collective bargaining settlements to demonstrate there was no clustering around 7 percent or any other figure.
To counter the notion that settements this year would come in at the high end of the 7.5 percent-9.5 percent range, the committee's statement of principles said, "There is no basis for the proposition that settlements in bargaining or in private or public management determinations will tend to cluster at the bottom or the top of the range standard, any more than they have clustered about a single number."
But the question is not whether there will be a cluster at 8.5 percent or 9.5 percent. Last year there was no clustering, but there was a significant number about 7 percent and some major settlements -- such as that of the United Auto Workers -- above the standard no matter how measured.
Even with last year's somewhat elastic 7 percent standard, average compensation per hour rose 8 1/2 percent. If the real standard for 1980 is the midpoint of the new range, is there any reason to think the increase in compensation won't exceed that figure by as much as it did last year -- particularly since there is nothing in the standard so far that a corporate executive could point to as indicating that a 9.5 percent increase would violate the standard? That could be a critical point, because even in nonunion situations, businessmen often feel they need to justify their pay actions to their employes.
As COWPS' Russell says, "There is immense pressure for catch-up increases. On balance, there is no way around some wage acceleration this year."
Separately some big companies have begun what Russell terms "pre-emptive self-administered catch-ups. There is quite a bit of that going on among major companies. After all, a company's reputation does not suffer greatly if it is known as a generous employer.
The reality of high inflation may have left no room at all for the pay standard to provide any meaningful restraint on wages, and thus on prices, this year. But the forum of the pay committee, with its labor, management and public members, still exists, and maybe that's all one can expect on the heels of a year like 1979.