The administration yesterday adopted a range of 7 1/2 percent to 9 1/2 percent as its new voluntary standard for pay increases for the year that began last October.
Alfred E. Kahn, chairman of the Council of Wage and Price Stability, announced acceptance of the standard that had been recommended by the Pay Advisory Committee several weeks ago.
Kahn, however, stressed that "under normal circumstances wage and salary increases should average 8 1/2 percent. . . . We cannot achieve the average if the individual businesses and unions feel free simply to declare themselves deserving of above average treatment without good reason."
As a result, Kahn said, businesses with more than 1,000 employees that grant pay increases in excess of 8 1/2 percent will be asked to report that to COWPS along with their reasons for agreeing to increases that large.
The Pay Advisory Committee, an 18-member group with labor, business and public representatives headed by Prof. John Dunlop of Harvard University, said where pay adjustments fall within the 7 1/2 - 9 1/2 percent range in a given situation would depend on such factors as changes in the cost of living, ability to pay, profits, competitive conditions, productivity, labor availability, comparable compensation in other establishments, etc."
Separately, the administration's Price Advisory Committee told Kahn in a letter released yesterday that the voluntary wage-price standards appear "to be exercising only very limited restraint over price inflation."
The price committee said the standards "cannot be expected to contain inflation originating outside its coverage" in such areas as energy, food and housing.
"In addition," the letter continued, "The Council's budget appears to be seriously inadequate for the measuring and monitoring of compliance, and the identification of non-compliance."
But then the committee added, "Given the conditions under which it is operating, what is surprising is not the apparent failure of the system to stem the general tide of inflation, but rather the evidence of modest success. Much of the evidence of success is on the wage side, and even that record is now in jeopardy."
It is in jeopardy, the price advisers said, because of the "realities of our inflation experience."
COWPS officials, in a memo to the price committee, said earlier this week that adoption of the new pay standard would require relaxation of the price standard, probably by about one-half a percentage point, to maintain the same relationship as in the past between the two standards.
Such a relaxation of the price side would mean a company's prices could rise about 7 1/4 percent. Many companis, however, have switched to an alternative price standard involving limits on profit margins rather than limits on price increases, particularly in industries in which costs of raw materials have risen very sharply.
The new pay standard also allows for pay adjustments of more than 9 1/2 percent, if COWPS okays an exception, on the grounds of productivity improvements, acute labor shortages, gross inequities or hardship.