THE WHITE HOUSE is now going through the exquisitely delicate process of defining a fair limit to wage increases over the coming year. The key word is "fair." If most people think the guideline too low, it will quickly be trampled in labor negotiations. If it is too high, it accelerates inflation. Last year the administration set its guideline for wage increases at 7 percent a year, on the assumption that the inflation in consumer prices would fall below that rate as the year were on. Instead, of course, the rate rose to 13 percent last winter and has stuck there ever since. So what's fair guideline now?
The President's Pay Advisory Committee suggests that it falls in a range of 7.5 percent to 9.5 percent a year. A guideline set there would, among other things, remind Americans that the average pay won't keep up with the rise in the Consumer Price Index this year -- and that it isn't reasonable to expect pay to keep up.
That's because a lot of the current inflation is coming from outside the national economy. When the price of foreign oil increases, or when the exchange value of the dollar falls, total American wealth is diminished. It is impossible to enable everyone to catch up with his previous purchasing power. To the extent that some people succeed, they have merely shifted the loss onto someone else. The process of passing those losses around through American society is a large part of the present inflation.
Worse, the Consumer Price Index is actually making things worse. The CPI overstates the impact of inflation on most Americans, because of the way in which the statistics are calculated. To the extent that some people's incomes are adjusted to the CPI -- through cost-of-living clauses in wage contracts, for example, or through Social Security increases -- inflation is accelerated.
But wages are not to blame for the past year's surge of inflation. Wages have not been leading prices. It's the other way around.Wage restraint has helped greatly in holding down the social damage caused by the inflation, and the purpose of the guideline is to maintain that restraint.
The guidelines gives the White House a standard against which it can denounce especially dangerous violations of the general pattern -- the kind of spectacularly high settlement that induces unions to begin competing with each other. The new guideline proposes a range, rather than a specific figure. That kind of calculated fuzziness can be attributed to the advisory committee's chairman, John T. Dunlop, who always prefers to leave a little room for maneuver. The Dunlop method leaves the administration with a degree of discretion in deciding who is to be labeled, and assailed, as a violator. It's a wise choice of tactics for anyone who believes that inflation will continue at high rates for quite a long time. The politicians' job now is to try to preserve a habit of moderation in wages while the country absorbs price increases that neither politicians nor anyone else can control.