UNEMPLOYMENT in Britain has doubled since Prime Minister Margaret Thatcher's government came to power. The rate is now approaching 10 percent and is very likely to keep rising steadily throughout the year. Oddly, for those still employed, wages have meanwhile continued to rise much faster than inflation. The Thatcher government has admonished British labor at length on this point. It had repeatedly pointed out that people can price themselves out of jobs. The public response over the past year has been illuminating -- and not only for Britain.
Among private businesses and the people who work for them, the rules of standard economics have prevailed as you would expect. Rising unemployment, as the textbooks predicted, has made labor cautious and moderate in its wage demands. It's in the public sector that standard economics has failed -- and in Britain the public sector is huge. It includes most of the steel industry, half of the automobile industry and all of the coal and power industries. Among these enterprises, a high and rising unemployment rate seems to have had very little effect on the rapid increases in wages.
There's a reason. Wages at the British Steel Corporation, to take one prominent example, are not established by the company's profitability, since the company is massively and notoriously unprofitable. Wages are established by the size of the subsidies that the government of the moment is willing to pay to cover the company's losses. The steel union reasons, not inaccurately, that wage settlements depend less on the state of the labor markets than on the threat of disruptive strikes and other kinds of political pressure.
A general observation: when a country's working people begin to think of their earnings as primarily a political issue, that country's economic policies are not going to work effectively. Economic policy assumes that people always think in economic terms, and in Britain that's clearly not the case. What about the United States? Some Americans assume that, because no major industries here are nationalized, this country is immune to the politicization of wages. But take a careful look at the way wages are now being set in the American steel industry.
The federal government calculates a figure known as the trigger price that, in fact if not in law, is the bottom price at which foreign steel can enter this country. It's the price with which the American steelmakers must compete. The trigger price formula is supposed to be automatic -- look, no hands -- but it involves enough extrapolations, assumptions and estimates that, within rather wide limits, the administration can put it wherever it pleases. Its decisions establish, not very indirectly, the employment and wage levels in the domestic steel mills.
The same thing is beginning to happen in the automobile industry. Through the Chrysler loans, the Treasury Department is now setting the wage rates for one company -- and the others are beginning to say that they want equal concessions from the union. If the Reagan administration is ever unwise enough that, among other things, the quotas set the industry's wages. Low auotas for imported cars would mean less competition for the American factories and higher wages for the auto workers. Is that good for labor? Before you answer that one, reflect for a moment on Britain and its unemployment rate.