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The Connection Between Strikes and Inflation

The Connection Between Strikes and Inflation Strikes and Inflation Tim Sweet operation of employers and employees at The main finding reported in this paper is produce wage increases leading to a lower levels—'industrial democracy'. Trade that, during the recent wave of strikes in competitive wage bargaining spiral. There unions can then negotiate increases while industrial countries, the upsurge in strikes will tend to be a general increase in wages more fully aware of the economic realities preceded, rather than followed, the increase through time, making it more likely that rela­ and economic constraints which face in price inflation. tive wage changes will occur, producing the modern industrial societies. The role of the It is argued that a crucial element of the conditions for a wage-wage spiral. Full central tripartite organisation is to set inflation of the post-war years in the in­ employment often leads to higher trade general and realistic targets for the economy, dustrial market economies has been the union membership, makes dismissal less including wage increases. This has been development of competitive wage bargain­ likely or costly, and thus increases trade followed particularly well in Germany with ing. A wage-wage spiral can easily emerge union power, and enables strikes to give a their 'Concerted Action' of trade unions, from this process, and we have suggested a greater net benefit to the workers (at least in management and Government. They issue number of ways in which such a spiral may the short term). Conversely, less than full guidelines about the likely future course of begin. These methods of entry can essen­ employment constrains wage increases. the economy, in the form of 'orientation tially be divided into two types. First, those However, while the full employment which data'. Certainly, this path is easier to follow which result from shocks or pressures has existed for most of the post-war period in if trade unions are few in number, centrally external to the wage bargaining mechanism most of the industrial market economies may organised, and cohesive, as in Germany, not itself, such as devaluation, 'oil crises', tax have been of importance in creating the numerous, diverse and competitive, as in increases or profit rises leading to dissatisfac­ conditions for general inflation, we have Australia, Canada and the United King­ tion with the growth of wages, or specific seen that pressures of demand as such do not dom. demand pressures. Wage increases in some seem to have stimulated wage inflation on a particularly sensitive sectors will occur widespread basis. Nevertheless, if the quid pro quo of 'more quickly in response to these pressures and It is necessarily the case that in a complex responsible' collective bargaining and a develop into a competitive wage bargaining international economic system no single reduction in strikes is the incorporation of spiral. Second, there may be pressures or workers' views at an early stage in the cause can explain inflation in all, or even mechanisms inherent to the competitive process of decision making at all levels, then one, of these industrial market economies, wage bargaining system which can produce We wish to stress that, both because of the this should be welcomed as assisting to­ a wage-wage spiral, such as sequential wage conditions created by full employment, but wards the restoration of 'normality' in bargaining and productivity agreements. more importantly because of the multiplicity industrial relations (quite apart from any The first group essentially cover reactions of these possible causes whether in the intrinsic merits such moves may possess). to absolute reductions, or lower rates of economy generally or in the wage bargaining The author is Research Assistant at the increase than would otherwise have been system itself, there is an inevitability about University of Aston Management Centre. obtained, in real disposable incomes. A full the inflation which pervades the modern Full details of the evidence and analysis understanding, by workers, of the impact of industrial economy. This inevitability stems leading to these conclusions can be obtained these factors on their real take-home pay has from the interaction of the system of by writing for Working Paper 71 to the occurred only in more recent years, Where­ competitive wage bargaining with the num­ University of Aston Management Centre, as in the past the (intended) expenditure- ber and frequency of factors which can start Maple House, 158 Corporation Street, BIR­ reducing effects of devaluation and taxation the spiral. It is quite unavoidable that many MINGHAM B4 6TE. have taken effect without any significant of these destabilizing influences and pres­ reaction on the part of workers to restore sures should occur in the modern economy. their real purchasing power, they are now Efforts to eliminate this inflation must more fully aware of the impact of inflation clearly attack the problem from the two sides and taxation on their earnings. There is a of causes and perpetuating mechanism, nearly total absence of both 'money illusion', Governments may be able to reduce tax and what we may call 'tax illusion'. Thus to burdens, try to avoid devaluations and meet their aspirations of rising living stan­ alleviate bottlenecks in demand. They should dards workers desire wage increases suffi­ certainly try to relieve the pressures on the cient to offset both inflation and taxation. modern economy, but over any cause their This process has become more important influence is far from absolute. However, our as communications and education have main concern here is to stress that urgent widened their impact. The second group of steps are needed to modify the competitive causes, and the competitive wage bargaining wage bargaining perpetuating mechanism. mechanism itself, have similarly increased in In their discussions of the countries which importance as education and information we examined earlier, the OECD placed great have spread. stress on the role of 'incomes policies'. How­ But it is also true that the problem of ever, those 'incomes policies' which seem to competitive wage bargaining leading to infla­ have been the most successful are not those tion, for whatever cause, is more likely to based on legal restrictions of incomes, but occur in an expanding economy and one those resting on a centralised system of tri­ which is fully employed, than in an economy partite co-operation. It seems quite clear that with under-utilised capacity In an expanding the way forward in this area is the develop­ economy the pressure on demand, the labour ment of such systems of co-operation shortages in particular industries or regions, between management, trade unions and and shortages of skills are all more likely to Government at national level, and of co­ http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research News Emerald Publishing

The Connection Between Strikes and Inflation

Management Research News , Volume 1 (1): 1 – Jan 1, 1978

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0140-9174
DOI
10.1108/eb027672
Publisher site
See Article on Publisher Site

Abstract

Strikes and Inflation Tim Sweet operation of employers and employees at The main finding reported in this paper is produce wage increases leading to a lower levels—'industrial democracy'. Trade that, during the recent wave of strikes in competitive wage bargaining spiral. There unions can then negotiate increases while industrial countries, the upsurge in strikes will tend to be a general increase in wages more fully aware of the economic realities preceded, rather than followed, the increase through time, making it more likely that rela­ and economic constraints which face in price inflation. tive wage changes will occur, producing the modern industrial societies. The role of the It is argued that a crucial element of the conditions for a wage-wage spiral. Full central tripartite organisation is to set inflation of the post-war years in the in­ employment often leads to higher trade general and realistic targets for the economy, dustrial market economies has been the union membership, makes dismissal less including wage increases. This has been development of competitive wage bargain­ likely or costly, and thus increases trade followed particularly well in Germany with ing. A wage-wage spiral can easily emerge union power, and enables strikes to give a their 'Concerted Action' of trade unions, from this process, and we have suggested a greater net benefit to the workers (at least in management and Government. They issue number of ways in which such a spiral may the short term). Conversely, less than full guidelines about the likely future course of begin. These methods of entry can essen­ employment constrains wage increases. the economy, in the form of 'orientation tially be divided into two types. First, those However, while the full employment which data'. Certainly, this path is easier to follow which result from shocks or pressures has existed for most of the post-war period in if trade unions are few in number, centrally external to the wage bargaining mechanism most of the industrial market economies may organised, and cohesive, as in Germany, not itself, such as devaluation, 'oil crises', tax have been of importance in creating the numerous, diverse and competitive, as in increases or profit rises leading to dissatisfac­ conditions for general inflation, we have Australia, Canada and the United King­ tion with the growth of wages, or specific seen that pressures of demand as such do not dom. demand pressures. Wage increases in some seem to have stimulated wage inflation on a particularly sensitive sectors will occur widespread basis. Nevertheless, if the quid pro quo of 'more quickly in response to these pressures and It is necessarily the case that in a complex responsible' collective bargaining and a develop into a competitive wage bargaining international economic system no single reduction in strikes is the incorporation of spiral. Second, there may be pressures or workers' views at an early stage in the cause can explain inflation in all, or even mechanisms inherent to the competitive process of decision making at all levels, then one, of these industrial market economies, wage bargaining system which can produce We wish to stress that, both because of the this should be welcomed as assisting to­ a wage-wage spiral, such as sequential wage conditions created by full employment, but wards the restoration of 'normality' in bargaining and productivity agreements. more importantly because of the multiplicity industrial relations (quite apart from any The first group essentially cover reactions of these possible causes whether in the intrinsic merits such moves may possess). to absolute reductions, or lower rates of economy generally or in the wage bargaining The author is Research Assistant at the increase than would otherwise have been system itself, there is an inevitability about University of Aston Management Centre. obtained, in real disposable incomes. A full the inflation which pervades the modern Full details of the evidence and analysis understanding, by workers, of the impact of industrial economy. This inevitability stems leading to these conclusions can be obtained these factors on their real take-home pay has from the interaction of the system of by writing for Working Paper 71 to the occurred only in more recent years, Where­ competitive wage bargaining with the num­ University of Aston Management Centre, as in the past the (intended) expenditure- ber and frequency of factors which can start Maple House, 158 Corporation Street, BIR­ reducing effects of devaluation and taxation the spiral. It is quite unavoidable that many MINGHAM B4 6TE. have taken effect without any significant of these destabilizing influences and pres­ reaction on the part of workers to restore sures should occur in the modern economy. their real purchasing power, they are now Efforts to eliminate this inflation must more fully aware of the impact of inflation clearly attack the problem from the two sides and taxation on their earnings. There is a of causes and perpetuating mechanism, nearly total absence of both 'money illusion', Governments may be able to reduce tax and what we may call 'tax illusion'. Thus to burdens, try to avoid devaluations and meet their aspirations of rising living stan­ alleviate bottlenecks in demand. They should dards workers desire wage increases suffi­ certainly try to relieve the pressures on the cient to offset both inflation and taxation. modern economy, but over any cause their This process has become more important influence is far from absolute. However, our as communications and education have main concern here is to stress that urgent widened their impact. The second group of steps are needed to modify the competitive causes, and the competitive wage bargaining wage bargaining perpetuating mechanism. mechanism itself, have similarly increased in In their discussions of the countries which importance as education and information we examined earlier, the OECD placed great have spread. stress on the role of 'incomes policies'. How­ But it is also true that the problem of ever, those 'incomes policies' which seem to competitive wage bargaining leading to infla­ have been the most successful are not those tion, for whatever cause, is more likely to based on legal restrictions of incomes, but occur in an expanding economy and one those resting on a centralised system of tri­ which is fully employed, than in an economy partite co-operation. It seems quite clear that with under-utilised capacity In an expanding the way forward in this area is the develop­ economy the pressure on demand, the labour ment of such systems of co-operation shortages in particular industries or regions, between management, trade unions and and shortages of skills are all more likely to Government at national level, and of co­

Journal

Management Research NewsEmerald Publishing

Published: Jan 1, 1978

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