Incomes Policy in a Political Environment: a Structural Model for the U.K. 1961–1980

  • Meghad Desai
  • Manfred Keil
  • Sushil Wadhwani
Part of the Advanced Studies in Theoretical and Applied Econometrics book series (ASTA, volume 3)


Incomes policies, meaning thereby policies designed to regulate the rate of growth of money wages (or earnings) and/or prices, have been frequently used in many countries as inflation control devices. They have been much discussed and currently seem to be out of favour both in left wing parties with their trade union supporters, and in right wing parties which believe instead in the market mechanism. Some trade unionists have taken the view that incomes policies are very effective in restraining the growth of nominal earnings, but not of prices, and hence lead to a cut in real wages; see Ormerod in Currie and Smith (1981) for a survey of the ‘Left’ views. The view of monetarist and market orientated economists is that incomes policies distort the labour market in the short run, and only postpone upward pressures on wages and prices which break through to render incomes policies potentially unpopular (Johnson (1972), Laidler (1980)). Our purpose in this chapter is to understand the decisions by governments to impose policies in the context of the political (electoral) as well as economic objectives of that-government. Our model is set up in the U.K. context where incomes policies were used in two thirds of the period between 1961 and 1978; and where the electoral system, which allows for irregularly timed elections, makes the problem of integrating the political with the economic a challening one.


Real Wage Political Variable Price Inflation Real Earning Income Policy 
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Copyright information

© Martinus Nijhoff Publishers. Dordrecht/Boston/Lancaster 1984

Authors and Affiliations

  • Meghad Desai
    • 1
  • Manfred Keil
    • 1
  • Sushil Wadhwani
    • 1
  1. 1.London School of EconomicsUK

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