Advertisement

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

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

Abstract

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.

Keywords

Real Wage Political Variable Price Inflation Real Earning Income Policy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alt, J. (1980), The Politics of Economic Decline, Cambridge University Press, Cambridge.Google Scholar
  2. Chater, R., A. Dean and R. Elliott (1982), Incomes Policy, Oxford University Press, Oxford.Google Scholar
  3. Currie, D. and R. Smith (1981), Socialist Economic Review, Merlin Press, London.Google Scholar
  4. Desai, M. (1976), Applied Econometrics, Philip Allan, Oxford.Google Scholar
  5. Desai, M (1983), ‘Money, inflation and unemployment: An econometric model of the Keynes Effect’, Londond School of Economics (unpublished manuscript).Google Scholar
  6. Fallick, J. and R. Elliott (1981), Incomes Policies, Inflation and Relative Pay, Allen and Unwin, London.Google Scholar
  7. Frey, B. and L. Lau (1968), ‘Towards a mathematical model of government behaviour’, Zeitschrift fûr Nationalôkonomie, 28, pp. 355–380.CrossRefGoogle Scholar
  8. Frey, B. and F. Schneider (1978), ‘A politico-economic model of the United Kingdom’, Economic Journal, 88, pp. 245–253.CrossRefGoogle Scholar
  9. Ginsburgh, V. and P. Michel (1983), ‘Random timing and the political business cycle’, Public Choice, 37, pp. 155–164.CrossRefGoogle Scholar
  10. Goodhart, C. and R. Bhansali (1970), ‘Political economy’, Political Studies, 18, pp. 43–106.CrossRefGoogle Scholar
  11. Henry, S.G.B. and P. Ormerod (1978), ‘Incomes policy and wage inflation: Empirical evidence for the U.K. 1961-77’, National Institute Economic Review, 85, pp. 31–39.CrossRefGoogle Scholar
  12. Henry, S.G.B. (1981), ‘Incomes policy and aggregate pay’, in Fallick and Elliott (1981).Google Scholar
  13. Johnson, II. (1972), Memorandum to the Prime Minister.Google Scholar
  14. Laidler, D. (1980), ‘Memorandum to the Parliamentary Select Committee on Treasury and Civil Service’, H.C. 720.Google Scholar
  15. Lipsey, R. and M. Parkin (1970), ‘Incomes policy: A reappraisal’, Economica, 37, pp. 115–138.CrossRefGoogle Scholar
  16. MacRae, D. (1977), ‘A political model of the business cycle’, Journal of Political Economy, 85, pp. 239–266.CrossRefGoogle Scholar
  17. Middlemass, K. (1980), Politics in an Industrial Society, A. Deutsch, London.Google Scholar
  18. Minford, P. and D. Peel (1982), ‘The political theory of the business cycle’, European Economic Review, 17, pp. 253–271.CrossRefGoogle Scholar
  19. Nordhaus, W. (1975), ‘The political business cycle’, Review of Economic Studies, 42, pp. 169–190.CrossRefGoogle Scholar
  20. Ormerod, P. (1981), ‘Inflation and incomes policy’, in Currie and Smith (1981).Google Scholar
  21. Parkin, J.M., M. Sumner and R. Ward (1976), ‘The effects of excess demand, generalised expectations and wage price controls in wage inflation in the U.K.’, in K. Brunner and A. Meltzer (eds.), The Economics of Price and Wage Controls, North-Holland, Amsterdam.Google Scholar
  22. Pissarides, C. (1980), ‘British government popularity and economic performance’, Economic Journal, 90, pp. 569–581.CrossRefGoogle Scholar
  23. Sargan, J.D. (1980), ‘A model of wage price inflation’, Review of Economic Studies, 47, pp. 97–117.CrossRefGoogle Scholar
  24. Wadhwani, S. (1982), ‘Wage inflation in the U.K.’, London School of Economics, Centre for Labour Economics, Discussion Paper No. 132.Google Scholar
  25. Wallis, K. (1971), ‘Wages, prices and incomes policies: Some comments’, Economica, 38, pp. 304–310.CrossRefGoogle Scholar

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

Personalised recommendations