In 1967, with the adoption of the Arusha Declaration, the government of Tanzania formally committed itself to a development path based on socialism and self-reliance. Major changes were made in national development objectives and the development strategy. At the outset the new policies “revolved around the inhibition of widening income differentials, the discouragement of the growth of a self-serving elite, and the seizure of control of major sectors of the economy” (Bienefeld, 1975: 249). In part, increased concern over the growth of income inequality between urban wage employees and the rural masses as well as among high-salary and low-wage urban employees themselves precipitated the Arusha Declaration. In light of this, a major objective of post-Arusha income policy was to ensure relatively equal personal consumption capacity between households and regions as well as between urban and rural areas.

The focus of this paper is the wage sector, where the government has directed its efforts toward reducing income inequality between the various groups of wage-and salary-earners. The period of analysis is 1968-80. The paper examines the major instruments of income policy used to reduce income inequality in the wage sector, the effect income policy variables have on real earnings of various income groups, and the resulting trends of real disposable earnings. In order to overcome data limitations and to facilitate the analysis, four representative income groups are selected. The use of these representative income groups permits an analysis of the effects that an accelerated rate of inflation, wage adjustments, and the increased progressivity in personal income tax rates have had on real disposable earnings of various groups in the income stratum.