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Incomes Policy and Wage Inflation: Empirical Evidence for the UK 1961-1977

Published online by Cambridge University Press:  26 March 2020

S.G.B. Henry  and
P.A. Ormerod
S.G.B. Henry*
Affiliation:
National Institute of Economic and Social Research
P.A. Ormerod*
Affiliation:
National Institute of Economic and Social Research
*
∗The authors are grateful to colleagues at the National Institute and to members of the SSRC Labour Studies Group for comments.
∗The authors are grateful to colleagues at the National Institute and to members of the SSRC Labour Studies Group for comments.
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Extract

Various kinds of incomes policies have been in operation in the UK over a substantial part of the post-war period, particularly since the mid-1960s. There is considerable uncertainty about the effects of incomes policy on the rate of change of wages, and in this paper we attempt to assess the effects of incomes policy using econometric equations of wage inflation.

Type
Articles
Information
National Institute Economic Review , Volume 85 , August 1978 , pp. 31 - 39
Copyright
Copyright © 1978 National Institute of Economic and Social Research

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References

(1) See, for example, J. M. Parkin, M. T. Sumner, R. A. Jones, ‘A Survey of the Econometric Evidence of the Effects of Incomes Policy on the Rate of Inflation’, in M. Parkin and M. T. Sumner eds. Incomes Policy and Inflation, Manchester University Press, 1972, pp. 1-29.

(2) J. M. Parkin, M. T. Sumner and R. Ward, ‘The effects of excess demand, generalised expectations and wage-price controls on wage inflation in the UK’ in K. Brunner and A. Meltzer eds. The Economics of Price and Wage Controls, North Holland, 1975, pp. 193-222.

(3) R. Tarling and F. Wilkinson, ‘The Social Contract: Post-war Incomes Policies and their Inflationary Impact’, Cambridge Journal of Economics, 1, 1977, pp. 395-414.

(4) P. Burrows and T. Hitiris, ‘Estimating the impact of incomes policy’, Bulletin of Economic Research, 1972.

(5) J. D. Sargan, ‘A model of wage-price inflation’, LSE Mimeo, 1977.

(1) Work is proceeding on a larger model of wage and earnings determination for the manufacturing sector, and it is hoped to report on this at a later stage.

(1) R. G. Lipsey and J. M. Parkin, 1970, ‘Incomes policy: a reappraisal’, Economica.

(1) S. G. B. Henry, M. C. Sawyer, P. Smith, 1976 ‘Models of inflation in the United Kingdom: an evaluation’, National Institute Economic Review, No 77, August 1976, pp. 60-71.

(2) J. D. Sargan 1964, ‘Wages and prices in the UK’ in P. E. Hart, G. Mills and J. K. Whittaker eds. Econometric Analysis for National Economic Planning, Colston Papers Vol. XVI, Butterworth.

(1) See Henry, Sawyer and Smith, op. cit., p. 69.

(2) E. Kuh, ‘A productivity theory of wage levels—an alternative to the Phillips curve’ Review of Economic Studies, 1967.

(1) All the reported estimates were computed using GIVE, the Generalised Instrumental Variable Estimation program prepared by D. F. Hendry and F. Srba (LSE. 1976).

(2) cf. J. Johnston and M. Timbrell, 1973, ‘Empirical tests of a bargaining theory of wage rates determination’, Manchester School, pp. 141-168.

(3) The instruments are P-1, P-2, W-1, U, U-1, NE_ 1, NE-2, constant, three seasonal dummies, and WP, where WP is the log second difference of the world price index of manufactures, excluding the UK.

(1) A similar use of incomes policy and catch-up dummies to that used here was made by K. Vernon ‘An econometric study of wage and price inflation in the UK for the post-war period’, LSE Ph.D. thesis 1969, though he used catch-up effects for one quarter only.