State, Economic Policy and Industrial Relations in the 1980s: Problems and Trends

Most governments have today abandoned the belief that trade union leaders are able, through wage restraint, to save them from the evils of inflation and unemployment, only if full employment were pursued in the ordinary Keynesian way, i.e. via general reflation. Money wage increases are more determined by economic and psychological forces among grass-roots workers and employers than by centralized rational thinking. Because of this one cannot expect governments to press unemployment down much below the present 'natural rate': 7-8 percent. The recommendation often heard nowadays that trade unions should permit wage relativities to vary according to varying profitability of enterprises and branches of industry and thus promote productive restructuring by stimulating worker mobility in desirable directions is however also questionable. Taxing the 'good' by high wages and subsidizing the 'bad' by low wages may put a brake on, rather than accelerate, the restructuring. This paper argues that it is better to promote worker mobility by an active labour-market policy, generously helping those willing to move or retrain themselves for productive jobs. An active labour-market policy would also reduce the entrepreneurial costs of increasing production and employment. To reduce the specific costs connected with expansion by a reallocation of social charges, other taxes and subsidies thus making expansion in itself an anti-inflationary force, is a principle that could be applied more widely and effectively than hitherto.