Final Offer Arbitration

In Chapter 3 we considered variations on traditional incomes policies with enforcement being achieved by tax-based penalties or rewards. In this chapter we turn to another variation based on compulsory arbitration. Most of the literature concerning Final Offer Arbitration — i.e. arbitration based on the final offers of the parties — is found within the context of the subject of industrial relations but Meade (1982 and 1985) has advocated a modified version of final offer arbitration as part of a general macroeconomic strategy directed towards the alleviation of the current problem of stagflation (i.e. the simultaneous occurrence of high rates of inflation and unemployment). The plan of this chapter is as follows: in sections 4.2 and 4.3, we examine the roles of compulsory arbitration and final offer arbitration in order to set the framework within which Meade’s proposal is based. In section 4.4 we consider in more detail the nature of the Meade proposal within the macroeconomic context and in section 4.5 discuss some criticisms levied against this strategy. Our conclusions are presented in section 4.6 and, in the appendix to this chapter, we include mathematical demonstrations of the main results described intuitively in section 4.2.