Wages, prices, and trade

Press, 20 June 1980, Page 12

Wages, prices, and trade

As the Federation of Labour has claimed, prices have risen more than wages since the September quarter of 1974. Since that period wages (nominal weekly wages averaged for men and women in all industries) have risen 74 per cent. Prices, as measured by the Consumers Price Index, have risen 93 per cent. Wages have slipped 10 per cent. As our correspondent, Briar Whitehead, suggested in “Comment from the Capital,” printed on this page on Monday, the federation has chosen the third quarter of 1974 as the “base” for its relativity argument because that quarter showed wages ahead of prices by the highest margin in moye than 50 years. Naturally, it suits the'federation to hark back to that quarter whenever it se n s an opportunity.

Equally naturally, the Employers’ Federation wants another quarter to be ■regarded as the base for any indexation: March, 1978, the quarter of the Arbitration Court’s last general wage order of 7 per cent. Since that quarter “effective” wages (nominal wages divided by the Consumers Price Index) have improved by nearly 5 per cent.

There is another statistical series which neither party—nor even the Government—has attempted to link

with prices and wages. This is an index of the terms of trade. The series is simply the relationship between export prices and import prices. In recent years the highest figure attained by the terms of trade was 124, in the second quarter of 1973. This meant that a typical selection of New Zealand's exports in that quarter bought 24 per cent more imports than in 1957, the base year chosen for the series.

This was the last quarter before the first major increase in prices demanded by the Oil Producing and Exporting Countries hit New Zealand. Since then the terms of trade have declined to 81 (December quarter, 1979). In trading terms, New Zealand has slinr»« i 35 ner cen f j n se ven ynars. Yet wa rro s—effective wages, t'rnt is—are within 3 per cent of their June, 1973, level. Whoever is bearing the brunt of the O.P.E.C. price rises and other increases in import prices in New Zealand, it is not the wage-earner. This is not a simple and complete argument against wage increases, but it is an indication that the * fairness of the distribution of the effect of the terms of trade should be borne in mind when relating wage levels to the state of the economy in general.