THE PRESS MONDAY, JANUARY 10, 1983. Changing gear on incomes

Press, 10 January 1983, Page 20

THE PRESS MONDAY, JANUARY 10, 1983. Changing gear on incomes

By getting in first, and by signalling their desire to have urgent talks an with the Government, the Federation of Labour and the Combined State Unions may be doing more than reasserting a claim for a general pay increase in spite of the incomes freeze. A further message may be that the leaders of the unions have assured themselves of the wisdom of having an agreed plan to avert industrial and economic confusion after the end of the freeze.

If ample time in the next four months were given calmly to working out a wagefixing system to succeed the freeze, the chances are that a satisfactory scheme can be devised. On the prices side, the rules for the freeze give enough latitude to producers and employers to obtain sufficient exemption to prevent ruinous hardship. But for this, more businesses would fail and unemployment would be the greater. On the incomes side of the freeze, particularly for wages and salaries, the chances of increases have been virtually nil.

A demand for some relief is not surprising. The problem that lies in providing such relief—one of the main problems underlying the economic performance of New Zealand and unemployment in particular—is that higher wages would probably lead to even more unemployment, possibly to a substantial currency devaluation, and to more inflation (through import prices) and the further unemployment that this would entail. Time and again employers have argued that wage increases would be ruinous, that only economic evil could flow from a pay increase. This has not always been so. The validity of the argument depends upon the nature of an industry, its productivity, and the state of the economy as a whole. Wage increases have been negotiated and the economy, and industries within it have not collapsed. These have not been times when the increases in wage levels have been running ahead of increases in productivity, they have not been times when export returns in relation to import costs have been highly unfavourable to New Zealand. The circumstances in which an incomes formula has to be devised for the

immediate future are sufficiently different to those of the 19505. 19605, and early seventies, to require that an entirely new kind of formula has to be expected. It probably will not be one in which longstanding relativities between various wage rates can be sustained; it will certainly not be one in which incomes and spending run ahead of output. Such a dramatic change of thinking will not make any negotiations on an incomes policy an easy business. Even if union leaders see the inevitability of a change of thinking to meet changed circumstances, they will have great difficulty in selling the idea to their membership.

If the wage-price freeze achieves anything, it should achieve a pause in which many minds can absorb the notion that a wholly new formula is needed. The economy needs this change of gear for an uphill climb: the speed of climb will not be greater, but more energy will be used. This should mean more people in jobs, though the general standard of living will not rise. People not now in jobs should be better off; people who already have jobs may not feel better off. The social justice of such a course should make such a policy acceptable; yet it will not be easy to convey such an idea unless a majority of people are confident that, in due course, a return to rising prosperity for all is assured.

The Government should get to work as soon as possible with the unions and employers’ representatives to hammer out the new policy. The Prime Minister, Mr Muldoon, allowed in his Budget speech last August that the post-freeze regime “will require lengthy negotiation with interested parties.” He also said: “The more successful the freeze, and the further inflationary pressures are lowered, the easier will be the post-freeze regime.” He also said: “If inflation is reduced substantially, the freeze will be temporary.” The alternative should be noted: If inflation is not substantially reduced, the freeze will continue. One of the characteristics of,Mr Muldoon’s style of financial direction is that he very rarely does anything without giving warning. The freeze will not necessarily end in June.