Economists against wage guidelines

Press, 24 April 1986, Page 19

Economists against wage guidelines

PA Wellington Wage guidelines do not work, according to two Wellington economists who believe flexibility is essential in wage settlements. Messrs Murray Wagham, an economist for the A.N.Z. Bank, and Rufus Dawe, an economic adviser to Westpac, had been asked if New Zealand should have a wage guideline this year. The first three-party meeting for the new wage, round begins on April 30, although talks are not expected to get round to the possibility of a guideline until later. Last year, the Prime Minister, Mr Lange, mentioned a figure of 10 per cent as acceptable for wage settlements, but allowed that an extra 5 per cent could be made up in some cases from secondtier bargaining. The wage trend for the 1985 wage round was set by the Electrical Workers’ Union’s 15.5 per cent settlement. Mr Wadham said it might be better to proceed without a guideline. "It is more a matter of what individual industries can afford rather than what the economy as a

whole can afford,” he said. Mr Wadham said the GST component of prices must not be passed on to wages. “That is inflationary. If there is a need for a guideline that would only be to avoid confusion with GST.” He said GST’s impact was covered by income tax reductions. Mr Dawe opposed wage guidelines because they put rigidity into the market. AH they led to was

second-round bargaining by the strong unions, he said. “If you are going to have a free market you can’t have rigidities in one sector — the danger is that you are never able to remove them.” This time he did not think there would be a big wage round — industries could not afford it. If industries were forced to pay more than they could afford, profitability would suffer and major lay-offs would occur, he said.