Money Wage Changes: Before, during and after Controls

Abstract

The only U.S. experience with peacetime wage and price controls was the Nixon Administration's Economic Stabilization Program which spanned the period from August 1971 to April 1974. Designed to moderate the pace of U.S. wage and price inflation, the program has frequently been criticized because inflation accelerated sharply during its later stages. This paper assesses one aspect of the program, its impact on money wage rates in manufacturing. Multiple regression equations are used to compare actual and predicted wage changes before, during and after the controls period. Three main conclusions are reached in the paper. (1) The program had much larger effects on union negotiated wage increases than on average hourly earnings in manufacturing. Not only did union settlements decrease more rapidly during Phases II-IV, but also there was a smaller post-controls bulge in union settlements than in hourly earnings. (2) The wage freeze of August-November 1971 had no lasting effects on hourly earnings as the freeze was followed by a large wage bulge in early 1972. (3) No evidence was found that the program restrained wage increases more during Phase II than during the more flexible Phases III and IV. There are six sections to the paper. Section I reviews some main features of the controls program, and Section II summarizes selected wage, price and unemployment data for the period 1969 to 1975. Section III briefly discusses the possible ways to evaluate the program while the main statistical findings are contained in Sections IV and V. The final section summarizes the findings and some of the implications.