The Wage‐Income Ratio in France, 1949–1973

Abstract

A recent analysis of wages has shown that within the productive structure of the French economy a two‐fold process of factor substitution is under way, namely the substition of capital for labour and of non‐manual for manual workers. By the logic of neo‐classical distribution theory, the relative price of manual labour should be increasing as its marginal productivity rises. But computations which we have carried out for the French economy between 1949 and 1973 yield the opposite result: the relative price of labour has fallen steadily over the period. The aim of this article is to attempt to explain how much of this decreasing trend is attributable to changes in the structure of the active population and how much is due to changes in the structure of the prices of labour. For this purpose, and following the work of Phelps Brown and Sheila Hopkins, we have calculated an index reflecting the relationship between the index of manual workers' wage rates and the index of national income per head of the occupied population. This relationship represents what is usually referred to as the “wage‐income ratio”. (WIR), with the difference that, in this case, it is limited to wage rates in the private sector. Changes in the index of the WIR can be regarded as reflecting changes in the relative index of a unit of labour if it is accepted that the index of income per head of the occupied population itself can be interpreted as an index of the price of productive factors. This hypothesis is accepted by Phelps Brown and S. Hopkins: “the wage‐income ratio gives us the rate of exchange of a unit of wage‐earners' work, not against quantities of produce but against quantities of other factors”.