The Worldwide Wage Explosion

Abstract

DURING THE DECADE PRIOR TO 1968, most of the industrial countries of the West experienced a period of tranquility in which prices were relatively stable and wage inflation moderate. Then quite suddenly-and, to judge from professional and political reaction, unexpectedly-wages and prices began to rise very sharply. Figure 1 shows the pattern of inflation for manufacturing wages from 1956 to 1971; the break in the trend in 1968 and the ascent to the peak in 1970 are clearly discernible. The wage histories of the seven countries to be considered in this paper are shown in Table 1.1 In each, wage inflation during the last four or five years rose noticeably over earlier years in the sixties. The wage explosion has tested the ingenuity of economists, and they have not been found wanting. Countless discontinuous time series and special forces have been discovered to explain this surprising movement. But the diagnoses have a suspicious character. It is as if the doctors in a town hit by a plague all cite special factors to account for it: a cold, pneumonia, the population explosion, barometric pressure, in-laws' interference, psychosomatic disturbances, and so forth and so on. Isn't it curious that all the special factors hit all the countries at the same time?