Wages, Prices and Incomes Policies: Some Comments

Abstract

where p, w, m, n and q are proportionate rates of change of retail prices, wage rates, import prices lagged one quarter, percentage of labour force unionized and output per head, respectively, and U is unemployment rate. The equations are estimated by ordinary least squares for whole sample period 1948(3)-1967(2), and for separate and policy-off periods [these being, policy-on: 1948(3)-1950(3), 1956(1)-1956(4), 1961(3)-1967(2); and policy-off: 1950(4)-1955(4), 1957(1)-1961(2)]. With respect to wage equation, L-P conclude from estimates for policy-on period that there is then no relation between w and explanatory variables, and hence that the wage inflation-unemployment trade-off is effectively broken during periods of incomes policy. These words are those of Parkin [3], who confirms this finding in a subsequent study of wage equation which takes some account of autocorrelated errors by introducing a dynamic specification. This Note is concerned with three aspects of L-P's work. First, their assessment of effects of various policies on rates of wage and price inflation is re-examined, within context of their ordinary leastsquares estimates. Second, still going along with their assumption that single-equation methods are appropriate, absence from their work of any treatment of autocorrelation and some implications for specification of price equation are noted. Finally, there are some observations on simultaneous-equations problem.