Excessive Wage Research Articles

Investitionen in den „Goldenen Jahren“ der Weimarer Republik

Abstract The article attempts to examine the so-called Borchardt-thesis, according to which investments were depressed during the Weimar Republic by excessive wages. The precondition for this view is that investments were financed through retained profits. Using a simple econometric model, it emerges that investment behaviour was determined by interest rates, and not by profits. Hence, Knut Borchardt’s initial argument is refuted, while the competing explanation, proposed by Carl-Ludwig Holtfrerich, is corroborated

WAGE CONTROLS DURING THE TRANSITION FROM CENTRAL PLANNING TO A MARKET ECONOMY

Wage controls have been integral to the stabilization programs of the formerly socialist countries of Central and Eastern Europe that are now moving toward market economies. The usual rationale for such restraints in heterodox stabilization efforts has been the need to break the momentum of inflationary expectations. In economies in transition the pervasive weakness of governance of state enterprises supplies an added imperative: the controls are needed to hold the line against pressures for excessive wage increases, which must ultimately be paid for by decapitalization of firms, reduction of tax revenues, or accumulation of enterprise debt. Examination of the design and enforcement of various systems of wage control leads to the conclusion that wage controls inevitably distort decisions on employment and work effort. These distortions, moreover, are the result of the same features of state enterprises that necessitate wage controls in the first place. Ultimately, the only way to avoid such distortions is to remove uncertainty about the timing of privatization, to ensure that workers and management have a welldefined stake in the newly privatized firms, and to establish financial discipline over the enterprises.

Wage dynamics in Israel: market forces and spillover effects

The path of real wages in Israel since the July 1985 stabilization programme-an initial decline followed by excessive wage increases-is not fully explained by macroeconomic variables. The interaction of wage changes across industries is shown to play a key role in the development of average wages: exogenous shocks affect industries unevenly, setting off a short-run wage-comparison process between the different industries. These dynamics act in combination with longer-run competitive forces, while in the very long run the wage system converges to a stable structure. One implication of the analysis is that excessive restraint of the uniform nation-wide wage component may in fact lead to higher overall wage increases. It also helps to explain the persistence of the post-stabilization rate of inflation.

Singapore 1991: Towards New Horizons

The year 1991 started on a new note with the premiership having changed hands smoothly. With a more open style of government, the country looked forward to more years of progress and prosperity. Economic growth looked promising although the Organisation for Economic Cooperation and Development (OECD) countries appeared to have gone into a recession amidst the Gulf crisis. As the effects of a lagged recession became apparent, measures were afoot to curb excessive wage increases and curtail the rising costs of doing business in Singapore. Singapore continued its drive to have a wider manufacturing base by working closely with Malaysia and Indonesia to develop the Johore-Singapore-Riau Growth Triangle. In line with the new thinking which has pervaded government circles, previous plans to privatize some of the Statutory Boards were maintained and Singapore Telecom and the Public Utilities Board were on stream for privatization in early 1992. There was much debate, however, on the merits and demerits of restructuring the health service and letting hospitals run as self-governing entities. During the course of the year, the Census of Population 1990 Data was released with some interesting findings on ageing and the changing racial composition of the Singapore population. It was also a year in which major plans for the future of Singapore were released: a National Technology Plan was made public in September while the initial framework for a national strategic plan was unveiled at the National Business Forum. These plans flesh out the ambitions set out in a publication called The Next Lap which was released by the government earlier in the year. Ethnic sentiments were aroused in some deliberate fashion during the elections which were held at the end of August. The ruling People's Action Party (PAP) lost three more seats in previously safe constituencies, reflecting stronger voter senti ments about having more opposition representatives in Parliament. The elections in August also brought forth the issue of language within the Chinese community. As some of the constituencies which went to the opposition were mainly dialect speaking, the government will have to work closely at grassroots level to ensure that clan and dialect loyalties do not shake the foundations of multi-racial society in Singapore. Ethnic issues were once again at the forefront as the government put forth proposals for community development along ethnic lines. With the setting up of Mendaki for the Malays in the early 1980s, the focus in 1991 fell on the Indian community and the poorer sections of the Chinese community.

Wage Claims, Incomes Policy, and the Path of Output and Inflation in a Formerly Centrally Planned Economy

The corporate governance problem of state enterprises in former socialist economies can give rise to excessive wage claims and/or capital decumulation. This paper focuses on these problems, highlighting the dynamic links between wage behavior, the fiscal deficit, inflation and the capital stock. Wage controls have been widely advocated as a response to the corporate governance problem. We show that in the presence of excessive wage claims a system of wage controls can help to limit capital decumulation and reduce inflation, since wage moderation implies higher government revenues from the profit tax and therefore lower money creation. More specifically, it is shown that when wage levels are initially excessive a reduction in the degree of wage indexation is effective in lowering inflation if nominal wages do not provide, on average, full protection against future inflation.

Wage Claims, Incomes Policy, and the Path of Output and Inflation in a Formerly Centrally Planned Economy

The corporate governance problem of state enterprises in former socialist economies can give rise to excessive wage claims and/or capital decumulation. This paper focuses on these problems, highlighting the dynamic links between wage behavior, the fiscal deficit, inflation and the capital stock. Wage controls have been widely advocated as a response to the corporate governance problem. We show that in the presence of excessive wage claims a system of wage controls can help to limit capital decumulation and reduce inflation, since wage moderation implies higher government revenues from the profit tax and therefore lower money creation. More specifically, it is shown that when wage levels are initially excessive a reduction in the degree of wage indexation is effective in lowering inflation if nominal wages do not provide, on average, full protection against future inflation.

Jacques Le Bourva's theory of endogenous credit-money

About 30 years ago, Jacques Le Bourva published two little-known articles that clearly set out the present post-Keynesian theory of endogenous money developed by Kaldor and Moore. The main features of these two articles are presented, in particular Le Bourva's belief that reverse causation, rather than the instability of the velocity function, is the key objection to the quantity theory of money and the mainstream theory of inflation. Other features include a graphical and an algebraic pedagogical representation of the theory of endogenous money, the use of the Banking school's efflux/reflux mechanism, the dismissal of the money multiplier, and the impossibility of an excess supply of money. Le Bourva's theory of inflation also resembles that adopted by many post-Keynesians, in which price increases due to excessive wage demands and attempts by firms to raise their profit margins to finance investment.

Domestic unionization and import competition

We develop a Cournot duopoly model of a domestic unionized firm and a foreign firm. The negotiated wage and employment levels are simultaneously determined through efficient Nash bargaining. A union is employment (wage) oriented if the employment elasticity of its utility is higher (lower) than the corresponding excess wage elasticity. An increase in the bargaining power of an employment oriented union increases domestic output and welfare. If the union is wage oriented, then protection may decrease output and welfare. A credible threat to shift production abroad increases domestic profits and lowers the negotiated wage.

Innovation and productivity: An analysis of the chemical, textiles and machine tool industries in the U.S.

The relationship between innovation and productivity growth in the chemical, textile and machine tool industries is explored here. Information about innovations has been obtained from published sources. Although the linkage between innovation and productivity can be a complex one, it is observed that the slowdown of the productivity growth in the chemical industry coincided with a significant slowdown in innovation. An opposite trend is observed in the textile industry. Although the machine tool industry showed an increase in innovation, the productivity growth slowed down consistently during 1967–1984. Cyclical fluctuation in the demand for machine tools might have created a difficult problem. Moreover, the small companies which were interested in producing machines for special purposes used labor intensive processes which did little to improve productivity and their excess wage could not be reflected in the price because of intense competition. The impact of environmental and other governmental regulations on innovation in the chemical and textile industry is also discussed.

Efficiency wage contracts, worksharing and unemployment

Efficiency wage theories are generalized to include choice of effective working hours per worker, so costs of eliciting effort depends on an employee's relative utility and aggregate unemployment. In Nash equilibrium, state-dependent hours, wages and employment imply unemployment in ‘bad’ states. Deferred compensation and worksharing represent alternatives with most relevance in Japan, but West German unemployment seems to depend mainly on excessive wages (and non-wage costs) for service sector and unskilled workers, as well as on other handicaps for the small (and new) firms which have created most new jobs in the U.S.

Some Recent Developments in Labor Economics and Their Implications for Macroeconomics

This paper reviews three recent directions of research on labor markets and the macroeconomy: models of sectoral shifts and unemployment, efficiency wage theories, and insider-outsider models of wage and employment determination. Sectoral shifts models show how permanent intersectoral shifts in labor demand and the slow process of labor reallocation across sectors may play an important role in explaining aggregate fluctuations. Efficiency wage and insider-outsider models have in common the property that, in equilibrium, firms may pay wages in excess of market clearing. These models provide potential explanations for persistent involuntary unemployment and segmented labor markets. Copyright 1988 by Ohio State University Press.

MACROECONOMIC THEORY AND THE GREAT DEPRESSION REVISITED*

On the evidence of trade-cycle theory, pre-Keynesian macroeconomics recog nized that unemployment in depressions was involuntary in the sense o f not being caused by excessive real wages. But pre-Keynesian theory was ignorant of the notion of an effective demand constraint and advo cated measures to stimulate demand on the basis of their impact on ou tput decisions at the individual-firm level rather than on the level of aggregate demand. The widespread belief that pre-Keynesian economi cs did not recognize involuntary unemployment has caused confusion in the interpretation of economic policy in the early 1930s. Copyright 1987 by Scottish Economic Society.

Weltwirtschaftliches Wachstum durch Liberalisierung

SUMMARYInstead of a relapse into the depression of the 30's, as the stagnationists had foreseen, the end of the war marked the beginning of a quarter of a century of unprecedented growth. The saturation thesis, based on a misperception of human wants, turned out to be wrong, and with innovations and an opening of markets, the apprehended technological and spatial limits to growth were overcome. However, the extraordinary post‐war growth eventually met with supply side bottlenecks: excessive wage increases, higher energy and environmental costs, and an inflation‐induced waste of capital led to a relative stagnation in the 70's. The growth poles USA and East Asia have extricated themselves more quickly from this stagnation than Europe which suffers from more rigidities and still lacks sufficient downward flexibility of real wages. To revitalize its economy, Europe has to free its markets from state regulations and make them more accessible to domestic and international competition. With a swift trade liberalization, Europe ‐ and the world ‐ could tap a large source of productivity growth. Admittedly, this would go along with a process of creative destruction. In order to facilitate the import‐induced decline of old industries, free activity zones should be established in the affected regions.

STABILIZATION POLICIES IN DEVELOPING COUNTRIES

The article focuses on the design of stabilization measures to correct excessive balance of payments deficits and moderate the rate of inflation. It distinguishes three sources of balance of payments difficulties—excessively expansionary aggregate demand policies; domestic supply shocks stemming, for example, from increases in real wages in excess of productivity growth; and external terms of trade shocks. It also analyzes the effects of devaluations. The second part of the article discusses policies aimed at reducing the rate of inflation and summarizes the theoretical literature on the dynamics and the transitional costs of adjustment to lower rates of inflation in closed economies. Evidence on the adjustment costs of disinflationary policies is reviewed, and the discussion is extended to some recent analysis of adjustment in open economies.

Efficiency Wage Theories: A Partial Evaluation

This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher-quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment, segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics. However, deferred payment schemes can solve some efficiency wage problems without requiring job rationing. A wide variety of evidence on interindustry wage differences is analyzed. Efficiency wage models appear useful in explaining the observed pattern of wage differentials. The models also provide several mechanisms for cyclical fluctuations in response to aggregate demand shocks.

Efficiency Wage Theories: A Partial Evaluation

This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment,segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics. Deferred payment schemes andother labor market bonding mechanisms appear to be able to solve some efficiency wage problems without resultant job rationing and involuntary unemployment. A wide variety of evidence on inter-industry wage differences is analyzed. Efficiency wage models appear useful in explaining the observed pattern of wage differentials.The models also provide several potential mechanisms for cyclical fluctuations in response to aggregate demand shocks.

Improving Tax-Based incomes Policies: the Lessons of the Environmental Literature

The intuition of the environmental control literature is employed to study the Abstract various alternative tax-based incomes policies that have been proposed. It is noted that each trades off, to some degree, flexibility in wage settlement against effectiveness in controlling inflation. Mirroring some aspects of Abba Lerner's MA P plan, a proposal that would make a tax-based penalty for excessive wage settlement dependent upon both the degree of excessiveness and the actual observed ex post inflation rate is advanced as a superior player in this tradeoff.

Income prospects and job mobility: The case of Sweden

The study has two interrelated objectives. The first one is to explore the role of expected wage gains for mobility decisions, the second to investigate the effects of mobility on subsequent earnings. The econometric analysis takes the interdependence between wages and mobility into account; wages are affected by mobility and mobility decisions respond to alternative prospective wages. The results show, among other things, that job movers in Sweden received an increase in real wage growth rates per year of 4 percent compared to a situation where they had not moved during the period 1968–1974. We also find some evidence that self-selection in the labor market is efficiency improving; the excess wage growth from job changing is higher for movers than for measurably similar stayers.

Full Employment, New Technologies and the Distribution of Income

ABSTRACTThe basic thesis of this paper is that a necessary condition for the re-establishment of full employment without a runaway inflation is a change of attitudes and institutions concerning wage-fixing which puts more emphasis on the effects of rates of pay on the expansion of employment opportunities and much less emphasis on their effects on the real incomes of those already in employment. A necessary condition for such changes would be to develop further fiscal and social welfare measures to promote an acceptable distribution of income. Unfortunately it is possible that two very desirable developments — namely, labour participation in decision-making in industry and the introduction of new technologies — may make this particular wage-fixing problem more, rather than less, acute. The reforms discussed to meet this problem cover: the use of Keynesian demand-management policies to keep the money national income on a steady but moderate growth path; measures to restrain the setting of monopolistic practices by trade unions; a system of national arbitration and a possible inflation tax to curb excessive wage increases; an integrated reconstruction of social benefits and direct taxation; the substitution of expenditure instead of income as the basis of a progressive direct tax; the possible introduction of an annual wealth tax; and the reform of capital transfer tax to fall progressively on the beneficiaries of gifts and bequests.

What Scandinavian economists have to say on past inflation in Belgium

In a previous issue of this Review, A. Kervyn de Lettenhove and V. Staes (1975) used the so-called Scandinavian inflation model as a frame of reference in order to determine in which case the Belgian system of automatic wage-indexing produces excessive wage inflation, leading to a deterioration of the competition position of the export-oriented sectors on the world market. A formal test of the model used was only given at an aggregative level, and the need for a more disaggregated approach was stressed.In this paper, a disaggregated long-term version of the Scandinavian inflation model is formalized and tested for the Belgian economy. We first point out the assumptions underlying the model. On these assumptions the formalization is set up. Finally, the model is made subject to a formal test.