A SPECIAL UE RESEARCH DEPT. REPORT ON THE

anger of wage controls

JIM TURK
UE Research Director

The UE Research Dept.’s series on the
economy continues with an examina-
tion of one of the most dangerous of
the phony cures for inflation — wage
controls. As inflation pushes up wage
demands, and as profits begin to slow
from recent highs, the pressure for
wage controls is mounting. This spe-
cial report looks at why wage controls
have not stopped inflation in the past
and why, under controls, workers’ liv-
ing standards plummet, while the
corporations gain quite handsomely.

Is the so-called ‘‘danger of wage
controls’’ real or just union prop-
aganda? ~*

Judge for yourself. There have

been a number of studies of Canada’s
wage controls during the federal Anti-
Inflation Board (AIB) period from 1975 to
1978. The results of these studies are
clear-cut with regard to the effects on
workers and employers.

What were the effects on workers’
wages?
A The effects on wages were analyzed
in a report financed by the Anti-In-
flation Board and conducted for the
prominent business organization, The
Conference Board of Canada. Their
conclusions were:

‘... by the third quarter of 1978, the
level of average weekly wages would
have been about 7.7 per cent higher
than actually was observed under con-
trols had the program not been in
force.’ — Page 4

Using a sophisticated economic model

to examine the effects of controls, they
showed in Table 1 below that by the third
quarter of 1978 the controls were costing
the average worker $20.61 a week in lost

wages.

Table 1
The Effect of Controls on
Average Weekly Wages*
With If No

Year Controls Controls Difference
1976 $230.56 $235.41 . —$ 4.85
1977 252.97 264.18 -— 11.41
1978 267.51 288.12 — 20.61
*Figures are for the third quarter of re-
spective years.

SOURCE: Conference Board of Canada

But profits were controlled too,
weren’t they?
’ Officially, yes. But the same Con-
ference Board study reveals what
“‘control’’ on profits really meant. Table 2
from their report shows that under con-
trols, corporation profits were $2.41-bil-
lion higher than if there had been no

controls.
PACIFIC TRIBUNE—DEC. 4,-1981—Page 10

o.

Table 2 j
The Effect of Controls on
Corporation
Profits Before Tax*
With If No
Year Controls Controls
(millions of $)
$20,988 $20,430
1977 22,304 20,654 1,650
1978 26,248 23,837 2,411
*Figures are for the third quarter of
respective years.
SOURCE: Conference Board of Canada

Difference

1976 $ 558

Q Didn’t it at least stop inflation?

A As an anti-inflation device,: con-
trols were a failure. Not only did con-
trols not stop inflation, they barely slowed
it down. The Conference Board estimated
that the increase in inflation was only 2.5
percent less with controls than if there had
been no controls. But this modest 2.5 per
cent gain was offset by the 7.7 per cent loss
in average weekly wages. The net result
was that workers’ real cost of living was
worse under controls than if there had
been no controls, according to the Confer-
ence Board study.

Are you saying that the real pur-
pose of the anti-inflation program was
to cut wages, not prices and profits?
Yes. This is not just our con-
clusion. The prestigious Institute for
Research on Public Policy has recently re-
leased a major report on the Anti-Inflation
Board's control program. Their con-
clusion, after a detailed study, is: a
“It seems quite apparent that the real
purpose of the anti-inflation program
was to control wages, not prices.”’

At least didn’t the program help

low-paid workers whose wages were
not controlled?
A No. The most disadvantaged work-

ers did worse than other workers
under the controls program. In Newfound-
land, a region of notoriously low pay, .
workers’ wages increased 3.1 percent less
than the average for all of Canada.

Average wages in the service sector,

~ which traditionally have been low, lost

further ground during the controls period.
The increase service sector workers’
wages was 5.9 per cent less than the Cana-
dian average.

Were the controls really as anti-
worker and pro-business as you are

suggesting?
Again, let us turn to the
conclusions of the pro-business Con-
ference Board:
“As a result of the impact on profits
and remuneration described above,
controls resulted in a significant shift in
income distribution away from persons
and in favor of business compared to
what would have occurred over the
period in the absence of the program.”

Are workers helpless in the face of
controls? .

No. The Institute for Research on
Public Policy study found that the
AIB was aware of and responsive to any
“challenge posed by militant unions.’’ One
of the key lessons from the last round of
wagecontrols is that the next round must be
fought much harder and more effectively.

saying we'll get the Anti-Inflation
Board again?

Likely not. Knowing the opposition

last time, the federal government is
moving toward a new form of wage con-

Q The next round of controls? Are you

IN TRAC ri

WAGES &
BENEFITS

z

trols which they call a tax-based incomes
policy, or TIP for short.

Q What is TIP?

A TIP is a form of wage controls
that uses the tax system. There are
several versions of it. The most popular in
government is one which taxes corpora-
tions for any wage settlement over acertain

percentage.
Q How, exactly, would it work?

A The government would introduce
legislation setting an arbitrary limit
on wage increases — say six per cent. Ifa
wage settlement averaged more than six
per cent, the corporation would be forced
to pay a substantially higher rate of corpo-
rate tax that year. Theoretically, the com-
pany and the union could reach any set-
tlement they wished but the company
would pay higher taxes if that agreement
was more than the government limit. Of
course, powerful multinationals’ would
pass the tax increases on to the public in
the form of higher prices.

So bigger wage increases would be

legal?
A Yes, but there would be consider-

able government pressure on corpo-
rations to reject wage increases above the
government’s limit. To help corporations
force these wage limits on workers, Sid-
ney Weintraub, the person who developed
the idea of TIP, recommends government
loans to companies who face strikes be-
cause of following wage control guide-
lines.

If this does not prove effective, then
Weintraub suggests stronger measures to
help corporations. These include remov-
ing certification from a union which strikes
for more than the government guidelines
or denying unemployment benefits to
strikers.

there?

Q What other forms of TIP are
The other form sep be to tax in-

A dividuals whose wage income in-

| as canara

[

eg

creased more than the government guid
lines. There would be no penalty of
corporations. The individual’s tax form
would be compared with the year before
and any income over the limit would Of
taxed back..

Wouldn’t this be expensive to
Q administer fairly? ,

A It would be impossible to admin
ister fairly. High income manag
ment people and professionals could

tax experts to find ways of redirecting ine
come to avoid penalties. It would require
an army of accountants and tax staff t0 |
check forms. In the end, only ordinary
workers would be controlled while thosé
in management and the professionals
would be able to escape regulation.

‘Why would the government introduce
wage controls now?

First, it is under considerable

pressure to do something about if”
flation. Although wage controls have bee?
ineffective against inflation in every cout”
try that has tried them, the majority | of
Canadians believe wage controls will cu
inflation. In a Gallup Poll conducted last
year,.even 48.1 per cent of union house
holds favored a return to wage controls.

In addition to appearing to be doin®

something about inflation, the impositio®
“of wage controls would redirect wealth t0
corporations at a time when profits
starting to level off after several years of
tremendous growth.

Two things. First we need to
educate ourselves and our brothers
and sisters in the labor movement abou!
the real effect of wage controls. Discus
the facts in the first part of this article with
your co-workers and your family.
Segond, we need to make our oppost
tion to wage controls known to govern”
ment. Devote part of your next local meet
ing to the question of how you can mos
effectively work to defeat the re-impost
tion of wage controls.

st