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Title
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Letter to R.C. Geary
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Description
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With annex: Summary of an article
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Date
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1950
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Date in document
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yes
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Formulas or calculations
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no
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Inventory number
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NL-RtEUR_TBCOR01_014G007
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1179
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Storage location
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Specifiek Magazijn
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Filename
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CDM1179_NL-RtEUR_TBCOR01_014G007.pdf
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Provenance
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Jan Tinbergen
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Accrual Method
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donation
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Rights
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Revised transcript
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en
2nd October 1950
Mr R.C. Geary,
27, Leeson Park,
Dublin,
Ireland.
Dear Geary,
Under separate cover I am sending you as printed matter the English text of my wage model (A) as well as the Dutch text of the popular version I derived from it (C). Please, find enclosed annex B, an English summary of the popular version.
You wil remember that on the basis of these considerations it was advised to have no second wage increase, but instead an attempt to decrease prices. As I told you this proved, however, to be impossible, because it was considered technically impossible to force price decreases on the employers. Under these circumstances social reasons made it unavoidable to have a wage increase; these social reasons being that since 1949 employers incomes have risen considerably. From the pure employment stand-point this wage increase is, however, a disadvantage.
It was a great pleasure to see you again. We enjoyed your presence very much, and I hope to have another opportunity soon.
Yours very sincerely,
Annex B
Summary
THE SIGNIFICANCE OF WAGE POLICY FOR EMPLOYMENT
by
J. Tinbergen
1. Introductory. Different Problems.
In this introductory some attention is paid to previous attempts of measuring wages and employment.
Attention is drawn to the existence of consequences: 1° of a temporary character (speculative), 2° in the short run, and 3° in the long run, the latter consequences being those to be attributed to the influence of wages on rationalization, a time consuming process. Furthermore, the problem is different for a country without international trade, and a country with important international trade. Finally, it makes a difference whether one speaks of real wages or of money wages. A fall of e.g. 10% in money wages will lead to a fall in the cost of living, say, of 3%, meaning that real wages will only fall by 7%. The resulting increase in employment will therefore show a higher elasticity with respect to real wages than with respect to nominal wages. This should be borne in mind when one is considering such approaches as the one by Douglas, who always thinks of real wages.
2. The Influence of Wage Rates; other Circumstances being Equal.
This is the usual setting of the problem. The "other circumstances" have to be only the data, not the variables such as prices, income, etc., because those latter cannot but change if wage rates are changing. In this section the results are discussed of a Dutch Official Report of 1939, of Prof. Witteveen's thesis, of Douglas' "Theory of Wages", and of Keynes' treatment. Finally the reader is told about the results from my own model (cf annex A).
2.
3. Wage Policy under Simultaneous Maintenance of the Balance of Payments Position.
It is stressed that the problem of wage policy should, however, been seen in the framework of political reality, which implies that the government or other groups of the population will react on the possible wage change just as we think of one market party reacting on changes in behaviour of the other parties in the theory of oligopolistic competition. Using a number of co-efficients, such as wage quota in prices, and the elasticity of imports and exports (for imports price elasticity as well as income elasticity) the author finds that under the side conditions given in the title of this section, a 1% wage increase leads to a decrease in the volume of production of 0,37%, and a corresponding fall in employment. If in addition the other groups of the population try to obtain an income increase proportional to the wage increase, a 1% wage increase will even lead to a decrease in production of 0,85%.
4. What may be obtained by an Increase of Labour Productivity?
In this section the proposal is discussed made by the trade unions to counteract the wage increase by an extra increase in labour productivity. It is maintained that an increase in labour productivity may neutralize the unfavourable effects of the wage increase, but not under all circumstances. It will only do so if in the initial situation a state of over-employment existed. It is shown in a foot-note that in the short run total demand (exports and home demand) will not change if a combined wage rate and labor productivity increase of the same size occur. Hence employment will fall unless when over-employment (i.e. inflationary pressure) existed before.
5. Conclusions.
Here a summary of the conclusions is given.
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annexCount
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1
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extracted text
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2nd October 1950
Mr R.C. G e a r y ,
27, Leeson P a r k ,
D u b l i n ,
Ireland,
Dear Geary,
Under separate cover I am sending you as printed mattar the
English text of my v^&ge nodel (A) as well as the Dutch text of the
popular version I derived from it (C). Please, find enclosed annex B,
an English summary of the popular version.
ÏOU wil remember that on the basis of these considerations
it was advised to have no second wage increase, but instead an attempt
to decrease prices. As I told you this proved, however, to be impossible,
because it was considered technically inpossible to force price decreases
on th§ employers. Under the$e circumstances social reasons made it
unav8&'^^*^^® to have a wage increase; these social reasons being that
since 19^+9 employers incomes have risen considerably. From the p u r ^
employment stand-point this virage increase is,however,a disadvantage.
It was a great pleasure to see you again. We enjoyed your presence
very much, and I hope to have another opportunity soona
iö::4*#$..-ifcB?iÖv;^^i!i^
löürs Very sincerely,
;;dt;
M
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i
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Summary
THE SIGNIFICAIICE OF WAGE POLICY FOR EMPL0YM1?:MT
by
J. Tinbergen
Introductory. Different Broblems.
In this introductory sone attention is paid to
previous attempts of measuring wages and employment.
Attention is drawn to the existence of consequences?
1° of a temporary character (speculative), 2 in the short
run, and 3° ifi the long run, the latter consequences
being those to be attributed to the influence of wages
on rationalisation, a time consuming process. Furthermore,
the problem is different for «a country without international trade, and a country with important international
trade. Finally, il/^akes a difference whether one speaks
of real wages of of money wages. A fall of e.g. ^0% in
money v/ages will lead to a fall in the cost of living,
say, of 3>%i meaning that real wages will only fall by
7%» The resulting in^?rease in employment will therefore
show a higher elasticity with respect to real wages than
with respect to nominal wages. This should be borne in
m.ind when one is considering such approaches as the one
by Douglas, who always thinkö of real wages.
The Influence of Wage Rates,' other Circum.stances being
This is the usual setting of the problem. The "other
circumstances" have to be only the data, not the
variables such as prices, income, etc., because those
latter cannot but change if wage rates are changing. In
this section the results are discussed of a Dutch Official
Report of 1939, of Prof. V/itteveen's thesis, of Douglas'
"Theory of Wages", and of Keynes' treatment. Finally the
reader is told about the results from mjf own model
(cf annex 4 ) .
1
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3.
Wage Policy under Siaultaneous :jlaintenance of the Balance
of Payments Position.
It is stressed that the problen of wage policy should,
however, been seen in the framework of political reality,
which implies that the government or other groups of the
population will react on the possible wage change just as
we think of one market party reacting on changes In
behaviour of the other parties in the theory of oligopolistic competition. Using a number of co-efficients, such as
wage quota^.n prices, and the elasticity of imports and
exports (for isports price elasticity as well as income
elasticity) the'author finds that under the side conditions
given in the t*tle of this section, a ^% wage increase
leads to a decrea?!e in the volume of production of 0,37^a,
and a corresponding fall in employment. If in addition the
other groups of the population try to obtain an Income
increase proportional to the wage increase, a 1?^ v/age
increase will even lead to a decrease in production of
0,8?^.
h.
What fnay be obtained by an Increase of Labour Productivity ?
In this section the proposal is discussed made by
the trade unions to counteract the wage increase by an
extra increase in labour productivity. It is maintained
that an increase in labour productivity raay neutralize the
unfavourable effects of the vmge Increase, but not under
all circumstances. It will only do so if in the initial
situation a state of over-employ^ent existed. It is
shown in a foot-note that in the short run total demand
(exports and home demand) will not change if a combined
wage rate and labor productivity increase of the same size
occur. Hence eraployinent will fall unless when over-employinent (i.e. inflationary pressure) existed before.
5. Conclusions^.^
Here a sunnary of the conclusions is given.
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