extracted text

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

:l.i'" '.•'• ":

i

- >i-

.,. ^ ^, .-* r^ «•

r r?» r .-V-.'--: i-- - fr:i''-i r: 'rii-

•*• uar?»^A*t-«^p r

R~^ FTC--

t

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

F

'.j.

o* biBCf 8l aoÈtm^ta
m^B >t*io*»ui>oi;txii 8 i # : ^ ^
.;tn9nvoIorf9 bne S93BW §nii;«860' '"- a;tqaB^t« ^...-»--.
C3öon9üp92uoo l o «oiÉftibifcx» 9il# o;t xrwBib a i n o B n
cTiodE eri* a i S , (svf^BJtüoeqa) 'isïoBiBffo xiJSioqme.j .- i<.
p'^orföüpeanoo l a ^ i f i l siict ,nxia s n o l edi at^^,
5nB ,nAi i
lehs--- 'io s o n ö u l l n l orf;t a t l)9;tiidi'i*^s eÖT oef saorieJ' s a l e d
,»««(tf»ri^'ï^^ ,8890010 snimiisnoo ©tr-i- r. ^noi-'--''"-aoi-;tsi no
'

• i s ; t f l i tüQff^lw x'ï^nüoa S' "^o^ d-xiaiaUlo

Xdo^q Ader

X6floits«tt9*ni iJafi^tioaml d^J-iw ^ci^mjoo B bne ,9öBi;r | # « ^ | # ) t ^
- - - < , - 9ao larfcfsr
•919111b B sojlBrt^+i j ^ i i ^ s n * " .«BfitT
.il o<ür . § . » l o 1 . - ^ - ,eQ^m xèaom ' i o ^ o SBSÉW X « « T l o
tSflivlX l o ^süo Brit iLt X X B I itviöl^;.:!»»!!-Jlit» 39S«'•
"v^d XXel >£Xno X'
" XBe-ï'isrf^ §r* '
,3^£ •^Sfl,*'^t«
öioiöieri.:!" T'''''" +o...>........ .^J n i asBéiitai .,^.uaei *ElT , ^ v
iiBdt 808Bv.

/ t ó a q a e i ritiw xtiJ>^*8fi-C» i s r ^ i d e '^Offa,

n-t ^niod »»ö Mjjorie BMT .eftgBw Xfiniraon ot "

- oi rftiw

- ^^' s9riofipiqqÊ rioiia a n i i a b t a n o b s i e.
Iw ftnip
.e©ssw XB91 l o fesintrit a^BwXs oriw ,aBXsüoa y,ö

3iU..gil^,
^c,

)T:J3 lerfto ;

lp spne^J

. s X d o i q - ^ l o 8 f Ü ^ # ö t ^ ü e ü arit s i

Jl ^ S

siilT

©iij t o n j B t s 5 erft ^ i n o sd ot övBrf "r
o
c^rit séüBoed , . o t e jemooni j s e o i i q ae d!... _-__ _-:V
. .anisnBiio 9i£ 3 9tBi ©3BW 1^4 #8flBrio iud tonn^:*'1»»#i^.
'tM'lM rio^tiia « l € beeajao&lfc j*5B sAXüa»i s»rit n o i t b a e «Irfr
- I ^ o ö l o ^ a f a e r i i g'newre^if:!* . l o ^ l o ^^ff^f iQ ^ ' ^ S S

^iXBni"? .tnsffltBent ' « e n t a S l o M é ,"898f
aïö^ftï"
Xobom nwo t'^ moil S*XJJS91 exit tüodB foXoJ si
' ^ T:

>v J l . l i

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.

• £tQj,j,i,-'o4] a in

wm

\oïLqq

©aBw l o insldoiq ©ricf ^Bdi b e a e s . ,

sdf I e ar?«bi§ i&dSo 10 itnsramevos edi &Btii SÖIIQIÜI doldw
'-^.c ;tRjü(; eguado ©gBw sIcfJ-RHoq erf.t xïo :^os9l XXiw ^ i ^ « | a g ^ j 5
n l aifH^oüfS) no •^QÏ^OBBI ^ i i s q d-ejfiBBi eao ié
É^S^^-éf, -osiXo l o ^loQrit erf>t n l sslcTiBq lerfd-o 9/f^ l o lüolt^isriatf'^^ « s ^ A o i o i l l s - o n 'to i9cfr:Tt(n E ga.taU .noJtd-.t*«qfaoo o a ^ t ó i ^
li|Ni.:,.]i#'ïo<SKi
,;.tlol;tssIe 9ri;t öna , ^ ^ - f ^ Q ' ^ l ' ' ' ~
iioitlbaoo
9fer- <^.-f,t isbnjj :tfirij Rbn/l lorictüfi » ^
a««««oni
3^f B ,nolc^Dea alricT l o sX^M »««!».
mmvf9.
«övV^et l o noiJOiJiroia l o emjjiov Bdi n l Ö-erf* noi.:tiÈbs aï I I .iriefr.-^olqme nx X I B I gnJ., .,.,
©mooaX na nie^ofo o* X'Ï^ aoïi&Luqoq sri-t l o
f^!^ew ^r fl ,»8fi©T0£tf e§B?r erf^ oit
iBnoiiioco'iu esBs-ïonl
lo

JJJOI.

.10 f.tonfcOTff

ft f A.-si

ri +

h P: :

J l o QBBQIOLlï ns yd _bBa.

Xti sbfini £)SS3U08xb ??.i laaogo^.,, '* uv
_, ^xv/^^(,> ^ ; ' : Ï O C_J i l i j l i s
fiB x<^ e^Bsioni egBw 9ff;t ^toBieitfaféa ©I »«^|jax( öfcBid- eriJ
DsnfscfnlBra aJ ;tl .^jtJtvl;tr)t)fcoiq lifodjBX njt Bi&BQtoai Êitfxs
! fij eaiXBi^tijsn x^^- X^i'^i^oubotq
tuodBl nt e^Beiont n - -- '
tsöïlü *on cJüCf ,93fi9tonl 9§flw »ff.t l o a^^oelle SXCIBTL
• 'Inx sffrf n l l.f oB ob ^Xno XXXw i l .a e o n e ia m ïtö tls i i s
8l j l ,b&ietxe .tno'^^ioIqxiT©-i9vo l o 9.ffiif> e ntttfaaSJ-B
3b XfiJo;t ÓÜI iiorfé e d i n l i-Bri:f 9cfofl-;;J'oöl « at oworia
dmoo £ l i sgnBxlo ^op. XXXw (feflBoreb eraöd bne t&toqxa)
' sii orfd^ l o QP.B9ioaï YitlvKtooboiq ÏOCTB/ bne eian. 03£m
-XoXqm»-i9vo nsriw aasXriiJ XXfil IIJ:w ^tasnYoXqars e!>f!-*F , T « 5 O O
• e i o l s d bsiJslxö ( s i u a a s i q x-xanoxcl-BXln;
jJlLSj-Mlii
. n o v i § e i snolajjlonor;

10 X I *