Introduction

In chapter 3, inflation was characterised as the outcome of a competition in which agents seek to increase their share of income by increasing the price of the good they sell. The connection between the distribution of income and the price level should therefore be clear.

The objective of incomes policy is to contain increases in the general price level by controlling distributive variables, which are essentially the wage rate and/or the profit margin. Take the wage rate, for example. It represents income for a worker and a cost for a firm. An incomes policy may seek to limit wage increases in order to keep labour costs – and costs in general – low and thus reduce the possibility of price increases. In section 13.2 we develop this simple concept in an abstract context, referring to a closed economic system in which there is one good and only two categories of income: wages and profits. We then distinguish between different types of incomes policy on the basis of their degree of coerciveness (section 13.3). Section 13.4 analyses the many problems that arise with the direct control of wages and/or other incomes (statist policies), while section 13.5 examines the possibilities and limitations of ‘market-based’ incomes policies. Section 13.6 is devoted to ‘institutional’ incomes policies and section 13.7 analyses the role of productivity-boosting measures in relation to incomes policies. Section 13.8 offers a brief survey of incomes policy experiments in the real world.