Wages and inflation in Quebec

Wages and inflation in Quebec

MICHAEL R. SMITH McGill University*

La plupart des sociologues qui ont etudie l’inflation des annees de l’aprbguerre ont tent4 de l’expliquer par la ‘pousde des salaires’, caush par le militantisme du mouvement ouvrier. Pourtant, les donnks en la matihre sodTrent d’une ambiguite qui est souvent ignorbe. Je pr6sente dans cet article une r&valuation de la question, et je propose une analyse de la relation entre salaires et inflation au Quebec - une province oii certains ont cru voir un mouvement ouvrier particulihrement militant. La thbe de la ‘pousde des salaires’ et lea d o n n h qukb6coises sont incompatibles. Ces donnbes suggkent au contraire que les salaires ont eu tendance a suivre, plutdt que precder, la month des prix; et que le militantisme des travailleurs/euses a et6 une consitquence, plutijt qu’une cause, de l’inflation.

Most sociologists who have tried to explain the postwar inflation have done so in terms of the effects of ‘wage-push’ rooted in the militancy of the labour movement. The evidence to support this is, however, much more mixed than their treatment would suggest. In this paper I review and criticize the available evidence and assemble and analyse data on leads and lags between wages and inflation in Quebec, a province sometimes thought to have a particularly militant labour movement. The Quebec data are not consistent with the wage-push account. They suggest that wages have tended to lag rather than lead price rises and that worker militancy has been more a consequence than a cause of inflation.

A number of economists have attributed Canadian inflation, in part, to a wage-push (Green, 1976: 49-50; Barber and McCallum, 1982: 1). More im- portantly, the bulk of sociologists who have written about the postwar inflation have opted for a wage-push account, a wage-push rooted in an intensification of worker militancy and class conflict (Castells, 1980; Goldthorpe, 1978; Crouch, 1978; 1985; Skidelsky, 1979; Gilbert, 1981; see

* Funds for the research reported here were provided by SSHRCC grant number 41081- 0754. For helpful comments on earlier versions of this paper I am indebted to Axel van den Berg and two anonymous referees. This manuscript was received in July, 1987 and accepted in November, 1987.

Rev. canad. Soc. & AnthJCanad. Rev. SOC. & Anth. 25(4) 1988

578 MICHAEL R. SMITH

also the essays in Goldthorpe, 1984). One of the interesting things about this writing is that it, typically, starts out with or includes a quite dismissive reference to or treatment of orthodox economic accounts of the postwar inflation (which I outline later). In this paper I will argue that this approach has been unhelpful and that, while recognizing the limits and inadequacies of economic treatments, it is more productive to take them seriously either as a source of hypotheses to be tested or as a source of a partial account to be supplemented and complemented by sociological research.

I examine the adequacy of a wage-push account of inflation in Canada in two ways. First, I look critically at the kind of evidence that is generally used in support of wage-push explanations - whether applied to Canada or any other rich capitalist country. Second, I analyse in some detail the pattern of inflation in Quebec. In doing so I am using Quebec as an extreme case. Since the 1960s Quebec has had a labour movement which is thought to have been as radical and aggressive as any in Canada. And, at least during the early years of the Parti Quebecois government, it operated in a political environment which tended to reinforce its power. If evidence of a wage-push is to be found anywhere in Canada, it should be in Quebec.’

In order to clarify precisely what it is that needs to be explained, it is use- ful to start out by outlining some distinctive features of the postwar pattern of inflation (cf. Maddison, 1982: 133; Bruno and Sachs, 1985: 156; Tylecote, 1981: 141). The first aspect that requires underlining, and with which any explanation must come to terms, is its generality. Inflation occurred in all rich capitalist countries and, until 1973, followed generally a similar path in each one. From the end of the Korean war to the mid 1960s it averaged about 2 to 3 per cent year, but from the mid 1960s grew steadily to 4 to 6 per cent everywhere. In 1973 there was another surge, but this time to very different levels in different countries, with relatively modest increases in Germany, Switzerland, and Austria, very large increases in the u.K., Italy and Australia, and the rest of the rich capitalist world scattered between. There was another similarly dispersed surge after 1978, with declines at different rates thereafter.

The second aspect that is worth emphasizing is that Canada’s relative inflation performance deteriorated markedly. From 1960 to 1973 it had the second lowest average inflation rate in a list of 24 capitalist industrial countries. From 1973 to 1981 it slipped to eleventh on that list (Bruno and Sachs, 1985: 156). Any adequate explanation of Canada’s inflation has to be consistent with both the generality of the phenomenon and Canada’s deteriorating relative performance. Consider now the broad alternative explanations that are available.

WAGES AND INFLATION: TWO MODELS

There is an identifiable ‘sociological’ account of the postwar inflation. This account has been advanced by a number of sociologists and political scientists and also by a minority of economists whose work, however, is described as ‘sociological’ by their more orthodox colleagues (e.g., Laidler and Parkin,

579 WAGES AND INFLATION IN QUEBEC

1975: 764). In this account the postwar inflation is to be explained as a result of an intensificati n of class conflict that has forced up wages and, as a result, consumer prices! There are differences in detail but the major element of this explanation is the claim that across the capitalist world there has been a significant increase in workers’ material aspirations and capacity to realize those aspirations collectively. Increasing average levels of education, the experience of sustained, relatively full employment (at least until the second half of the 1970s), and the migration of workers out of the small towns and rural areas in which their ambitions were limited by an established status structure and normative order (see especially Goldthorpe, 1978: 199) have all led workers to claim ever higher salaries. Workers put pressure on their employers to pay them much more. They do so increasingly effectively, so the argument goes, because (with the exception of the United States) union membership has tended to rise during the postwar period and those unions have, for various reasons - including experience - become increasiqgly ef- fective at advancing the interests of their member^.^ So, a more ambitious working class demands higher wages and, because it is more powerful, is successful in its demands. In the short run at least, prices are a mark-up on costs of production, so higher wage demands are translated into higher prices. In an open economy the rising prices and wages will lead to loss of market share to foreign producers and, therefore, to unemployment.* Or, rather, they would lead to rising unemployment were the government will- ing to stand by passively. But governments have often been unwilling to tolerate ever rising levels of unemployment; to avoid them they have tended to validate the wage increases by stimulating aggregate demand and, as a result, inflation.

Neo-classical economists have produced a quite different model of wages and inflation. For them, wages respond to labour market conditions. Wage and price inflation occurs because politicians stimulate aggregate demand excessively. They do so either because they are irresponsible and use demand stimulus and government programs to buy votes (Nordhaus, 1975; Buchanan and Wagner, 1977; Brittan, 1978) or because they receive poor economic advice (Cagan, 1979: 137-56). Furthermore, since a stimulus to aggregate demand in one country can through international trade and capital markets stimulate demand in another country, inflation can be exported from one country to another.

In neo-classical analyses, inflation does not occur as a result of a wage- push. On the contrary, during inflation, wages tend to lag (Friedman, 1975; Phelps, 1970). Two reasons are given for this. First, workers are less well equipped than capitalists to monitor prices. In firms of any size, monitoring supply prices is a full-time job for one or more managers. Consequently, capitalists are well equipped to adjust the prices they charge promptly when their supply prices increase. For workers, on the other hand, monitoring their ‘supply’ prices - the rices of food and other consumer goods - is, at best, a part-time activity! As demand rises, the nominal wage paid to workers may tend to increase; but because they fail to notice that prices are rising even faster than their nominal wage, they allow their real wage to

5


fall. Second, in North America, the salaries of organized labour cannot respond promptly to changing consumer prices because of the existence of labour contracts of up to three years which (at least until, and where, clauses providing for indexation spread) ensure that wages lag prices as inflation accelerates.

This, of course, cannot go on forever. Sooner or later workers realize that their purchasing power has been declining and demand wage increases that not only match the current rate of inflation but, in order to make up for lost purchasing power, exceed it. Often, however, by the time workers have real- ized that their purchasing power has lagged, the government has taken steps to bring down inflation. But, again slower to adapt to changing economic circumstances, workers continue to bargain on the assumption that prices will continue to grow at the rate prior to the enactment of the deflationary policy. To some extent they succeed in extracting nominal wage increases which exceed the now declining rate of inflation; so, when inflation declines real wages tend to rise and, as a result, employment tends to fall.

Here, then, are two quite different models of inflation and wages. ‘Sociological’ models normally assume that the postwar inflation was caused by a surge in wages, in a context in which the power of the working class precluded rising unemployment. Orthodox economic models assume that the trend in inflation originated with bad government policy rather than worker militancy and that, consequently, real wages tend to fall or grow more slowly when inflation increases, and rise or grow more rapidly when inflation falls. In their current versions they are flatly contradictory. Which is correct?

THE EVIDENCE

What is most striking about sociologists’ treatment of the problem is the almost complete lack of evidence marshalled in support of the wage-push interpretations that they present. Castells (1980: 18, 48, 61) simply asserts that there is a secular tendency for the power of labour relative to capital to increase. Goldthorpe (1978) provides no other evidence than the observa- tion that postwar inflation has been accompanied by sometimes disorderly labour relations - which, of course, leaves the direction of causation entire- ly indeterminate (see Smith, 1982).

At best there is a body of research the results of which have been con- strued to show that countries with ‘corporatist’ structures that partially replace market processes with negotiations over income shares have had generally superior economic records, including lower than average inflation rates over the last decade or so (Crouch, 1985). To the extent that the data do show that countries with political institutions that regulate wages have lower rates of inflation they tend to suggest that wages are indeed the root cause of inflation, at least in part. But there are some good grounds for scep- ticism about the classifications of countries as corporatist or non-corporatist upon which the negative association between inflation and corporatism rests (Smith, 1987). As it stands, the evidence on corporatism and inflation


provides considerably less than definitive support for a wage-push account. Since sociologists writing on inflation have provided no serious evidence

in support of their interpretations, one is forced to look at the evidence marshalled by economists sympathetic to a wage-push account. Is it any better?

One kind of evidence is of a negative kind. In neoclassical treatments of wage inflation, wage change should be a function of labour market conditions. In a number of estimates of wage equations using time series data, unemployment, as a measure of conditions in the labour market, turns out to have a negligible or insignificant effect on change in wages. Furthermore, estimates of wage equations for some countries reveal that it is only in the postwar period when organized labour is thought to have become stronger that the unemployment effect becomes insignificant.’ All this, it is sometimes argued, shows that the neoclassical interpretation of wage inflation is inadequate (cf. Wood, 1978: 206-12; see also Soskice, 1978: 230). But clearly, on its own, evidence against a neoclassical interpretation is not evidence for a wage push interpretation. That wages fail to respond to unemployment (if and when they do) is evidence of rigidities in labour markets rather than of a wage-push. Indeed, it should be evident from the discussion above that the orthodox economic account assumes some rigidity in wages.

Another kind of evidence involves the introduction of measures of ‘union militancy’ into wage equations. Thus, Hines (1964; 1971) and Ashenfelter, Johnson and Pencavel (1972) incorporated measures of unionization, and Godfrey (1971) and Johnston (1972) measures of industrial conflict. But there are a number of difficulties with these studies. First and foremost, there is the general problem of establishing a causal sequence using time series data, for we know that both strikes and union growth tend to respond to real wage changes (on the former see, for example, Ashenfelter and Johnson, 1969; and on the latter see Bain and Elsheikh, 19761.’ Second, the results involving measures of industrial conflict are by no means robust (Johnston and Timbrell, 1973; Ward and Zis, 1974). Third, growth in union membership is an extremely problematic measure of ‘militancy’. Unions have often grown as a result of government policy (e.g., Bain, 1970: 142-82; Bain and Elsheikh, 1976: 87; Chaison, 1982: 148-50) rather than as a result of any distinctive surge in the aggressiveness of union leaders or members. In addition, as Purdy and Zis (1973) have pointed out, there is a confound- ing factor at work here. Union membership may grow not only as a result of additional recruitment within a particular sector but also as a result of a reallocation of labour from sectors with low union density to those with high union densities. If high union density sectors also have higher wages (and it is clear that they tend to do so), that would produce the association between growth in union membership and increasing wages that has been used in support of wage-push interpretations. Purdy and Zis have provided some evidence that this has in fact happened.

But some of the evidence of a wage-push is quite persuasive. First, there is the fact that standard wage equations (incorporating measures of labour market conditions) estimated for a number of European countries for the postwar period up to the end of the 1960s greatly under-predict the observed


rate of wage inflation in the early 1970s. Some proportion of the labour force in the countries in question was able to protect its real wages in the face of the escalating prices that resulted from the commodity price shocks of the time, including the 1973 rise in oil prices (Flanagan, Soskice and Ulman, 1983: 654; see also Phelps Brown, 1983: 156). While this was in part a response to inflation, the point is that the deteriorating labour market conditions at the time did not undermine labour's capacity to protect its real wages.

Second, most impressively of all, there is the work of Bruno and Sachs (1985; see also Sachs, 1979). They argue that, in Europe, the aftermath of a series of incomes policies that restricted growth in real wages in the mid- 1960s was an outbreak of labour militancy that not only forced up real wages but also, in several countries, led to institutional changes that strengthened the bargaining power of organized labour. As a result, real wages grew by much more than would have been necessary to compensate for the mid- 1960s losses. There are two kinds of evidence for this in te rpre ta t i~n .~ First, Sachs (1979: 276) has shown that the share of labour in GDP rose from the end of the 1960s in several countries. Second, Bruno and Sachs (1985: 204- 8) estimated price equations for eight OECD countries including a 'wage-gap' variable." This latter measures the percentage deviation of the real wage from an estimate of what the real wage ought to be under full employment in the economy in question (Bruno and Sachs, 1985: 178-83). The variable significantly contributes to the explanation of variations in the rate of inflation in most of the countries. Note, however, that it does so in conjunction with several other variables - inherited inflation, import prices, unemployment, and productivity growth. In their estimates wage-push provides an important part, but nonetheless only a part, in an explanation of the rise in inflation from 1970 to 1981 relative to 1965 to 1969 in several countries.

Does the work of Bruno and Sachs confirm the standard sociological analyses of the postwar inflation? The principal premise of most sociological accounts is that the acceleration of inflation from the 1960s was a product of a secular increase in the aspirations and relative power of labour. Bruno and Sachs provide some evidence that the aftermath of the attempts to con- tain the inflation of the mid 1960s through one or another form of incomes policy was a surge of wages based on a reaction by workers to the restraint imposed on them by incomes policies and, in some countries, on the institutional concessions that the more aggressive workers were able to wrest. This surge of wages contributed to the subsequent acceleration of inflation in the early 1970s. These are not inconsistent interpretations. One could argue that it was the secular increase in their power that made it possible for workers to react to incomes policies by forcing institutional concessions.

Bruno and Sachs, however, do not claim that the earlier acceleration of inflation in the early and mid-1960s was caused by wage-push. For this earlier surge they offer no alternative to the standard economic explanation in terms of the effects of the deficit financing of the Vietnam war and 'great society' programs of the United States in the context of the fixed exchange


rate regime of the time, the effect of which was to tie together the rates of inflation of the countries involved (Darby et al., 1983). Bruno and Sachs provide an explanation suitable to the sudden surge of inflation of the early 1970s. The sociological accounts would imply a more gradual process of acceleration of inflation as workers became more educated, their experience of full employment lengthened, and as they migrated out of the normative- ly constraining context of small communities. There is a gap between the model of the postwar inflation constructed by sociologists and the model and evidence provided by Bruno and Sachs. Consider this gap in a bit more detail.

First, Bruno and Sachs’ account is resolutely multivariate. The effect of a wage-push is combined with the effect of a number of other variables, including trends in productivity (discussed in more detail later), aggregate demand (through its effect on unemployment; see Bruno and Sachs, 1985: 210-111, and import prices. In contrast, the accounts of sociologists and political scientists have tended to gloss over or ignore factors other than class conflict. Second, at the heart of Bruno and Sachs’ account are international transmission effects. There are the effects of the oil shocks caus- ing the acceleration of inflation after 1973 and 1978; there is also the international transmission of the effects of macroeconomic policy (Bruno and Sachs, 1985: 118) as demand stimulus in one country stimulates demand for the goods, and therefore inflation, of its trading partners. Canada provides an extreme example of this. Quite remarkably, Bruno and Sachs find that the United States’ money supply (as a measure of demand stimulus) has a larger effect on the level of economic activity in Canada than the Canadian money supply (1985: 211-12)!

The point of all this is that any attempt to construct and test an account of the postwar inflation that does not take into account the factors incorporated into Bruno and Sachs’ models - and, in particular, international transmission effects - is likely to fail. It is a question of the introduction of the controls that are minimally necessary to test a theory appropriately. The bulk of the sociological research on inflation, to the extent that it has considered any evidence at all, has, however, signally failed to take these factors into account.

CANADA AND QUEBEC

Canada’s industrial relations system is properly classified with that of the United States. It has a similar legal framework for industrial relations: collective bargaining culminates in the signing of a legally enforceable contract which governs wages and conditions of work for up to three years. This rein- forces the tendency for wages to lag rather than lead inflation. There is not only the general problem of less accurate monitoring of prices by workers than businessmen; there is also the fact that the existence of the contract makes it very difficult during its term to improvise suitable wage adjustments in the event of an unexpected inflation - for which no contractual provision has been made. Despite this fact Canada has had, as we saw above, a fairly poor inflation performance over the last 15 years.


We know that the post 1973 acceleration in inflation was precipitated by the substantial raw material price increases that took place at the time and, in particular, the oil price increases of 1973 and 1978 (Bruno and Sachs, 1985: 165-7,206-7). Given that they are contractually fured for one to three years, one might expect wages to have lagged rather than led inflation. If so, that poses an initial problem for a wage-push account of the Canadian inflation. And, indeed, Bruno and Sachs found that their wage gap measure had a negligible effect on the rise of the Canadian inflation rate.

But Canada is a federal system and, while the broad institutional framework of labour relations across the country is quite similar, there are some important differences in the economic and policy environments of the relevant institutions. There are not only the regional disparities that are found in most nations; in addition, there is a quite marked difference in the incidence of economic cycles between the resource producing regions in the west and the central Canadian manufacturing zone (cf. Maxwell and Pes- tiau, 1980: 47-54). Furthermore, provincial governments have the power to establish more or less hospitable environments for unions and there are, in fact, quite marked differences between provinces and within provinces over time. It therefore makes sense to examine questions related to labour relations at the provincial rather than the national level (Smith, 1979); the remainder of this paper is concerned with these questions.

The case of Quebec is particularly interesting. This is a province which has a union movement which, it has been claimed, has been distinctively radical and aggressive since the early 1960s (Isbester, 1971; Brunelle, 1978; Willox, 1979; Milner, 1977). From 1976 - that is, during much of the period when inflation was at its highest - it had a self consciously social democratic government that enacted a number of measures likely to increase wage costs including a substantial increase in the minimum wage (Migue, 1977) and an ‘anti-scab’ law which prohibited the use of non-union labour during a legal strike (Martineau, 1980). Even before that, it could be argued that Quebec governments had provided a generally more favorable environment for organized labour than, in particular, its central Canadian neighbour, Ontario. If one were to find a wage-push anywhere in Canada, it ought to be in Quebec.

DID WAGES LEAD OR LAG INFLATION?

One way of testing for a wage-push (used by Sachs) is to examine the distribution of shares in provincial income. Table I shows that the share of labour has risen and one might, at first sight, be inclined to attribute this to the effects of a wage-push. But closer inspection of the table shows that that is not what happened. Columns 2 and 3 display shares of pre-tax cor- porate profits (after adjustment for value of stocks) and interest respective- ly. These can be regarded as the returns to capital (McCormack, 1978-79: 14). From the 1960s to the beginning of the 1980s, profits tended to fall and interest to rise. When summed (in column 4) we can see that there is no trend in the share of capital; or, as the equations at the foot of the table


TABLE I DISTRIBUTION OF PROVINCIAL INCOME AT FACTOR COST

(1) (2) (3) (4) Share of wages share of nrofits share of Interest Share

%

bkfoi tQes and investment capital aper inventory income (2 + 3) valuation aujustment % % 8

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82

70.4 71.1 70.3 71.1 72.0 73.6 73.0 73.2 73.6 73.8 73.8 74.0 73.7 74.6 75.3 75.5 75.6 74.7 74.9 75.5 78.4

13.3 12.8 14.3 14.2 13.6 12.2 12.6 11.8 11.4 10.7 11.4 11.6 12.3 11.2 10.4 9.6 8.7 9.9

10.5 9.2 5.4

4.0 4.1 4.5 4.2 3.8 4.3 4.5 5.0 5.7 6.0 5.4 5.5 6.3 6.6 7.4 8.2 9.0 9.0 8.6 9.3 9.6

Share of capital = 17.06 + 0.062 t Share of capital = 17.34 + 0.02 t

(81 and 82 excluded) (81 and 82 included)

17.3 16.9 18.8 18.4 17.4 16.5 17.1 16.8 17.1 16.7 16.8 17.1 18.6 17.8 17.8 17.8 17.7 18.9 19.1 18.5 15.0

SOURCE: Statistics Canada 13-213

show, a very slight positive trend. This is true, it should be noted, whether or not the figures for 1981 and 1982, two years of declining profit share, are included in the equation. Since increasing shares of provincial income have gone to both labour and capital (slightly), one can hardly argue that these data demonstrate a rise in the power of labour relative to capital.

But if the shares of both labour and capital have increased, at whose expense have they done so? In fact, the substantial increase in the share of labour comes at the expense of the other two categories in national accounts data (not presented in table I), farmers, and non-farm, unincorporated business. That is to say, the increase in the share of provincial income going to wages and salaries reflects the continuing reorganization of the economic system in which salaried labour has increased at the expense of own account work. This type of redistribution does not appear to support a wage-push interpretation of inflation.

Figure 1 presents data more directly relevant to the issue of the temporal relation between consumer price and wage increases. In it, annual figures


63 65 70 75 80 82

SOURCES: Canadian Statistical Reviewe (supplement) and Statistics Canada 72-002 FIGURE 1 Percent changes in d earnings

Years

on growth in average real weekly earnings are compared with their trend. I have estimated and drawn in two trend lines, one for 1962 to 1972 and one for 1973 to 1982.1 have broken the trend line in this way to take into account the fact that the 1973 oil shock marked an abrupt break in the performance of the economies of rich capitalist societies, with generally inferior performance after the shock than before it. The appropriateness of this division shows up in the fact that for the earlier period, the trend in growth in weekly earnings is clearly positive whereas in the second period it is even more clearly negative. I have also indicated the trend in the rate of inflation on the figure. From 19965 to 1981 there were only two periods when the rate of inflation declined for more than a single year (prices were rising, but at a declining rate) and they are indicated by the two columns drawn on the figure.

The figure shows quite clearly, in my opinion, that real weekly earnings in Quebec have tended to lag rather than lead inflation. As inflation accelerated at the end of the 19608, weekly earnings increased, in 1968 and 1969, at rates well below the overall trend rate of growth in real weekly earnings. But as the rate of inflation started to decline after 1969, the rate of growth of real weekly earnings started to rise markedly relative to trend and, at the end of the period of declining inflation, from 1970 to 1971, grew at a rate very considerably in excess of trend. The second period of declining rates of inh t ion is a little more difficult to interpret since at its end it overlaps with the period of statutory wage and price controls. Nonetheless, once again, in 1975 and 1976 at the end of the period of declining inflation,

TABL

E I1

DEC

EMBE

R TO

DEC

EMBE

R P

ERC

ENTA

GE

INC

REA

SE IN

HOURLY

WAG

E R

ATE

S (I

NC

LUD

ING

CO

ST O

F LI

VIN

G A

DJU

STM

EN

TS)

62

63

64

65

66

67

68

69

70

71

72

C.P

.I.

Hyd

ro-Q

uebe

c B

rass

erie

Mol

son

Indu

stri

es V

ila

Com

pagn

ie P

rice

Q

uebe

c-C

artie

r Si

dbec

-Dos

co

Dom

inio

n B

ridg

e A

telie

rs d

'In@

ni&

rie

Dom

inio

n A

ssoc

iatio

n of

Clo

thin

g M

anuf

actu

rers

D

omin

ion

Tex

tile

MU

CK

(D

rive

rs)

Que

bec

Hos

pita

ls

(Bua

nder

ies,

lst y

ear)

U

nive

rsitk

de

Mon

trba

l (A

ss't

Prof

.) D

rum

mon

dvill

e (in

side

w

orke

rs)

1.59

1.31

2.45

2.90

3.55

4.02

4.09

4.58

1.46

5.04 5.38

11.64

6.76

11.87

9.43

5.76

7.27 18.64

5.26

4.69 15.22

1.02

0.50

4.02

2.90

0.47

14.95

4.06

5.47

11.48

9.30 6.38

5.00

7.14 4.81

4.91*

2.92

2.84

2.76

2.69

2.09

6.15

5.80

9.13

7.11 5.86

6.26

2.67

9.38

7.14

5.78

5.88

6.35 6.34

6.33

5.95

14.23

7.21

3.98

8.80

5.40 3.85

2.70

7.32

7.32

7.79

0 8.55

14.58

9.80*

5.19

4.94.

1.57

6.56 27.90

5.97

32.39

6.91

8.46

3.12

7.07

5.66

0.00*15.61

* Bon

us a

war

ded

duri

ng ye

ar

TABL

E I1

cont

d.

DECE

MBE

R TO D

ECEM

BER

PER

CEN

TAG

E IN

CR

EASE

IN

HO

URLY

WAG

E RA

TES

(IN

CLU

DIN

G C

OST

OF

LM

NG

AD

JUST

MEN

TS)

73

74

75

76

77

78

79

80

81

82

C.P

.I.

Hyd

ro-Q

uebe

c B

rass

erie

Mol

son

Indu

stri

es V

ilas

Com

pagn

ie Pr

ice

Que

bec-

Car

tier

Sidb

ec-D

oaco

D

omin

ion

Brid

ge

Ate

liera

d'In

g6ni

erie

D

omin

ion

hia

tio

n of

Clo

thin

g M

anuf

actu

rers

D

omin

ion

Tex

tile

MUC

TC (

Dri

vers

) Q

uebe

c H

ospi

tals

(B

uand

erie

s, Ls

t yea

r)

Uni

vers

it.6

de M

ontr

eal

(Ass

't Pr

of.)

Dru

mm

ondv

ille

(insi

de w

orke

rs)

*Bon

us aw

arde

d du

ring

year

9.12

12.46

9.48

5.82

9.50

36.26

0.00

0.00

0.00

1.46

6.46

14.17

11.52'

10.02*

27.74'

15.38

13.33

7.25

15.14

37.56

4.61

1.61

3.37*

3.26'

34.95'

7.37

7.03

12.86

5.51

4.32'

28.04

10.95

8.13

7.19

21.34'

15.58*

12.83'

10.33

15.72

13.87*

13.96

8.02

14.03

13.85

11.89

10.62

10.26

4.67

7.14

23.33

10.81'

33.84*

9.88

10.19

17.44

17.10

8.85

5.88*

5.88

* 44.75*

8.10

7.70

10.00

8.00

11.00

20.72

17.16

22.61

18.18

8.43

9.76

20.49

9.86

4.86*

4.64*

2.59

5.96

19.85

6.57

12.17'

7.60

13.83

9.44

7.04

5.71

11.50

6.93

7.41

5.64

9.10*

6.18

8.88'

11.18

17.22

11.00

6.60

9.67

8.02

11.21

9.44

10.82,

6.06

8.46*

12.28

20.39

12.59

10.00

8.05

7.11*

8.70*

7.40

9.09

12.06

9.31

9.62

8.00

9.77

8.47

10.80*

6.72*

1.53

1.92

5.70

13.82

13.51

7.99

7.98

8.18

3.48'

13.24'

8.89'

14.12

9.40

10.20

12.35

~~

TABL

E 11

1 PA

TTER

NS O

F G

ROW

TH IN

HOURLY

WAG

ES

~~

__

(i) (i

i)

(iii)

fi

v)

(V)

Perc

enta

ge in

crea

se in

hou

rly

Perc

enta

ge in

crea

se P

erce

ntag

e inc

reas

e Num

ber o

f yea

rs

Peri

ods

of m

ore

than

one

year

w

age

rate

for p

erio

ds a

vaila

bk

71-8

2 72

-80

incr

ease

was

bel

ow d

urin

g w

hich

wag

e in

crea

ses

(pm

enta

ge in

crea

se

the

CPI (n

o. o

f la

gged

beh

ind

the

CPI

in

CPI

) ye

ars

for

whi

ch

data

ava

ilabl

e)

Hyd

ro-Q

uBbe

c B

rass

erie

s M

olso

n In

dust

ries

Vila

s C

ompa

gnie

Pri

ce

Qub

bec-

Car

t ier

Sidb

ec-D

osco

D

omin

ion

Bri

dge

Dom

inio

n E

ngin

eeri

ng

Clo

thin

g M

anuf

actu

rers

D

omin

ion

Tex

tiles

Que

bec

Hospitals

Uni

vers

itk d

e M

ontr&

d*

Dru

mm

ondv

ille

CPI

MU

CTC

262.3 (207.7)

302.5 (195.6)

265.7 (151.2)

204.2 (107.51

254.3 (207.7)

340.3 (229.3)

334.9 (241.4)

410.4 (260.0)

322.7 (241.4)

178.0 (130.9)

301.3 (212.3)

376.8 (241.4)

88.7

320.8 (178.6)

180.8

211.3

175.5

162.3

192.6

186.3

157.1

239.7

320.8

142.6

100.28

131.68

115.8

142.8

158.6

137.6

123.8

157.0

143.8

150.86

239.9

106.0

~

74-77,8042

78-82

78-80

76-77

73-74, 77-78, 80-82

74-75

81-82

66-67

78-82

73-74, 80-81

78-81

73-74

79-80

79-81

*Cal

cula

ted

from

ann

ual s

alar

y ra

ther

than

hou

rly

rate


TABLE 1V RELATION BETWEEN GROWTH IN HOURLY WAGE RATES (SAMPLE OF 14 COLLECTIVE AGREEMENTS) AND UP- WARDS OR DOWNWARDS TENDENCY IN THE RATE OF INFLATION

f i ) (ii) (iii) Number of years Number of Years Percentage of years where growth in wage rates exceeded growth (ilii) in prices

when hourly wage rate grew by more than prices

64-69 (Inflation rising) 25 35 71.4%

71-74 (Inflation rising) 30 41 63.8% 75-76 (Inflation decreasing) 22 26 84.6%

77-81 (Inflation rising) 27 74 36.5%

70 (Inflation decreasing) 11 11 100.08

Note: Periods of rising and declining inflation differ from those in Figure 1 because December to December figures are used rather than annual averages

real average weekly earnings rose at a rate well above trend. What figure 1 shows, then, is that real weekly earnings in Quebec have tended to rise relative to trend when the rate of inflation declines. This is more consistent with the orthodox economic model in which wages lag rather than lead inflation than with the sociological alternative.

One might, however, argue that these data are too aggregated to allow an adequate test for wage-push; that it is what happens to organized labour that is critical (e.g., O’Connor, 1973: 19-23). To examine more specifically the relationship between collective bargaining outcomes and the rate of inflation, I have assembled micro data from a judgement sample of 14 collective agreements. The agreements were chosen from the Labour Canada data bank to provide a spread of employment contexts, including both public and private sectors and ‘monopoly’ and ‘competitive’ sectors and to include cases for which records were available for much or most of the period being examined. These data are analysed in tables 11, 1x1, and IV. Table XI gives the individual annual increases for a low level job category which exists over the entire period for which data for each contract are available.” It provides the raw data analysed in the next two tables. The figures presented here are un- usual in that they incorporate contractually provided for salary adjustments to rises in the cost of living, something which previous studies using this data source have failed to do (e.g., Auld et al., 1979: 42). The only form of wage not included is lump sum payments made as retroactive compensation for the effects of inflation. For purposes of comparison, the first rows of tables I1 and 111 give the increases in the consumer price index for the relevant periods, where appropriate.

There are two interesting features of table 111. First, it shows that except for one case for one period (Hydro-Quebec for 1972421, in the long run, hourly wages have uniformly grown by more than the cost of living. This is an underestimate of the increase in rewards from work for most individual workers. As noted above, it excludes lump sum payments. It also fails to take


into account the fact that many workers would have received wage increases attached to promotions into higher job classifications. This is most spec- tacularly evident in the case of Hydro-Quebec where there are more than 20 job classifications within the broad craft category and standard proce- dures for moving up the ladder of jobs. But even in the clothing industry (Association of Clothing Manufacturers), presumably some of the assistant cutters for whom pay increases are given here were promoted to cutters. Finally, inspection of the contracts reveals that almost all of them provided improved holidays and fringe benefits over the period for which they were available, and in some cases, improvements that were substantial. That overall wages and rewards from work improved over the long run is worth underlining since it is sometimes claimed that the period of inflation was associated with absolute declines in working class living standards (Blum- berg, 1980: 174-214). At least for the sample of agreements here, this is simply not s ~ . ’ ~

Second, despite the fact that over the long haul hourly wages have increased by more than prices, for every contract there are many years when prices lagged wages (see column iv), sometimes for several consecutive years (see column v). That apparent paradox can be readily understood if one looks back at table 11. It shows that, in the context of the generally inflationary conditions that prevailed during the time covered here, wages often lag a bit behind the rate of inflation but that, after a few years, there is a very large increase which compensates for the lag and goes beyond it. Hydro- Quebec provides an extreme example of this. It has a pattern of pay increases in which wages tend to be close to, or considerably less than the rate of inflation (1968-71; 1972-77) followed by huge increases which greatly exceed it (1972-73; 1978). Close inspection of the increases for the other contracts reveals a generally similar, if less dramatic, pattern. Notice, furthermore, that this pattern of real wage growth over the long haul combined with shorter periods of real wage decline is common across kinds of employer. It applies to both public and private sector employers and, within the private sector, to both large, capital intensive, ‘monopoly’ sector employers (Quebec-Cartier, Dominion Bridge) and to ‘competitive sector’ employers (Industries Vilas, Dominion Textile).13

It is clear then that while unionized wage rates in Quebec have risen by greater amounts than inflation over the long haul, they have often lagged for shorter periods. For which periods have they lagged? In table IV I have broken down the data on years when wage rates increased by less than inflation and years when they exceeded inflation by period, defining the periods according to whether inflation was rising or declining.’* Column iii shows that negotiated wage rates are much more likely to exceed the rate of inflation when the rate of inflation is declining than when it is rising. In all 11 contracts for which I have data for 1970, when the rate of inflation fell, wages grew by more than inflation. For the other period of decline in the rate of inflation (1975-761, almost 85 per cent of negotiated agreements exceeded the rate of inflation, that being the second highest percentage. In this case, however, the situation is somewhat complicated by the fact that


TABLE V ANNUAL INCREASE IN PRODUCTIVITY, EARNINGS, AND PRICES IN QUEBEC

Percent change in labour in average in wnsumur productivity weekly earnings price index

Percent change Percent increase

63 0.94 < 1.84 1.82 64 4.75 > 2.48 1.71 65 -0.47 < 2.34 2.52 66 2.05 < 2.94 3.73 67 1.35 < 3.29 3.45 68 3.61 > 2.40 4.17 69

70 71

72 73 74

75 76

77 78 79 80 81 82

2.29

2.12 2.76

4.26 0.18 2.54

1.92 3.84

0.96 1.64 -1.11 -0.61 2.00 -2.72

>

< <

> < >

< <

1.95

2.75 5.13

3.31 0.34 1.07

3.98 3.85

1.92 -1.46 -0.35 0.75 -0.91 -0.87

4.54

3.32 * 2.90

4.74 7.63 10.87

10.81 * 7.50 *

7.99 8.97 8.50 10.14 12.51 10.79

~ _ _ _ _ ~ ~

*Periods of declining idation 9ouRcE4: Statistics Canada l3-213,71-001, Canadian Statistical Review (Annual Supplement), and F.H. Leacey (ed.), Hiatorid Statistics of Canada

the statutory anti-inflation program implemented at this time would have meant that some significant proportion of these increases would have been suppressed. Nonetheless, it is striking that, once again, negotiated wages were more likely to exceed the rate of inflation when inflation was declining than when it was rising.

THE PROBLEM OF PRODUCTMTY

So far, I have largely ignored the problem of productivity. Worker militancy might be at the origins of an acceleration in the rate of inflation, not because workers suddenly, for some reason, started to demand much higher wages, but because, for the existing wage levels (or customary rates of wage increase), they stopped working as hard. This would be reflected in a decline in labour productivity and, depending on what happened to the productivity of capital, might muse an acceleration in inflation by decreasing the amount of goods and ~ c e s coming onto the market, for the existing level of effec- tive demand. Thus, wages might have lagged inflation but workers might nonetheless have been at the mot of an acceleration in the rate because, by


shifting the ‘effort bargain’, they turned out less goods and services for the wages they received:

Did this happen in Canada in general and Quebec in particular? There is, in fact, a body of sociological literature which might lead one to think so. I t has been claimed that the 1960s saw the onset of an increase in the om- nipresent ‘war at the workplace’ (Rinehart, 1987: 143-55) and the increase in the intractability of labour that this implies might have led to declining labour productivity.

The rate of increase in labour productivity in Canada and elsewhere did in fact decline from 1973, which was indeed one of the years when inflation began to accelerate (Bruno and Sachs, 1985: 249). But it would be a serious mistake to attribute this decline to the effects of labour militancy. For 1973 was, of course, the year of the first oil shock. The substantial increase in oil prices that it involved reduced labour productivity by reducing profits, and therefore investment, and by triggering a recession which meant that plants tended to operate at less than optimal capacity (Bruno and Sachs, 1985: 249- 50). Besides, while it is true that a rise in inflation coincided with a decline in the rate of increase in labour productivity after 1973, the previous substantial acceleration of inflation from the mid 1960s was accompanied by a rise in labour productivity, as will be shown shortly in some figures from Quebec. The post 1973 decline in labour productivity is not evidence of a militancy induced rise in inflation; in fact, in Bruno and Sachs’ partitioning of the causes of the rise in inflation in Canada from the 1960s to the 1970s, productivity growth turns out to have been sufficiently high to slightly reduce inflation below what it would otherwise have been (1985: 206).

What about Quebec, with a union movement sometimes thought to be more militant than the union movement in the rest of Canada? In table v I have assembled annual figures on inflation, earnings increases, and a measure of labour productivity increases.16 These data show that: V the rise in inflation from the mid 1960s coincided with a marked rise in labour productivity that one would not expect to have happened had a rise in labour militancy been at the origin of the inflation. 2/ The lower rates of productivity increase came in Quebec, as elsewhere, after the 1973 oil shock. 3/ Per- haps most striking, while during the periods of accelerating inflation there is a mixture of years when earnings grew by more than productivity with years when it grew by less, during the two periods of clearly declining inflation, 1970-71 and 1975-76, real earnings uniformly grew by more than productivity. This, of course, is consistent with the pattern observed earlier (in figure 11, in which earnings tend to lag when inflation accelerates but grow in excess of inflation when the government has deflated but workers are continuing to negotiate wage increases on the assumption that the previous rate of wage increase will continue. 4/ Of the four years of clearly declining inflation discussed above, it is interesting that the only one in which productivity grew by practically the same amount as inflation was 1976, the only full year during which the government anti-inflation program was in effect.

In sum, the evidence is quite clear: neither in Canada in general nor


Quebec in particular can it be said that it was a decline in labour productivity that caused inflation. That version of a worker militancy argument bears scrutiny no better than the wage-push version.

CONCLUSION

Most sociologists and political scientists interested in the subject have been attracted to wage-push accounts of inflation. Such accounts have fitted in with their expectations about the importance of class struggle in determin- ing important social outcomes. However, none that I am aware of has made a conscientious effort to examine whether or not the evidence on wages, productivity, and inflation is consistent with their model in any capitalist industrial country to which they have sought to generalize. Indeed, they have not even conscientiously and critically scrutinized the empirical work by economists which bears on the matter. With the important exceptions of the work of Bruno and Sachs and of Flanagan, Soskice and Ulman that work is not terribly convincing either.17

Canada provides a relatively interesting case for examining the adequacy of theories of inflation. It not only shared in the worldwide acceleration of inflation; in addition, its performance deteriorated by more than most, slip- ping from its position as one of the lowest inflation countries in the world in the 1950s and 1960s to eleventh out of 24 capitalist industrial nations after 1973. Were class conflict and a wage-push the critical factor one might expect to find evidence of the fact in events in Canada. But, focussing on what happened in Quebec, we find nothing of the sort. In Quebec, when inflation accelerated, real wages lagged; and when inflation decelerated, they grew faster than the rate of inflation. They behaved exactly, in other words, as an orthodox economic model would lead one to expect rather than as a ‘sociological’ model would predict.

It might be responded that Canada with its contractually fixed wages is, along with the United States, a special case and that while wage-push has not been important in Canada, it has been very important in a number of European countries, including Britain and Italy. There is some evidence that that is so. Still, the first lesson of this study is that one would be more confident of their interpretations of particular countries had some of those sociologists who have advanced a wage-push account actually looked at a wages series instead of simply inferring a wage-push account from the coin- cidence of some disorder in industrial relations with accelerating inflation. That this is necessary is particularly suggested by the fact that Canada has had a poor inflation performance over the last decade or so with no apparent wage-push. If that is possible in Canada it is possible in any country.

Bruno and Sachs as well as Flanagan, Soskice and Ulman do provide some evidence of a wage-push, for some periods, for some European countries. But in their account wage-push is only one factor among several. In most sociological accounts, class conflict and the resulting wage-push is the only factor seriously considered. A second lesson from this study, in conjunction with Bruno and Sachs’ results, is that in constructing an account of the


postwar inflation it is necessary to consider and theorize on factors other than wage-push. To tie oneself to a single, univariate account is a bad ex- planatory strategy. Furthermore, one can more adequately test a hypothesis if its competing hypotheses have been specified. In sociological writings on inflation there is a disturbingly monocausal approach.

I would argue, then, that writings on inflation by sociologists and political scientists have been, for the most part, seriously flawed. They have stressed class conflict and wage-push at the expense of other at least equal- ly plausible factors - such as government policy choices to curry electoral favour and international transmission effects - and they have failed abys- mally to examine seriously the evidence that would provide a test for their preferred interpretation.

As observed above, much of the writing on inflation by sociologists seems to have been principally influenced by the fact that troublesome industrial relations and accelerating inflation have coincided during the postwar period and have concluded that causation runs from troublesome industrial relations to inflation rather than vice versa. But the data examined in this paper have something to say about this issue. First, we saw from figure 1 that as inflation accelerates, the rate of growth of real wages tends to fall. Since there are good grounds for believing that workers come to expect some rate of increase in real wages as normal, this is in itself likely to cause disorder. Furthermore, tables 11 and 111 reveal that, while real wages rose con- sistently across contracts in the long run, in the short run (which could extend for several years), real wages often fell, as the rate of inflation tended to outstrip the growth in wages. One might expect this to disrupt industrial relations seriously, exactly as argued by Jackson, Turner and Wilkinson (1975: 38) and Hicks (1974: 78-79). Even if in the long run real wages stay ahead of inflation as a result of periodic massive adjustments, for much of the time, they are perceptibly lagging and that is likely to encourage strikes and other symptoms of deteriorating labour relations. And if wage rates are periodically massively adjusted, that means that relativities are also being continuously and substantially disturbed, and that is another source of dis- content. In other words, the data examined here provide ample reason for expecting that the disorderly industrial relations that have accompanied inflation have frequently reflected a causal path leading from inflation to disorderly industrial relations rather than vice versa.

This paper, then, raises some serious problems for a worker militancy account of inflation as applied to Quebec and Canada. There are a number of things that it does not do. First, it does not explain why the postwar inflation in Canada took place. It simply suggests that an adequate model of it is likely to involve wages that lag rather than lead inflation. Second, it does not show that worker militancy is unimportant. It suggests, rather, that its role in the causation of inflation has been exaggerated by sociologists, and perhaps greatly so. Third, it does not show that worker militancy and wage- push have not caused inflation everywhere. I have only dealt with data on Quebec; a class conflict account may be suitable for Britain or Italy, or Australia, or elsewhere. Fourth, it certainly does not show that high rates


of increase of wages have not been a problem for governments when at- tempting to come to grips with an inflation already under way. We know from Flanagan, Soskice and Ulman that in the early 1970s the problem of dealing with the commodity price shocks of the time was greatly complicated for several European governments by the capacity of workers to protect their real living standards in the face of accelerating inflation (although this, it should be clear, was only after half a decade of markedly higher inflation rates). Even in Canada the government instituted a statutory anti-inflation program in 1975 because rates of wage increase were failing to come down as f t as the decline in prices warrented (Anti-Inflation Board, 1979: 24- 25).

I do, however believe that my results have the following general implications: if sociologists interested in the subject wish to produce minimally convincing accounts of the postwar inflation they must first start to consider more seriously the relevant evidence and second, entertain as sociological- ly relevant a wider array of potential causal factors, including (however pain- ful it might be!) those identified by economists. There is nothing inherently unsociological about government policy choices as a cause of inflation - whether because of bad policy judgements or as vote getting strategies. We ought to be able to assume that we can treat these sorts of factors more con- vincingly and adequately than economists. Nor is there anything unsociological about international transmission effects. Indeed, since the flourishing of world systems theory over the last decade and a half, these have been a major theme of sociological research - although, alas not much applied in the analysis of the postwar inflation in rich countries.

3

19

NOTES

The one alternative provincial candidate would be, I think, British Columbia. It would certainly be interesting to apply the analysis here to data for that case. Some sociologists have adopted an explanation of the postwar inflation in terms of the effects of monopoly pricing (e.g., Blumberg, 1980: 177-8; Cuneo, 1979: 11-14). This, however, is much less common and there is not space to consider this explanation fully in this paper. Thus, Goldthorpe (1978: 207) emphasizes the fact that the urban working class is increasingly self recruiting; that is to say, it no longer grows through migration from rural areas. Consequently, its members s t a r t their working lives already socialized to regard unions as proper instruments for advancing their interests. Bruno and Sachs (1985: 168) stress institutional gains for labour like the Grenelle accords in 1968 in France and the ‘Workers Charter’ in Italy in 1970. This assumes, reasonably I think, that there are lags in the adjustment of exchange rates to changing relative prices between two or more countries. This was obviously true under the fixed exchange rate regime estabtished by the Bretton Woods agreement. But even under the more flexible exchange rate regime that emerged at the beginning of the 1970s, countries go to some lengths to manage adjustments in the value of their currencies. For a more extended treatment of this issue see Smith, 1987. This is obviously the case where exchange rates are fixed (cf. Fleming, 1976: 36-37). But even where they are flexible there will be a tendency for two trading nations to export the consequences of their respective monetary policies to each other (cf. Laidler, 1981:


6

7

8

9

10

11

12

13

14

15

16

17

18

183-7). Note that the relative trends in the prices of many household goods and inflation will be further obscured in those households where the husband works and earns an income but it is the wife who manages the home and purchases food and household supplies. In this situation the wage earner will be particularly ill-informed with respect t o trends in his real wage. Note that even in the United States nominal wages have become much less likely to fall during recessions since 1945 than before (Sachs, 1980). The problem here is that where two series are correlated over time it is extremely difficult to disentangle which causes which (or to what degree each causes the other). This problem is compounded by the fact that the length and form of lagged effects of ex- ogenous variables in time series regressions are, typically, determined by trial and error. This, of course, makes quite dubious the inferential statistics that accompany and are used in time series regressions. Another kind of evidence presented by Bruno and Sachs is an a analysis of labour market outcomes by degree of corporatism. But this analysis uses an early version of Crouch’s (1985) flawed classification of countries referred to earlier. Indeed, this version is so unsatisfactory that Crouch chose not to publish it. The countries are: Belgium, Canada, Denmark, France, Germany, Japan, u.K., and the us. The categories by firm are: Hydro-Quebec, class 1, craft; Brasserie Molson, class 3 production; Vilas furniture, class 1; Cie. Price, 10 wheel truck driver; Qu6bec Cartier Mining, class 3; Sidbec Dosco, class 4; Dominion Bridge, class 4; Dominion Engineering, class 1 storekeeper; Association of Clothing Manufacturers, assistant trimmer and cut- ter; Dominion Textiles, Valleyfield, yarn inspector; MUCTC, first year driver; Quebec Hospitals, first year laundry; University of Montreal, Assistant Professor; City of Drum- mondville, inside worker, c-1. I am not dealing here with the question of the quality of the goods consumed, raised by Hirsch (1978: 31) in his discussion of ‘positional goods’. Interestingly, one of the smoothest patterns of increase is for the Association of Cloth- ing Manufacturers - unambiguously a competitive sector contract. It is not clear what, if anything, this means. Note that the periodicity of increases and declines in inflation is a little different in this table than it is for figure 1. This is because figure 1 deals with annual averages whereas in tables 11,111, and IV December to December contractual increases are used. Remember, the model discussed in the preceding sections assumes that the source of the wage-push is a change in the rate of wage increase demanded by workers. Here I am discussing a model in which workers need not demand distinctively greater than normal wage increases; they simply do not work as hard for the wages they receive. Clearly, both processes could go on at the same time. The productivity measure is real provincial GDP at factor cost divided by the number of employees. This is certainly a crude measure of productivity. But, then, productivity is notoriously difficult to measure. The broad pattern of change that shows up with this measure coincides closely with that in Gingras (1986) for all but a couple of years. Another serious economic case for wage-push can be found in Schott (1984), but the empirical part of that book is rather limited. One reviewer has made the interesting point that the fact that many governments have introduced one or another form of wage and price controls over the last 40 years is in itself evidence of a wage-push. I have two observations to make on this. First, many of those programs were, like Canada’s, designed to reduce the extent to which workers’ perceptions lagged behind real trends in prices after a government had begun to pursue deflationary policies. The purpose was t o avoid the higher unemployment that (with or-


thodox economic assumptions) lagging worker expectations produce in a deflationary context. This use of anti-inflationary policies, then, was generally consistent with an orthodox economic interpretation of inflation. Second, however, there are other cases, particularly in Britain (see Jones, 1973), where wage and price controls were introduced specifically because it was thought that inflation was caused by a wage-push. But here it is important to understand that this diagnosis was controversial from the beginning. It would only be reasonable to conclude that the fact of such wage and price controls could be considered evidence of a wage-push if it was clear that the diagnosis that underlay the policy was correct. One piece of evidence that it was correct (although I would grant that it is much less than definitive evidence) is that the various wage and price control programs in Britain (and elsewhere: see Flanagan, Soskice and Ulman, 1983) much more typically failed than succeeded. For a more detailed consideration of some of these issues see Smith, 1982.

19 An exception to this is the work of Keohane (e.g., 1984).

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Wages and inflation in Quebec