ABSTRACT

The principal aim of an incomes policy is to reduce the rate of change of nominal wages. A rapid rise in nominal wages may mean that wages are established and for some period remain above the market clearing level and thus there is cause for concern. Incomes policies give the impression of doing something and are often erroneously viewed as policies which affect price and wage inflation without affecting output. An extreme version of the real wage resistance hypothesis can be seen as falling within that part of the Keynesian tradition which argues that the determination of money wages is a political question. The attempt by public sector manual workers to restore their position relative to private sector earnings is one of the main explanations of the surge in public sector wage rates in the late 1960s.