WAGES AND UNEMPLOYMENT: A GENERAL FRAMEWORK
These remarks are addressed directly to the question of the relationship between wages and unemployment and provide neither a commentary on nor a critique of the stimulating papers presented by Edmond Malinvaud and Robert Gordon. They do, however, bear on a number of the issues raised in those papers. Professor Gordon's contribution takes it as read that the business cycle is the fundamental issue of interest in any discussion of wages and unemployment. In spite of his avowed (and most welcome) intention to avoid looking at the world through U.S. tinted spectacles, this primacy of the business cycle phenomenon is closely related to the American post-war experience. In Britain and to a slightly lesser extent in other European countries the fundamental unemployment problem is the inexorably rising trend upon which the business cycles are superimposed. This trend is barely apparent in the United States and consequently causes little concern. Thus, the figures in Table i show that in Britain (male) unemployment was more thanfive times higher in the last five years of the Seventies than it was in the first five years of the Fifties and it seems likely that it will almost double again in the first five years of the Eighties. The contrast with the United States could hardly be more dramatic. Another dramatic difference between the United States and Britain which emerges strongly in Professor Gordon's paper is the fact that in the former, employment fluctuations (at least in manufacturing) are strongly related to fluctuations in nominal GNP and this is not true in the latter where it appears that nominal GNP fluctuations are dominated by nominal changes. Thus it may not be very useful to think of nominal GNP as the exogenous driving force behind fluctuations in the British context. Where, then, should we look for an explanation of the growth in unemployment and what is the role of wages? Many British commentators have noted that along with the rising trend in unemployment there has also been a rising trend in real labour costs relative to output per head. Thus from I964 to I980 this number has risen in Britain by about 35 % reflecting a considerable increase in the price of labour relative to what is produced. This is the well known argument that unemployment is caused by workers pricing themselves out of a job. This is more 'rational' than it sounds because, generally speaking, it would be employees pricingothers outofa job. On the other side of the same coin, Dr Morley in thisJouRNAL in 1979 noted that 88 % of the variation in annual British unemployment from 1953 to 1977 could be explained by the pre-tax profit share one year lagged. Thus unemployment appears to be related to the fact that real wages and the real return on capital are simply 'wrong' which relates, of course, to the extensive analysis provided in M. Malinvaud's contribution.