Chapter V. Incomes Policy

The economic forecasts in Chapter I, and the examination of the problems of the medium term in Chapter IV, provide the background for the discussion about the successor policy to the £6 limit. The negotiations with the trade union leaders (and surely at some stage also with the CBI) should cover not simply questions of earnings and prices, but questions of output and employment as well. A useful starting point for discussion would be a set of forecasts with different earnings assumptions, similar to the forecasts for the 6 per cent and 20 per cent case which have been presented in Chapter I. The important point which these alternative simulations make is that a bigger increase in money earnings leads to a short-term gain in real wages net of tax, followed by a longer-term loss which exceeds the short-term gain. It is very hard to persuade people that, collectively, they will be better off with lower than with higher increases in money earnings; but over a longer period it is clearly true.