Trade Unions and the Welfare Economics of Wages and Income Policy

Abstract

This paper discusses the welfare economics of wages and incomes policy. Wage equilibrium is shown to be sub—optimal, because there are trade unions which ignore the external effects created by their own wage claims. Government wages policy is seen as a blanket measure, reducing pay by a small amount for each group, rather than as a selective kind of sectoral control, and is treated as a policy which attempts to change the real characteristics of the economy. Envelope properties help to simplify the welfare expressions. The overall results are not especially favourable to the case for wages and incomes policy.