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What about Germany's stronger unions? Could they have resisted wage and price control and at the same time haulted the decline in real wages?

In any case, I suspect a confounding variable. Hysteresis seems like a reach for a such a short run policy.

Would significant increases in non-wage benefits and things like payroll taxes contribute? UI rates more than doubled in 10 years from 1973 to 1983 (Lin (2001) - https://www150.statcan.gc.ca/n1/en/pub/11f0019m/11f0019m2001149-eng.pdf). CPP contribution rates almost doubled from the 80s to the 90s and have continued to rise. QHSF rates increased by a factor of 7 in the 25 years from 1970. Somewhere in there (best guess, anecdotally, without stats the early-80s) health, savings matching, and other similar benefits began to rise. Lin (2001) notes that payroll tax rates, in aggregate, started to flatten out in the 90s, which might explain the rise in wages until it was arrested by the 2000 crash. Just guesses.

PS, thanks very much for the reminder of the Project Link data. It's pretty fabulous.

Great post!

I'm not convinced though. OK, it's not implausible that wage & price controls might have reduced real wage growth. But when the controls were lifted, wouldn't real wages (or real wage growth rates) soon return to normal? Why would temporary controls have such a long-lasting effect?

But I don't have a better explanation. (I once thought it might be married women's labour supply shift, but IIRC the timing just doesn't work for that story.)

Minor theoretical point: consider for example a simple model with equal degrees of monopoly power in both labour and product markets. In equilibrium, both W and P are "too high" relative to AD (or Ms), so U* is too high, and Y* is too low, but W/P is exactly the same as it would be in a competitive model, because both W and P are equally too high.

Is it possible wage and price controls precipitated a shift to in-kind compensation? I think this conversation typically centers around the supposed decoupling of wages from productivity, but that relation reappears (in the US) when looking at total compensation! (https://www.aei.org/wp-content/uploads/2019/02/The-Link-Between-Wages-and-Productivity-is-Strong.pdf)

(1) Wage and price controls are not exogenous. (2) From a comparative institutional perspective, three English-speaking economies and one German one are less than four independent observations; the US, Canada and Australia are clustered. (3) Causal explanation needs a mechanism, not only because it does, but also because you can test directly for its presence and operation.

Hysteresis: great word. Wage inflation got a cold and was never the same again.

Stuck in the spam folder, Phil Koop says:

"Most of what we remember of the August 1971 Nixon shock revolves around the abandonment of Bretton Woods and its implications for the international monetary system, but the New Economic Policy also included wage and price controls until April of 1974 As it happens, David Glasner recently reposted his anniversary post on Nixon's imposition of wage and price controls. He puts the case a little stronger than you do:Interestingly, the current (August 13th, 2011) Economist (Buttonwood column) and Forbes (Charles Kadlec op-ed) and today’s Wall Street Journal (Lewis Lehrman op-ed) mark the anniversary with critical commentaries on Nixon’s action ruefully focusing on the baleful consequences of breaking the link to gold, while barely mentioning the 90-day freeze that became the prelude to the comprehensive wage and price controls imposed after the freeze expired. Of the two events, the wage and price freeze and subsequent controls had by far the more adverse consequences, the closing of the gold window merely ratifying the demise of a gold standard that long since had ceased to function as it had for much of the 19th and early 20th centuries. In contrast to the final break with gold, no economic necessity or even a coherent economic argument on the merits lay behind the decision to impose a wage and price freeze, notwithstanding the ex-post rationalizations offered by Nixon’s economic advisers, including such estimable figures as Herbert Stein, Paul McKracken, and George Schultz, who surely knew better, but somehow were persuaded to fall into line behind a policy of massive, breathtaking, intervention into private market transactions. Glasner doesn't make the link you do between wage and price controls and a structural break in real wage growth though. Why should the apparent effects be so long-lived? One possibility is that the imposition of controls mark a downward shift in market power of labour. It is doubtful, though, that controls were the cause of this shift. It is more plausible that they were instead the effect of a common cause, that being a downward shift in labour's political power."

The above was by Phil Koop.

Don't your charts then show the real curiosity is the kink in productivity?

Thanks Nick. I see that my ratio of block-quoting to typing triggered your spam filter. I'll remember next time.

"There's some sort of hysteresis story there, and it remains to be told."

Wage controls may have enabled the beginning of the crusade to neuter unions. Workers in general realize that "large" wage demands may lead to a new round of wage controls and find they don't have a desire to fight for the large increases going forward. This diminishes the value of unions.

Or a kink in inflation measurement. Could it have been significantly underestimated earlier? Seems unlikely without a change, whether in measurement or what is measured or whose is measured.

"There's some sort of hysteresis story there, and it remains to be told."..Really?? How about establishment of the Business Round Table (BRT) in the 1970s? It was originally set up to oppose outsize construction union power, but morphed into corporate opposition to trade unions in general, first in public view with PATCO strike that caused Prez Reagan to fire Air Traffic Controllers. That, and panic over soaring inflation gave BRT ammunition it needed to espouse Paul Volker and Fed policy of making 2% inflation target; and therefore raise interest rates every time wages began to creep over 2%! Workers' wages became the bogeyman for inflation, in other words, hence the "Great Moderation" intoned by Krugman and others. Fed policy really became a 'Great Moderation' in wage increases, and wholesale transfer of wealth to the renters.

Automation. There was middle managment in many industries. I am most familiar with warehouse middle management and the nice 1950s-era apartments still good for Gen-Z. It has produced some good effects as there are fewer line-ups and more spare time to learn stuff. Selkirk taught me the Scottish were shock troops who received subsidized housing by London. BC had Keynesian spending and won more war medals than MB in WWII.
For this reason if wages are stagnant even after the Cold War is over, I suggest the ability to learn a living be made up for in some other way. Subsidized Letters of Permission courses and a fifth of a degree as a hiring credential into some hard to crack occupation is one possibility. A tenth of the Yang GAI would be enough to start up a Rendering Engine biz or a neuro-imaging sensor biz with microfinance.
My quick math got me a job until a Cup Final that is now not there due to better software. Think back to bank line-ups. I would trade wage growth for a candidate that wants to export his tech problem solutions.

Thanks for the reminder of Nixon's w&p controls. My brother in law was affected. His company just reclassified some personnel to a higher wage. Presto no problem.

Nicely represented! Great use of maps. Good Work!

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