The Economy: Everything You Want to Know About Phase II

Since you won't allow an extra big bonus for some of my better workers this Christmas, I'm going to get around it by cutting everybody else's salary that week so my favorite workers will still get special treatment. Is that legal?

THE employer in Phoenix who came up with that idea will undoubtedly be remembered as the Scrooge of Phase 11, at least by his nonfavorite employees. Officials at one of the 2,800 branches of the Internal Revenue Service, which handles inquiries about what can and cannot be done under President Nixon's economic controls, concluded that the man's plan was indeed legal. Charitably, they added that it might have a bad effect on company morale.

His query was just one of some 377,000 individual questions that have flooded into IRS offices since the controls were clamped on five weeks ago. That is one telling measure of the confusion that persists about the program, in no small part because the rules seem to be broken regularly by the panels in Washington that are supposed to enforce them. The most serious missteps in Phase 11 have been caused by the paralyzed Pay Board, which has given the impression that it cannot do its job of halting inflationary wage settlements. Few experts have yet markedly changed their opinions—whether optimistic or otherwise—about its chances for eventual success. Here are some of the main questions being asked about Phase 11, and the answers to them so far as they have been explained by the controllers.

HOW MUCH CAN PAY REALLY GO UP?

The guideline is 5.5% annually, but that does not necessarily apply to every paycheck. The rule that most directly affects the majority of low-or medium-paid workers—including millions of nonunionized whitecollar, clerical and semiprofessional employees—is that the total, or aggregate wage increase must be held to 5.5% within each "employee unit." Such a unit could be a department, a whole company, or a labor union that in the past has been grouped together in the same wage adjustment. Thus the boss is perfectly free to grant 10% pay raises to secretaries and only 1% increases to cleaning women, provided that their wage levels have been generally set as part of a single agreement in the past and the combined total does not exceed the guideline. Some union pay increases—and those of nonunion employees that traditionally are granted at the same time—will doubtless continue to exceed the guideline for a while. Labor Secretary James Hodgson admitted as much last week by noting that the Administration fully expected to "swallow" a few extra large settlements early in Phase 11. These included the 15% pay boost granted coal miners in the first year of a new contract and a pact giving railroad signalmen a more than 16% raise, which was approved last week by the Pay Board. But all settlements involving more than 1,000 workers must be reported to the Pay Board, and the Administration expects that cases exceeding the guideline will become few and far between after the first few months of Phase 11.

DOES THE 5.5% GUIDELINE APPLY TO EXECUTIVE SALARIES?