Business: The Wages of Inflation

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Carter is flirting with no-standard standards

The Carter Administration's efforts to devise another wage guideline to replace one that nominally expired Oct. 1 led to a poignant business-labor standoff last week. The White House in September had hailed the new 18-member Pay Advisory Committee as part of a ''national accord" on wage policy that would mark a healing of the rift between the President and organized labor. When the committee's first working session took place, however, all the problems of proper compensation in a period of 13% inflation burst open.

Lane Kirkland, who is expected soon to take over from George Meany as president of the AFL-CIO, launched a sharp attack on the old 7% pay ceiling, calling a single guideline figure "a mad infatuation with a figure that bears within it the seeds of its own destruction." Kirkland wants to replace the old standard with case-by-case wage settlements. The top business representative on the board. National Association of Manufacturers President R. Heath Larry, argued equally adamantly against moving toward any à la carte pay guide. At another point in the meeting, Kirkland and R. Robert Russell, director of the Administration's Council on Wage and Price Stability, heatedly squabbled over whether unions should try to make up in wages the income lost due to higher energy prices. The committee's chairman, Harvard Economist John Dunlop, must have thought that he was back at a business school faculty meeting.

The White House hints that it may be preparing to drop the guide out of the guidelines. In the course of courting labor's support in the 1980 election, the Administration has drifted toward accepting the union position that the pay ceilings need more "flexibility." Says Labor Secretary Ray Marshall: "With inflation barreling along at its current rate, the old guidelines are clearly untenable." A top Administration aide confided last week: "It would be unreal to expect labor to accept continuation of a program that was successful in holding down wages but a disaster in holding down prices." And one official on the COWPS, which administers the standards, sheepishly maintained that the anti-inflation effort "could be just as well off without a guideline program."

The abandonment of a firm pay guideline, if it occurs, would have broad implications for the economy, which is now delicately poised between two perils: even more inflation and deeper recession. Fresh harbingers of both of these threats appeared last week. The unemployment rate, which had dipped unexpectedly to 5.8% in September, returned to 6% last month—a sign of a softening economy. But other figures showed business continuing to perk along despite attempts to dampen inflation by curbing growth. Prices charged by wholesalers rose another 1% in October, while the index of "leading" indicators, which is supposed to foreshadow future economic trends, rose by a strong 0.8% in September. The net effect: the mild downturn that both the Administration and the Federal Reserve desire seems to have been postponed indefinitely.