WAGE POLICY ISSUES IN

ECONOMIC DEVELOPMENT

Other publications of the International Institute for Labour Studies

* AUTOMATION ON SHIPBOARD

edited by G. J. Bonwick

COLLECTIVE BARGAINING IN AFRICAN COUNTRIES by B. C. Roberts and

L. Greyfie de Bellecombe

EMPLOYMENT PROBLEMS OF AUTOMATION AND ADVANCED TECHNOLOGY

edited by Jack Stieber

INDUSTRIAL RELATIONS AND ECONOMIC DEVELOPMENT edited by Arthur Ross

THE LABOUR MARKET AND INFLATION edited by Anthony D. Smith

Publication of the International Industrial Relations Association

* INDUSTRIAL RELATIONS: CONTEMPORARY ISSUES

edited by B. C. Roberts

WAGE POLICY ISSUES IN

ECONOMIC DEVELOPMENT

The Proceedings of a Symposium held by the International Institute for Labour Studies at Egelund, Denmark, 23-27 October 1967,

under the Chairmanship of

CLARK KERR

EDITED BY

ANTHONY D. SMITH

WITH A PREFACE BY

R. w. cox Director,

International Institute for Labour Studies

Palgrave Macmillan

© The International Institute for Labour Studies 1969 Softcover reprint of the hardcover 1st edition 1969

Published by MACMILLAN AND CO LTD

Little Essex Street London wc2 and also at Bombay Calcutta and Madras

Macmillan South Africa (Publishers) Pty Ltd Johannesburg The Macmillan Company of Australia Pty Ltd Melbourne

The Macmillan Company of Canada Ltd Toronto StMartin's Press Inc New York Gill and Macmillan Ltd Dublin

Library of Congress catalog card no. 69-13690

ISBN 978-1-349-00107-1 ISBN 978-1-349-00105-7 (eBook) DOI 10.1007/978-1-349-00105-7

CONTENTS

AUTHORS OF PAPERS AND PARTICIPANTS PREFACE R. W. Cox INTRODUCTION Anthony D. Smith

PART A

A CONSPECTUS OF WAGE TRENDS IN DEVELOPING COUNTRIES

Anthony D. Smith

PAGE Vll

IX

XI

I. INTRODUCTION 3 II. SOUTH AMERICA, CENTRAL AMERICA AND THE CARIBBEAN 9

III. THE FAR EAST 23 IV. AFRICA 31 V. CONCLUSIONS 41

PART B

A SUMMARY OF THE DISCUSSIONS

I. WAGES IN DEVELOPING COUNTRIES: TRENDS AND PROBLEMS 55 II. THE GENERAL LEVEL OF wAGES 77

III. WAGE STRUCTURES AND DIFFERENTIALS 88 IV. FORMS OF WAGE PAYMENT 102 V. WAGE DETERMINATION IN THE MARKET 116

VI. WAGES AS AN ELEMENT IN GENERAL ECONOMIC POLICY AND PLANNING 130

VII. IMPLEMENTATION OF WAGE POLICY AND PUBLIC INSTITUTIONS FOR WAGE FIXING 142

VIII. A REVIEW OF THE DISCUSSIONS 153

PART C

AN ANALYSIS OF THE PROCEEDINGS

Anthony D. Smith

I. THE PURPOSE OF WAGE POLICY IN DEVELOPING COUNTRIES 163 II. THE FoRM OF WAGE PoLICY IN DEVELOPING CouNTRIES 170

III. THE FoRMULATION AND IMPLEMENTATION oF WAGE PoLicY 197 IV. CONCLUSIONS 212

v

Contents PART D

THE PAPERS

Paper 1. OBJECTIVES OF WAGE PoLICY IN DEVELOPING CouNTRIES. Lloyd G. Reynolds

Paper 2. WAGE, FISCAL, SociAL SECURITY PoLICIES AND INSTITUTIONAL CHANGES AS A MEANS OF REDISTRIBUTING INCOME IN DEVELOPING COUNTRIES.

PAGE

217

U. A. Aziz 235 Paper 3. EcoNOMIC STRUCTURE, PRODUCTIVITY AND WAGES IN

LATIN AMERICA. Anfbal Pinto 256 Paper 4. LEVELS OF REMUNERATION, FACTOR PROPORTIONS AND

INCOME DIFFERENTIALS WITH SPECIAL REFERENCE TO DEVELOPING CouNTRIES. Samir Amin 269

Paper 5. WAGE STRUCTURES IN LEss-DEVELOPED CouNTRIES. Elliot J. Berg 294

Paper 6. MINIMUM WAGE FIXING AND EcoNOMIC DEVELOPMENT. N. N. Franklin 338

Paper 7. THE FoRMULATION OF WAGE PoLICY. H. A. Turner 354 Paper 8. WAGE PoLICY IN DEVELOPING CouNTRIES.

Ashok Mitra 371 Paper 9. TRADE UNION ATTITUDES TO WAGE PoLICY IssuEs

IN DEVELOPING CouNTRIES. P. P. Narayanan 383 Paper 10. EMPLOYER ATTITUDES TO WAGE POLICIES IN

DEVELOPING CouNTRIES. David Richmond 395

INDEX 399

Vl

AUTHORS OF PAPERS AND PARTICIPANTS I

Chairman Clark Kerr, Professor of Economics and Industrial Relations, University

of California, U.S.A.

Director of the Symposium R. W. Cox, Director, International Institute for Labour Studies, Geneva,

Switzerland.

Co-Director H. Jensen, Economic Adviser, Federation of Danish Trade Unions,

Copenhagen, Denmark.

Technical Adviser A. Tarp, Chief of Division, Danish Employers' Confederation, Copen­

hagen, Denmark.

General Rapporteur K. F. Walker, Senior Staff Associate, International Institute for Labour

Studies, Geneva, Switzerland.

Participants S. Amin, * Lecturer in Planning Techniques, African Institute for Eco­

nomic Development and Planning, Dakar, Senegal. U. A. Aziz,* Dean, Faculty of Economics and Administration, University

of Malaya, Malaysia. E. Berg,* Professor of Economics, Center for Research on Economic

Development, University of Michigan, U.S.A. G. G. Bannick, Economist, Ministry of Finance and Planning, Central

Planning Unit, Kingston, Jamaica. J. Cauas, Executive Secretary, Economic Committee of Ministers, Central

Bank of Chile, Santiago, Chile. N. N. Franklin,* Economic Adviser, International Labour Office, Geneva,

Switzerland. E. Kane, Deputy General Secretary, Mauritania Workers' Union,

Nouakchott, Mauritania. 1 The position of authors and participants given is that at the time of the

Symposium. * Author.

Vll

Authors of Papers and Participants A. Mitra,* Chairman, Agricultural Prices Commission, New Delhi,

India. Z. Morecka, Professor of Economics, Faculty of Political Economy,

University of Warsaw, Poland. P. P. Narayanan,* General Secretary, National Union of Plantation

Workers, Selangor, Malaysia. H. M. Ofurum, Head, Industrial Relations, Shell B.P. Petroleum De­

velopment Co. of Nigeria Ltd, Lagos, Nigeria. A. Pinto,* United Nations Economic Commission for Latin America,

Santiago, Chile. L. Reynolds,* Professor of Economics, Yale University, U.S.A. D. Richmond,* Director, Federation of Kenya Employers, Nairobi,

Kenya. A. D. Smith,* Staff Associate, International Institute for Labour Studies,

Geneva, Switzerland. Tan Boon Chiang, President, Singapore Industrial Arbitration Court,

Singapore. H. A. Turner,* Professor of Industrial Relations, Faculty of Economics,

Cambridge University, England. S. V. Utamsingh, Chief Personnel Adviser and Honorary Professor, The

Associated Cement Companies Ltd, Bombay, India. F. Walcott, General Secretary, Barbados Workers' Union, Bridgetown,

Barbados. *Author.

Vlll

PREFACE ONE function of the International Institute for Labour Studies is to focus attention on significant issues of public policy within its field. With this aim, two symposia have been convened by the Institute in successive years on problems of wages and incomes. One, held in the autumn of 1966, resulted in the publication of a book entitled The Labour Market and lnfiation. 1 The second, held in the autumn of 1967, dealt with wages in the context of economic development and has led to the publication of this book.

The Institute is a forum, not itself a policy-maker. These sym­posia are not intended to adopt or recommend conclusions. Never­theless, it is possible to discern points of agreement and to define the main options of policy through a confrontation of experts and policy­makers. Thus, while the present volume is in no sense a formal report, it does present the views expressed in the papers and the discussions together with an analysis made subsequently by the reporter and editor, Anthony Smith, showing consensus where it emerged and also the areas of persisting disagreement.

The symposium approached wages policy in a broad context, recognising at the outset the real diversity of conditions which lies behind the term 'developing country' for which no single general policy prescription can possibly suffice, and exploring not only what may be deemed desirable in the mind of a welfare oriented expert but also what is probable or possible in terms of political structures and political pressures. It is hoped that the discussions and this volume which results from them may both conveniently synthesise existing knowledge and approaches to wages policy in developing countries and also suggest new approaches or directions of enquiry.

I would like to express thanks to Professor Clark Kerr of the Uni­versity of California, who chaired the discussions and gave structure to them. The Danish Board of Technical Co-operation with De­veloping Countries provided financial support for the undertaking and its representatives, Messrs Holger Jensen and Aage Tarp, looked after the organisation of facilities in Denmark as well as participating in the discussions. The Danish Employers' Confederation provided its magnificent site at Egelund, north of Copenhagen, assuring

1 Ed. Anthony D. Smith (1968). A2 ix

Preface

thereby the best possible conditions for intellectual exchange. Kenneth Walker, Senior Staff Associate of the Institute, worked closely with the Chairman in introducing, organising and summing up the discussions. Irene Crosby of the Institute staff handled the administrative arrangements and subsequently gave practical help to the reporter in the preparation of this book. Finally, my thanks on behalf of the Institute go once again to Anthony Smith who, though prevented by illness from attending the symposium which he had prepared, was, nevertheless, able to reconstruct and to clarify by his analysis of the record a rich and stimulating discussion.

X

R. W. COX Director

International Institute for Labour Studies

INTRODUCTION BY

ANTHONY D. SMITH

EssENTIALLY, this Symposium was conceived as a medium for identifying and discussing wage policy issues in economic develop­ment. Yet the fact that it was convened implies not only the identifi­cation and discussion of one particular issue, but also its resolution. That issue is the question of the desirability of wage policies in developing countries. In fact, as we shall see, one or two participants did not favour the formulation of wage policies - at least not wage policies in the rather restricted sense in which they are generally understood - except in extreme conditions. Yet not only did the great majority believe such policies to be desirable, but also a sense of the inevitability of their adoption pervaded the whole proceedings. The rate at which developing countries have recently been approach­ing the I.L.O. for advice about wage policy matters is testimony to the growing interest in this field.

It is growing from what, even now, can only be regarded as very small beginnings. It is not necessary to be intimately acquainted with the direction of economic development in the less-advanced economies to be aware that currently systematic wage policies are neglected in both economic and social development programmes and in less-formalised strategies for economic development. To what extent this neglect of wage policies is the result of, or the reason for, their rather inadequate treatment in the literature which flows from academic and international milieux is not clear. Certainly, it was hoped that the Symposium would make progress in remedying this particular deficiency.

The International Institute for Labour Studies' choice of this topic for discussion rested not only on the yawning gap between the inevitability of the future adoption of wage policies and their current neglect, but also on the special interest which the Institute has in policy fields which impinge on both economic and social phenomena in developing countries. That wage policy has a foot in both these, often conflicting, territories helps to account not only for its examina­tion by this Symposium but also for its prior neglect.

xi

Introduction

The existence of so virgin a field influenced not only the choice of wage policy issues but also the aspect selected for consideration by the Symposium. For, with the field so open, an identification of these issues is a logical and necessary preliminary to their resolution (though, inevitably, the Symposium strayed into this area too) and to the operational implementation of wage policies. Another considera­tion, too, bore upon this choice: the fact that because developing countries call to such a large extent on policy advice from developed economies (and wage policy seems unlikely to prove exceptional in this respect) it is desirable to identify the crucial wage policy issues in the former in order to distinguish them from those which currently bedevil the latter. Indeed, the very suitability of the term 'wage poli­cy' - one which was coined in the context of developed countries - can be seriously questioned in the conditions which characterise developing economies. A large (often the largest) proportion of workers in developing countries, whilst they enjoy an income in one form or another, receive no monetary wage, yet none would deny that their incomes need to be taken into account in the formula­tion of wage policy or should be prescribed in the same set of policy decisions. Thus 'labour incomes policy' would be a more accurate description than 'wage policy' of the Symposium's area of interest, though the latter is, in fact, widely used in this book in recognition of conventional usage, except where the distinction between the two terms is particularly important.

The value of the Symposium would be grt:atly enhanced if it dis­tinguished not only between wage policy issues in developed and developing countries, but also between those which predominate in different kinds of developing country. Throughout the proceedings the participants revealed their consciousness of the dangers which lie in generalising about developing countries. In order to avoid undue repetition their 'caveats' in this respect have been largely edited out of the discussion. They have been retained, however, where partici­pants attempted to define the type of developing country to which their remarks were directed, and which, for some purpose, they sought to distinguish from other kinds of developing economy. Whilst recognising that the content and implementation of a specific wage policy would need to take full account of the particular condi­tions which obtain in the country in question, it was hoped that the Symposium would spotlight policy issues that are typical of the great majority of developing countries.

Within this framework it was intended that the Symposium would Xll

Introduction

identify and discuss issues connected with all aspects of wage policy -the choice of objectives and its form, formulation and implementa­tion. Thus, the Symposium would examine the various wage policy options that are open to a developing country, the factors that influence the authorities' choice of policy and the more difficult prob­lems that attend the implementation of the chosen policy.

For instance, there exist conflicting views about the relationship of existing wage levels in developing countries to those that are con­sidered desirable for promoting economic growth. On the one hand it is argued that there is a need for a relatively high level or increase in wages, on the grounds that it is required to improve the efficiency of the labour force and to ensure an adequate supply of labour in the modern sector. On the other hand, it is proposed that the wage level in developing countries be kept relatively low in order to ensure that sufficient resources are made available for investment and to permit a more rapid rise in industrial employment. The Symposium examined this question and, in general, considered the objectives of wage policy that are appropriate in the conditions that characterise developing countries, the criteria that might be adopted for establish­ing and moving the wage level, and the degree of conformity between social and economic objectives.

Wage and salary differentials- inter-sectoral, inter-regional and inter-occupational- also display special features in developing countries. More particularly the wage structure can be challenged as being inimical to the needs of economic development. It is generally thought that the remuneration of clerical workers at wage rates above those paid to skilled manual workers, who are needed in ever-increasing numbers if the industrialisation process is to pro­ceed, is one example of the way in which wage differentials in develop­ing countries fail to provide a sufficient incentive for the acquisition of skills and for the required inter-industry and inter-regional redis­tribution of the labour force (though this view was in fact challenged at the Symposium). Such circumstances pose a series of important and difficult questions that were duly considered by the Symposium: what considerations, social or economic, determine existing wage and salary structures; what type of wage structure is most likely to promote the chosen objectives of wage policy in developing coun­tries; and is it possible to obtain such a wage structure? A similar set of questions need to be answered, and were posed for the Sym­posmm, m the case of methods of remuneration in developing countries.

xiii

Introduction

The principles on which a wage policy in a developing country should be based raise problems enough, but those associated with the formulation and implementation of the policy are no less complex. On a technical level there is obviously a need for a wage policy to be integrated with the elements of any economic plan adopted in the country in question. On a political level - and it was hoped that the Symposium would pay particular attention to this - there is the question of how decisions about wages and the distribution of incomes should be taken. What interests are effectively articulated in the process of decisions; and how are interests aggregated into policy? Should government take upon itself the task of formulating wage poli­cy, or should it seek the advice of employer and worker representatives and, indeed, the views of other affected groups -consumers and the self-employed? Several instruments are available to the authorities in developing countries which might be used to implement a wage policy. In particular, public-sector wage decisions, minimum wage regulation and the institutional apparatus of collective bargaining, conciliation and arbitration procedures might be used for this pur­pose. What are the advantages and disadvantages of such instru­ments in the light of the conditions found in developing countries and the objectives and forms of wage policy that are chosen? Are they, singly or collectively, adequate to the task? It was planned that the Symposium should consider both the institutional processes of wage formulation and the machinery available for its implementation in order to reveal the issues raised in these spheres and how they compare, in importance and contentiousness, with those posed by the principles on which the policy should be founded.

It was not the purpose of the Symposium to depict factually wage levels, structures and trends in developing countries. Even so, it was anticipated that the Symposium would draw attention to statistical deficiencies which will need to be remedied if wage policies are to be adequately based. Less expected was the doubt thrown onto certain hitherto unquestioned views about wage phenomena in developing countries which suggest that some of them may be little more than misleading myths.

Of course the preoccupation of the Symposium with policy issues does not mean that it could neglect developing countries' actual experience with wage phenomena. In particular, an examination of wage trends in developing countries and the factors which have shaped them helps to reveal the forces that have hitherto influenced wages in developing countries and the operation of which a wage

xiv

Introduction

policy would need to take into account. This, essentially, is the purpose of Part A of this book, a paper designed as a general back­ground for the discussions. Pride of place, however, is intended for a summary of the discussions1 themselves, Part B. For where, as in this case, no systematic attempt has previously been made to identify the relevant set of policy issues, the process is most readily accom­plished by assembling for an exchange of views, persons who have been concerned with, or shown interest in, wage questions in de­veloping countries. In the course of such discussions the most important issues rise to the surface. The discussions dealt with, in turn: trends and problems in wages in developing countries; the general level of wages; wage structures and differentials; forms of wage payment; wage determination in the market; wages as an element in general economic policy and planning; the implementation of wage policy and public institutions for wage fixing; and a short review of the discussions. 2

A fairly comprehensive analysis of the proceedings has been attempted in Part C. Comprising sections which deal with the purpose of wage policy, the form of wage policy and the formulation and implementation of wage policy,3 this part of the book tries to list the wage policy issues emerging from the proceedings, survey the Symposium's deliberations on these issues and, on this basis, identify those which seem to be the most crucial. It would, of course, be wrong to pretend that nothing was known prior to the Symposium about wage policy issues in developing countries, and some participants were invited to write papers about aspects of wage policies in developing countries where there was a prima facie case for the existence of important issues. These papers, which were distributed to the participants before the discussions, have been presented in Part D, in an order which parallels as closely as possible the order of the discussion and the analysis of the proceedings.

1 Hereafter referred to as Discussion. 2 Respectively, Discussion, pp. 55-76; 77-87; 88-101; 102-15; 116-29; 130-

141; 142-52; and 153-60. J Respectively, Part C, pp. 103-9; 170-96; and 197-211.

XV