Free To Choose? Dimensions of Private‐Sector Wage Determination, 1979–1994

Abstract

Deregulation of the system of pay determination in Britain was started in 1979 with the removal of incomes policy. The objective was to give employers the freedom to determine wage increases without the restrictions of pay norms or statutory limits. Instead, companies would be able to link changes in pay to the fortunes of the individual enterprise or establishment. By the mid-1990s, had these attempts to decentralize wage negotiations changed the determinants of wage settlement outcomes in Britain? We address the in¯uence of industrial relations institutions and labour market pressures on wage increases between 1979 and 1994 using evidence from the CBI's Pay Databank. Despite the direction of the Conservative Government's policy, the external institutional forces of the labour market, particularly the rate of in¯ation and comparability, appear to exert an enduring in¯uence, both qualitatively and quantitatively, on pay determination.

The process of wage adjustment: An analysis using establishment-level data

“…In what follows, we offer an account of the factors considered in our study as potential influences upon wage adjustments. In order to select these factors, we draw on previous studies of pay settlement influences and theories of pay determination (see Blanchflower and Oswald, 1988;Ingram et al, 1999;Forth and Millward, 2000;and Brown et al, 2004;among others).…”

“…Although the precise role of the inflation rate on pay settlements is still not completely understood, it is widely accepted that most settlements reflect this value to some extent (see Ingram et al, 1999;and Brown et al 2004). Both under strict and flexible regulatory conditions, and in periods of high and low inflation, the cost of living seems to exert a strong influence on pay settlements (see Ingram et al, 1999).…”

“…Both under strict and flexible regulatory conditions, and in periods of high and low inflation, the cost of living seems to exert a strong influence on pay settlements (see Ingram et al, 1999).…”

“…Blanchflower and Oswald (1988) introduced this baseline classification and identified several factors taken into account by employers when they adjust the wages of their employees. Subsequent studies have drawn on this work and analysed the relevance of internal and external variables in the size of pay settlements (see Ingram et al, 1999;Forth and Millward, 2000;or Brown et al 2004;among others) 1 . These studies provide support for the fact that wage adjustments at plant level revolve around factors such as the cost of living or the performance of the organisation.…”

“…In particular, a strong regulatory framework is associated with a high incidence of external factors, whereas low regulation is linked to a greater freedom for the employer to link wages to the internal circumstances of the organisation. Ingram et al (1999) analyse these issues in the British context and show that, despite the process of deregulation carried out by British governments in recent decades, external pressures continue to be very relevant in pay setting processes. Their results suggest that, besides labour market regulation, other circumstances could influence the weight given to internal and external factors in pay settlements.…”