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The Shameful Rate of Unemployment in the EMS 265
tivity. Similarly, employers should agree to freeze mark-ups, though such an
agreement might be less easy to enforce, and the government should commit
itself to a freeze on taxes or transfer programs. The acceptance of this commitment
in turn should make it possible to maintain a stable price level and
ensure a maintenance of the purchasing power of wages. In fact, labor should
gain in real terms, through rising productivity. The freeze should last until
unemployment has been reduced to an “acceptable” target level, agreed upon in
advance.
Clearly the hardest part is to secure agreement of labor and the organization
representing it, but then acceptance would be part of a package which includes
the protection of the real wage and a large targeted expansion of jobs—and is
limited in time until that target is reached. Refusing their collaboration would
bluntly place the responsibility for the continuing blight of unemployment
on them.
The path of interest rates should be coordinated by participating countries in
order to make it possible for them to maintain fixed parities within the group,
floating jointly with respect to Germany and third countries. The joint float could
be orchestrated by France (possible with the technical help of the now developing
European Central Bank), and this new role could provide France with a consolation
for the loss of prestige coming from the devaluation vis-à-vis the Mark.
There are many other policies that have been suggested as antidote against
some supply effects, which might contribute to reduce unemployment, such as
taming minimum wage provisions and reducing levies on low wages; however
since such measures usually work slowly relative to the expected short duration
of the emergency period, they do not deserve much emphasis.
6 Beyond the Emergency Period
6.1 Some General Principles
What is to happen when the emergency period is over, unemployment is back to
reasonable levels, and the wage freeze terminates?
The answer I would like to suggest rests on a basic consideration. Given today’s
prevailing view that price stability has precedence over all other targets, there are
large externalities in private wage contracts. In addition to the private benefits
and costs, they have important social consequences as they affect the wage level
directly and indirectly by way of their impact on other wage contracts through
imitation and pecking order; and the wage rate changes in turn play a major role
in price movements. In particular, when wage increases exceed the productivity
trend, this will tend to produce some inflation and non-accommodating response