The Council on Wage and Price Stability Has Not Stressed Productivity in Its Efforts To Reduce Inflation

FGMSD-81-8: Published: Oct 16, 1980. Publicly Released: Nov 14, 1980.

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GAO reviewed how the wage and price standards administered by the Council on Wage and Price Stability could be modified to stimulate productivity. The review included a broader review of the Council's efforts to encourage productivity improvement as an anti-inflationary mechanism.

There is continued congressional concern that the Council focus on productivity improvement as a part of its efforts to reduce inflation. The Council has not actively encouraged productivity improvement through its wage and price standards or by identifying and suggesting actions that federal agencies could take to stimulate productivity. The Council believes it can best encourage productivity improvement by reducing inflation. As a result, it has directed its efforts toward programs to design and monitor the wage and price standards, and review government regulatory actions. The Council made limited efforts to minimize the negative effects of the wage and price standards on productivity, but did not use the standards to stimulate productivity. The price standard does not provide a clear exception for productivity-improving capital investments. The pay standard provides productivity exceptions only where the increased productivity is clearly tied to demonstrable improvements in the diligence of workers resulting from work rule changes in union contracts or pay tied directly to physical productivity measures such as piecework or sales commissions. The exceptions exclude nonunion employees from obtaining productivity-based pay due to productivity-improving work changes. They also exclude productivity sharing programs, which have been found to improve productivity, reduce operating costs, and serve as an anti-inflation technique.

Matter for Congressional Consideration

  1. Status:

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should amend section 5 of the Council's enabling legislation to specifically require that the Council's periodic reports to Congress (1) identify actions the Council has taken and plans to take to focus attention on the need to improve productivity and to encourage private sector productivity as a means of reducing inflation, and (2) demonstrate what the Council has done to encourage and stimulate productivity through the wage and price standards.

Recommendations for Executive Action

  1. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Council on Wage and Price Stability should revise the standards to provide an exception from the pay standard for productivity programs that are documented to improve productivity at a rate equal to or greater than their costs in terms of increased payments to employees.

    Agency Affected: Council on Wage and Price Stability

  2. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Council on Wage and Price Stability should prepare reports on particular productivity problems and recommend appropriate government actions. This would parallel the Council's work on government regulation.

    Agency Affected: Council on Wage and Price Stability

  3. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Council on Wage and Price Stability should develop an agenda for the National Productivity Council citing specific ways federal agencies can encourage productivity as part of the effort to control inflation.

    Agency Affected: Council on Wage and Price Stability

  4. Status:

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Council on Wage and Price Stability should revise the standards to provide an exception from the price standard to permit financing capital investment programs from profits or profit margin allowances in an amount no greater than the demonstrable increases in productivity.

    Agency Affected: Council on Wage and Price Stability

 

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