Incomes Policies, Expectations And The NAIRU

In the sixties, several countries adopted incomes policies to control inflation that was interpreted as the result of a distributional struggle between business and labour unions. Incomes policy was viewed as a tool of stabilisation policy that would avoid the increase in unemployment that would result from tight monetary and fiscal policy designed to curb inflation (Flanagan et al., 1983). Some thirty or forty years later, the effects of incomes policies on inflation seem to have been neglected in recent writings on the natural rate of unemployment and on the conduct of monetary policy, even though a large body of literature deals with the strategic interaction between monetary authorities and the economic agents conducting wage bargaining.