Problems of prices and Incomes policy

i. Confrontation

The imposition of the prices and incomes policy, voluntary or statutory, risks the possibility of confrontation with trade unions.

ii.  Discrimination

Incomes policies often tend to be more effective in the public sector, thus restricting incomes then more than in the private sector.

iii. Distortion of market forces

If all workers receive similar increases this will tend to distort market forces in the labour market.

Expanding sectors will find it hard to attack labour while contracting sectors will hang on to labour for too long.

iv. Differentials

Many incomes policies have been based on flat-rate increases, e.g. £4 per week maximum increases,  this increases the wage rate of lower paid workers relatively more than those of the higher paid.

v. Wages drift

This refers to the tendency for earnings to rise faster than wage rates.  This is because earnings are the compound of wages, overtime, bonuses, etc.  Incomes policy tends to worsen wages drift in those industries which are trying to attract labour, i.e. industry will be tempted to comply with the incomes policy by raising wage rates by only the stipulates account but increasing bonuses, fringe benefits and so on.