the collective bargaining area. As you know, the Council's mandate includes several kinds of activities directed toward wages and collective bargaining:

(1) Working with labor and management in sectors of the economy with special problems to improve the structure of collective bargaining with the objective of restraining prices;

(2) Improving the wage data base for various sectors to improve collective bargaining;

(3) Focusing attention on the need and possible approaches to increasing productivity;

(4) Monitoring wage movements.

Most of the Council's past activities in the wage area have consisted of monitoring and reporting on significant wage developments. Specifically, the Council has prepared extensive previews of major collective bargaining negotiations at the start of the past two years, and has then issued analyses of settlements as they have been reached. These analyses have included background on the structure of bargaining and past settlements in the industry, a look at compensation trends for workers, a detailed breakdown of wage and benefit provisions in the new contract, a costing of the settlement to determine its probable impact on unit labor costs in the industry, and an assessment of the agreements likely impact on the economy. In 1976 such analyses were released covering agreements in trucking, rubber, electrical equipment, and automobiles. A similar analyses of the agreement in steel was released this spring, to be followed in coming months by analyses of settlements in telephone communications, construction, aerospace, coal, and railroads. These analyses also discuss productivity trends in the major industries they cover, thereby carrying out another of the Council's legislative charges.

The Council has developed its own wage data for the industries it has analyzed in these collective bargaining reports, but general wage data for the private sector are provided by the Bureau of Labor Statistics in some detail. Data for the public sector are far less satisfactory, and a Council study made recommendations for funding the BLS to collect more comprehensive data on state and local government employee compensation. The Council has also done a special study of cost-of-living escalator clauses in collective bargaining, and plans more special wage studies in the next year (which will be a relatively light one in collective bargaining).

The mandate to work with labor and management to improve the structure of collective bargaining is the most delicate of the Council's tasks in the wage area. Bargaining in most major industries such as autos and steel is highly centralized and involves very complex issues. We are presently seeking the advice of private management and labor leaders as to the most constructive form that government involvement in this area should take.

There are other industries, however, in which bargaining is highly fragmented or decentralized. The outstanding example is construction, and the Council has been involved behind the scenes with labor and management to improve the structure of bargaining in this industry along the West Coast (the area generally acknowledged as the wage leader). These efforts have included prebargaining meetings with both sides here in Washington in efforts to establish wider-area bargaining groups and thereby end "leapfrogging" settlements, as well as trips to the West Coast to try to head off potentially inflationary settlements and-in one case to hold a public hearing concerning such a settlement. These efforts have been possible only because of cooperation from national union and industry leaders, an important point to remember if the Council considers trying the same approach in other industries with fragmented bargaining. If I can provide any further information, please let me know. Sincerely,

BARRY P. BOSWORTH, Director.

The CHAIRMAN. Senator Sarbanes. Senator SARBANES. Thank you, Mr. Chairman. Dr. Houthakker, I really don't quarrel with the statement of the need to develop an ecọnomic policy that has the kind of balance that you have to have to get you to full employment and maintaining reasonable price stability. That is obviously the goal, and if you can achieve it, you have done a terrific job, especially in the world we live in today, in comparative

terms.

The question I was really raising is you were structuring an institutional asymmetry and are concerned because the Council of Economic Advisers, whatever the reading of the Employment Act of 1946, may be, has by and large assumed a responsibility for in effect balancing and recognizing the inflation problem and the full employment problem, and is trying to reconcile those and move forward.

Then you come along and structure a council whose only concern is the inflation problem. I am really just raising a question whether that skews perception and policy.

Mr. HOUTHAKKER. Well, Senator, I don't really think so. I believe that the origin of the Council on Wage and Price Stability and its predecessor results primarily from the fact that the Council of Economic Advisers is a rather small body, and should be a rather small body. At least that is my own interpretation of the experience I had there on the staff and as a member for about 4 years.

The effectiveness of the Council stems from the fact that it is small, that the staff members have direct access to the members, and in many cases they can operate on their own responsibility and therefore they are way ahead of larger departments, where everything has to go up and down the hierarchy and frequently it takes weeks.

Now the problems that arise in the area of wage and price are often very detailed and it takes a great deal of time to pursue them. When I was a member, we had studies of the steel industry, the copper industry, and a few other ones, very time-consuming operations. In retrospect, maybe it would be better if the Council of Economic Advisers did not have to do this.

So in that respect the Council of Economic Advisers has established a subsidiary, as it were, which shares the same goals, namely, full employment, but which concentrates on those aspects of full employment policy that arise in the area of wages and prices, and that is why I believe that the change just announced under which the chairman of CEA will be chairman of the Council on Wage and Price Stability is a logical one and one that should work well in practice.

It will, I believe, prevent the kind of conflict which you are worried about, Senator, and which, as I said earlier, is primarily one of the speed at which you pursue these goals. As long as we don't go overboard in any one direction, we will come out all right, and in that case the Council on Wage and Price Stability can operate in the same effective manner that the Council of Economic Advisers has traditionally operated in the past, without a huge staff, but nevertheless able to act quickly in situations that require immediate attention.

Senator SARBANES. Let me discuss the substantive policy for just a moment. I have some concern that the kind of thinking which I think is entirely appropriate when aggregate demand is getting us close to full employment and therefore the full utilization of our manpower and plant capacity, and really requires amber lights and go slow and be careful and so forth, otherwise you are going to be trading off a very small increment with respect to an improvement in the employment situation, with a very high increment on the inflationary side, with respect to aggregate questions which remains as a line of thinking under. for instance, current circumstances.

Professor Bosworth, you alluded to this on page 2, in a very understanding manner, where you point out attempts to restrain this type

of inflation through deflationary fiscal and monetary policies can be extremely costly.

I go a step further and argue that in fact those kinds of fiscal and monetary policies are helping to contribute to the inflationary pressure by maintaining high cost situations in the actual production situation.

You have costs spread over many fewer units of production, because you are falling so far short of what you are capable of, and you don't gain those gains in productivity that come with increasing use of your equipment and plant and your manpower.

But that sort of thinking prevails, perhaps not within your circles, you are much more sophisticated, but it certainly prevails in general public discussions of this issue.

Generally speaking in the public mind there has been drummed into it the notion that if you do something about one problem, you are going to be losing on the other problem.

I, of course, disagree with that very strongly, until, you know, you get down to the point where you really are having direct tradeoffs because of the total utilization of your resources.

What can we do to change that? First of all, do you agree with that, and if you do, what can be done to change that kind of perception.

Mr. BOSWORTH. Well, I agree with the way you put it this timewith just about everything you say-because I do believe that many of the difficulties that come when people point to inflationary problems-for example, restrictive work practices and other things come about because of peoples' fears of losing a job.

It is unemployment in the short run that lowers the rate of inflation. But over the longer period of time, the cancellation of plant capacity expansion, the reason we have a capacity bottleneck today, or a potential reason, is caused by the recession. Inflation destroys business confidence in the continuation of expansion, and risk to investment and it makes workers primarily concerned with protecting what they have. They don't want to let minority groups and others into the labor market, they want to curtail labor supply.

The only way to deal with that is to maintain a strong and steady expansion of the economy, where everybody has a reasonable expectation of getting a job.

I still believe that the fundamental problem with unemployment is simply that there aren't enough jobs. There are no mysterious complexities, or people that don't want to work. The reason there are not enough jobs out there is that every time we move to create those jobs, people say it is inflationary.

The purpose of the Council on Wage and Price Stability is to respond to that public concern about inflation and their fears about reduced unemployment. The Council has been established to try to offset those inflationary practices, to spot them ahead of time and avoid them, so that next time around the expansion is not interrupted by claims that inflation is due to too high a level of employment claims that we have to have a recession. I think we have fought this battle too many times, and rightly or wrongly, it is not enough to tell people that the inflation is not due to excess demand.

So if you want to make progress and get total support, you have to do something about the inflation rate; you have to take away that

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major concern people have. And that is the purpose of the Council on Wage and Price Stability, to try to do everything it can to get the inflation rate down so peoples' concerns will not be raised by inflation when we try to raise the employment.

This is no conflict, one is as important as the other, and both contribute to each other.

Senator SARBANES. How do you address the concerns of the people who come at you from the other side, in other words, who are concerned that the unemployment? I think they are so intertwined that this desire to put one ahead of the other just won't work.

Mr. BOSWORTH. I don't see any move to put one ahead of the other. You have got to make progress on both fronts.

Senator SARBANES. You are all economists involved in policymaking in Government. At what level in the making of economic decisions, in your view, does the consideration, for instance, that racial tensions on a factory floor are greatly eased and diminished if there is a stable or growing employment situation, and greatly exacerbated if there is a declining employment situation?

At what point in the decisionmaking process is that consideration put forth and by whom? Only by the President himself? I mean, is what comes froom your Council and the CEA that reaches in both economic advice and in the process of decisionmaking, who brings that factor in and who puts that forward, and at what point is that kind of consideration, which I think is quite an important one in terms of a healthy society, entered into the process?

Mr. BOSWORTH. I can say that for one, the Department of Labor is very active in this area, especially in the specific area you point to, racial tensions. There have been a lot of studies indicating that in recent years that is very closely related to unemployment problems, and the task to make sure that it is taken into account of is one for the. President and his advisers.

Senator SARBANES. But you have an institutional mission, as you have been quick to point out in your statements, when you deal with regulation. I think it is a very good point. An institution in effect has a mission, they perceive they have a mission to be carried forward and they view the advice they give and the role they play as meeting that mission.

So I go back to my question, Who, is the process of making the decisions, who reflects the sensitivity of this concern, as you see it, as economic policy is made?

Mr. BOSWORTH. If your point is that in the past there has been too little account taken of these things, I agree with you. I don't myself have any objection to a council on employment; but it does seem to me in some respects it is comparable to the problem of inflation. There are macroeconomic issues that ought to be raised about how to get the unemployment rate down. But I do not see a lack of administration efforts in that regard. The Department of Labor has a clear mission to make that a primary aspect of its operation.

But on the inflation side, there is no agency that you can point to and say that is their primary mission, to do something at the microeconomic level to alleviate inflationary pressure.

Senator SARBANES. My time is up.

The CHAIRMAN. Go right ahead.

Senator SARBANES. Unless the other two members of the panel want to respond in terms of how you make policy, at what point do those kinds of considerations come in.

Mr. HOUTHAKKER. I can testify from my own experience that the point you made about the participation of minorities in employment was certainly one that I have heard quite a number of times, when I served on the Council. And in fact it is reflected in the Council of Economic Advisers annual report, which has had discussions of problems like this.

I remember, for instance, a chapter which was written when I was a member dealing with the role of women in the labor force. This is not quite the same, but it is a somewhat similar one.

So I believe these questions about who are participants is employment have always been very much in the minds of people who were concerned with full employment in the years when I had some knowledge of it.

The CHAIRMAN. Thank you gentlemen very, very much. I think you have made an excellent record, it has been most helpful.

[The following information was received for the record:]