Cambridge Journal of Economics 1979, 3, 99-118

Wage formation in historical perspective:the French experience

Robert Boyer*

Translator's note: In this article Robert Boyer introduces the notion 'regulation' as a key conceptin analyses of the labour market. The term refers to the balance of social, institutional and economic

forces which characterise at a particular time the economic system as a whole or particular parts of it.I considered translating 'regulation' as 'order', 'regime', 'system' or formation'; but these terms areeither too static or already bear inappropriate connotations. It was therefore decided to retain theFrench expression in the English text.

The peculiarities of economic trends over the last decade have caused economists tobecome increasingly concerned with employment and wage determination. Why haveunemployment and inflation increased simultaneously since the end of the 1960s?How can one explain the fact that the increase in money wages is apparently less andless sensitive to increases in unemployment? What role does the functioning of thelabour market play in the development of crisis level inflation ? These questions en-courage one to go back to the logical premises and the historical foundations of thetheory which was broadly accepted until the end of the 1960s.

In essence this theory attributes to unemployment (or more generally to the overallstate of the labour market) the regulatory role in the determination of the money wage.Implicit in the majority of studies based on these premises is the assumption of a com-petitively functioning labour market, in the sense that through the workings of compe-tition, wages and employment would tend to be determined simultaneously. Thisassumption has been applied in two different ways to interpret recent experience. Forsubscribers to the purest version of neoclassical analysis, the labour market is always inequilibrium, in the sense that the wage is that consistent with supply and demand: thewage level is then said to be in equilibrium. Under these conditions unemployment canonly be voluntary, the consequence of workers withdrawing from the labour force oftheir own free will because wages are too low. (See, for example, Phelps et al., 1970;Brunner and Meltzer, 1976, for extensions of this analysis.)

For a second school of thought, unemployment is regarded as involuntary, the resultof various obstacles to the free functioning of the market, such as the monopoly influenceof trade unions, minimum wage legislation, or unemployment benefits maintaining toohigh a wage level. The crisis of the 1970s has led to the reiteration of this latter interpre-tation, which was initially put forward to explain the crisis of the 1930s.

* Centre d'itudes prospective d'economie mathematique appliquees a la planification, Paris. Trans-lated by J. A. Wilson, from a longer French text originally published in £amomie et Statistique, no. 103,September 1978.

0309-166X/79/020099 + 20 802.00/0 © 1979 Academic Press Inc. (London) Limited

100 R. Boyer

These two schools of thought are both used to justify a Phillips curve approach,according to which the pressure of demand in the labour market is the fundamentalexplanation of the money wage level, though there is much disagreement as to the statusof this relationship over the long or short term.

Common to all these studies is the central hypothesis that a similar type of adjust-ment continues to operate (or ought to continue to operate), in a way which is onlymarginally affected by the development of the particular institutional structures whichhave characterised capitalism since the Second World War. This being the case, theobject of econometric studies is to uncover general relationships which are invariableover time—even though their analytical expression might differ.

The present article adopts a different approach, and attempts to identify the factorsin wage determination which are permanent and those which are variable. Thisapproach depends fundamentally on the notion of regulation] and on a very long periodanalysis. By the term 'regulation' is meant the way in which a system as a whole functions,the conjunction of economic mechanisms associated with a given set of social relation-ships, of institutional forms and structures. (See Benassy et al., 1979.)

In contrast to the neoclassical school, which postulates unvarying and identicalprinciples in all markets, including the market for labour, the notion adopted here isthat the economic mechanisms in each market derive from institutions or autonomousstructures. They cannot therefore be reduced to an overall mechanism based only onthe operation of'supply and demand'.

This being the case, the stability of regulation acquires a certain inertia in structuresand in institutional forms. But this stability is only relative, for the very operation ofthe economic system engenders constant movements which continually modify thecharacter of these relationships, the intensity of conflicts and the balance of power. Inthis sense the standard systems of regulation which will be presented in this paper repre-sent a simplification for the purposes of theoretical analysis.

This study covers more than a century of French experience, % since this is the periodover which major changes in regulations can be observed. It shows that, in comparisonwith the inter-war period, and even more so with the 19th century, money wages (andreal wages) have behaved differently since the 1950s, the gradual disappearance ofdownward adjustments in both constituting a priori support for the hypothesis of achange in the mechanisms of wage determination.

The development of wages over a centuryMoney wages

From 1810 to 1850 or so money wages either declined or remained constant, accordingto occupation. During the next 30 years, however, wages showed an almost continualrise (Fig. 1), reaching a plateau in 1884, then increasing more gradually until 1900 andmore rapidly from 1905 onwards. At the end of the First World War, the extent ofinflationary processes was translated into a clear parallel development in the moneywage level and the cost of living (Fig. 2). This was a significant change in comparison

•f Although the definition adopted here is a specific one, this study follows the approach taken by recentworks on regulation, particularly Aglietta (1976), and By6 and de Bernis (1977).

% No continuous official wage series are available for the 19th century. Historians have tried to recon-struct such series basing their work on archives. The data used in the article are taken from the works ofKuczynski (1946), Lhomme (1965, 1968), Sauvy (1965) and Singer-Kerel (1963).

Wage formation 101

o 00

60

50 -

' Money waqesi— Cost of living— Real wages

I I I1840 1850 I860 1870 1880 1890 1900 1910

Fig. 1. The development of money wages and the cost of living in the 19th centurySource: Lhomme f 1968 .

900 -

700 -

500

Money wages• Cost of living

2 300 £1919

120

llOh-

100

90 V1919

1925 1930 1935 1938

/

Real wages

j _.

1925 1930 1935 1938

Fig. 2. The development of money wages and the cost of living in the inter-war periodSource: Lhomme !968 .

with the 19th century, during the course of which such synchronisation was much lessclearcut, in both the short and medium term.

Yet, if the general tendency was for wage increases between 1840 and 1940, the moneywage level still fell in certain years (1843, 1847, 1848, 1851 and 1856) and indeed fellfor longer periods before 1840. Such recurrences then became less frequent and more

102 R. Boyer

episodic. However during the great depression at the end of the 19th century—from1883 to 1888—the wage level fell and then remained constant. The depression ofthe 1930s saw a cumulative fall in prices and in wages for almost five years, a newphenomenon compared with the 19th century. This pronounced flexibility of moneywages represents a priori evidence of the predominance of competitive adjustments overthis period, in the sense that disequilibrium in labour markets involved marked move-ments in wages in both directions.

The period 1959 to 1976 shows many dissimilarities compared with the inter-waryears. One initial change concerns the rate of increase in money wages: these increasedon average by \-2%per annum from 1840 to 1913, by 10-6% from 1920 to 1938, and thenby 16-2% from 1947 to 1959. From 1960 to 1973 they rose less quickly (by 9% on aver-age). In quantitative terms, the rates observed since 1969 are not exceptional. However,the fact that there was no fall in wage levels between 1945 and 1976, despite more or lessmarked recessions, represents evidence of changes in money wage determination (Fig. 3)

2000

I50O

1000

600

IC/

Money wages

Cost of living

Real woges

<955 i960 1965 I9'O

F i g . 3 . The development of money wages and the cost of living since 1946

Moreover wage increases became much more stable from year to year as measured bythe standard deviation of annual changes. Between 1841 and 1869 this was around2-6%, but it then fell between 1870 and 1895 to 1-4%, and to 1-6% between 1896 and1913. By contrast, the standard deviation increased to 10-3% in the inter-war periodand to 15% between 1947 and 1959. Between 1960 and 1973, however, it declinedmarkedly to 2-5%, which suggests a change in the mechanisms by which wages adjustto fluctuations in the level of activity and of employment.

Equally important changes may be seen in the history of the cost of living (Table 1).Very broadly the period 1960-73 is characterised by a secular increase in rates ofinflation (while previously these rates had been important only during wars), by the

Wage formation 103

Table 1. Money wages, cost of living and real wages, 1841-1973

Money wagesMaximumMinimumRangeAverage over the

periodStandard deviation

Cost of living

MaximumMinimumRangeAverage over the

periodStandard deviation

Real wagesMaximumMinimumRangeAverage over the

periodStandard deviation

1841-1869

7-8- 2 1

9-9

1-52-6

13 6-11-7

25-3

107-0

15-6— 10-5

26-1

0-96-8

1870-1895

4-8- 1 0

5-9

101-4

19-4— 14-2

33-6

0-25-9

19-5— 16-3

35-7

1-26-4

Annual % rate of change

1895-1913

5 0- 2 0

7-0

1-21-6

8-7- 6 - 014-7

0-94-1

6-2- 6 - 4

12-6

0-43-8

1920-1938

35-2- 7 042-2

10-610-3

32-5- 9 - 642-1

5-911-5

18-4-7-125-5

1-35-9

1947-1959

53-22-3

50-9

16-2150

58-7-1 -760-4

14-418-6

11-6- 8 - 5201

2161

1960-1973

1405-88-2

9 02-5

7-30-76-6

4-31-7

1002-67-4

4-52 0

Source: Lhomme (1968), INSEE (1978).

apparent disappearance of downward adjustments in the general price level, and finallyby very little fluctuation in the inflation rate.

Real wages

An initial distinguishing feature of the present period concerns the average rate ofincrease in real wages. Estimates made by J. Lhomme suggest that four principalperiods should be distinguished during the 19th century and the inter-war period(Figs 1 and 2). From 1840 to 1856 real wages fell, for, although money wages variedlittle, the cost of living increased greatly. From 1856 to approximately 1902, there wasa general upward movement in real wages, the cost of living rising less than wages from1856 to 1860, then falling. From 1902 to 1913 there were wide fluctuations in real wagesaround a more or less constant level. The period 1920 to 1938 saw successive contrastingmovements which led on average to a very slight acceleration in real wage growth(1-3% compared to 0-9% from 1841 to 1913). This irregularity was the result of oppositemovements in wages and prices. However, from 1947 to 1973, an increase in the rateof growth of real wages (+3-2% a year) was associated with great regularity in itsmovements (Fig. 3).

A second distinguishing characteristic of the present period is the greater downwardrigidity of real wages. Indeed, adopting a long-term perspective, falls in real wagesbecome increasingly rare. From 1810 to 1870 these were pronounced and numerous,from 1870 to 1900 more moderate and less frequent; and sharp and frequent oncemore from 1900 to 1938. Between 1946 and 1973, however, they became rare, so much

104 R. Boyer

so that they correspond less to the spontaneous effect of changes in economic circum-stances and more to policies specifically aimed at a reduction in purchasing power (aswas the case in 1958, for example). Thus from 1960 to at least 1977 the rarity—indeedthe absence—of falls in wage levels no longer affects merely their monetary value, butalso their real value. To varying degrees, an analogous tendency can be observed inmost other economies (Mitchell, 1975).

Changes in regulation

An examination of wages alone, however, is not sufficient to enable the conclusion tobe drawn that there was a change in the methods by which they are determined. Thereduction in the size of fluctuation may result simply from smaller movements inunemployment rates, with an unchanged mechanism for the determination of wages;alternatively, the apparent rigidity of money wages may be merely the reflection of apermanent erosion in the value of money. The characteristic features of wage determin-ation (and of employment) need therefore to be examined, starting from the preciseform of the organisation of the wage relationship in each period. By this latter term ismeant the whole set of conditions which govern the use and reproduction of the labourforce, it being understood that the present analysis is confined to those features of thewage relationship which have a particular influence on wage determination, whetherdirect or indirect.

Far from developing in a regular fashion with the development of capitalism, thewage relationship is in fact principally derived from the nature and intensity of accumu-lation and the struggles that it inspires on the part of workers. It is thus necessary toisolate a certain number of periods which are more or less homogeneous so far as thesocial, institutional and legal factors governing the determination of wages are con-cerned. It is then important to check whether or not the periods so determined corre-spond to stability in the mechanism of wage determination.

The quantitative changes noted above can be regarded as corresponding to thesequence of three principal regulations, each of them being associated, except for theoccasional significant discrepancies, with a very distinctive configuration of the wagerelationship and economic structures.

The ancienne regulation,^ characteristic of the 18th century, presupposes the preponder-ance of an essentially precapitalist and unproductive agricultural system. This stage ofstructural development leads to a distinctive conjuncture, characterised by employmentand wages levels moving in the same direction as each other but in the opposite directionfrom the cost of living. It would appear that such a regulation persisted, though becomingconstantly weaker, until the middle of the 19th century.

A competitive regulation was the result of the predominance of capitalistic industry.There appeared a new set of economic conditions which was itself the expression of achange in earlier mechanisms. Even if wages remained sensitive to the level of industrialactivity, they nevertheless showed a very slight positive relationship with the cost ofliving, rather than a negative one, as was formerly the case. This regulation, which itselfunderwent gradual alteration, characterised the second half of the 19th century. Theperiod which followed the First World War did not fundamentally modify the competitivelogic, even if after 1914 certain changes in the mechanism of wage determination were

t Translator's note: cf. Vancien regime.

Wage formation 105

introduced. The monetary instability which followed the adoption of a fixed rate ofexchange of paper money and the changes that took place in wage negotiations certainlycaused the appearance of a marked synchronisation between money wages and thecost of living, but wages continued to be determined by the level of general activity inaccordance with the working of the former competitive regulation.

The gradual domination of a monopolistic regulation would be the logical conclusion ofthe disruption in the wage relationship over the last 20 years. Indeed after 1968 a wholeset of economic, social and political changes (linked with new action on the minimumwage level, and with the development of indirect wage benefits) reinforced and deepenedthe institutional changes which, at the end of the Second World War, tended to definenew regulatory mechanisms for the incomes of wage earners. So the absence of anymarked impact of the rate of unemployment on wages is the logical consequence of themovement from the competitive regulation to another type of regulation. For the sake ofconvention we shall describe this latter as monopolistic, even if this term does not corres-pond to the most widely accepted meaning of the term 'monopolistic' (see pp. 111-112below, and Benassy et al., 1979).

The interest and difficulties in moving from a 'pure' theory of wages to the study ofthe regulation -clearly appear now. On the one hand it is possible to establish a fairlyclose correlation between the nature of the wage relationship and the type of wageregulation. This implies that the exact form of social relationships and of the state ofdevelopment of economic structures constitute a necessary preliminary to any studyof wage determination. On the other hand, the hypothesis of a change in regulationmay be used to explain the simultaneous rise of money wages and of unemployment, adevelopment which, if considered by reference to the workings of a competitive regu-lation, so often appears paradoxical.

The competitive regulation at work: the example of the 19th centuryThe 'ancienne regulation'

Historians' studies show that social relations of a specifically capitalist nature werepresent well before the considerable expansion which took place at the end of the 18thand beginning of the 19th centuries. Nevertheless, these 'embryos' were not sufficientto give birth to mechanisms for wage determination identical with those observed oncecapitalism becomes dominant. In broad terms it is possible to sum up the pattern ofeconomic developments in the 18th century in the following way (Abel, 1973; Bouvier,1974; Braudel and Labrousse, 1970). Recurrent agricultural crises brought about anexplosion in agricultural prices, adding in a brutal way to the cost of living, squeezingagricultural revenue and therefore the outlets for industrial products. In consequence,first the agricultural and then the industrial labour force was reduced, leading to amassive drop in money wages, a movement which reduced still further the standardof living of wage earners, already heavily eroded by the explosion of agricultural prices.The periods of good harvests show movements in the opposite direction. In such aneconomy, movements in the cost of living on the one hand, and in employment andwage levels on the other, are in opposite directions.

The rise of capitalism gradually brought into question the previous economic andsocial structure. The industrial revolution shifted the central impetus from the countryto the town. Moreover it contributed to the improvement of agricultural yields, as aresult of the exodus from the country, this latter being a consequence of the growth of

106 R. Boyer

industry and competition arising from the development of a national market. Thus thefrequency and intensity of bad harvests, which had been the origin of slumps under theancienne regulation, were reduced. Finally it modified the conditions under which thereproduction of the labour force took place, by putting it into the sphere dominated bycapitalism. Despite all this, crises in the provision of the means of subsistence had farfrom disappeared in the 18th century. The social movements which led to the revolu-tion of 1789 resulted to a large extent from the explosive collision between a crisis inthe means of subsistence and a political crisis.

The Loi Le Chapelier

With the revolution of 1789, the traditional ties that were an important component ofthe ancien regime were abolished and a new set of laws concerning the freedom of thefirm {decret d'' Allarde) and the free movement of merchandise (decree of 28 September-6 October 1791) was codified. For our purpose it is the famous law, the LoiLe Chapelier (1791), which is most important. Forbidding all collective action, itestablished in principle the individual (but not collective) freedom of producers to selltheir products, and that workers must look to 'their own enterprise or labour'. It issignificant that the same text governs both competition between producers and thenature of the work contract, even if for more than half a century the principles which itput forward were used above all to deny wage earners any possibility of collectivelydefending their own interests.

The freeing of the ties which previously limited the mobility of workers and theaffirmation of the individual nature of the work contract are, a priori, factors whichencouraged the formation of a wage-earning class, even if the spread of the system offragmented land holding after the 1789 revolution held back the development of theindustrial and urban proletariat by consolidating the position of a large part of thepeasant class.

Moreover, by codifying a perfectly 'atomistic' labour market, this set of reformsfavoured the institution of a fully competitive wage regulation. Yet it would be erroneousto conclude from this that the establishment of a legal structure is sufficient to assurethe effective economic domination of the principles that it postulates. On the one hand,it is up to the market itself whether or not the use of this legal structure will spread, takingaccount of the overall economic and social organisation; on the other hand, the effectivedomination of a new regulation can not be gained instantaneously but presupposes along period of transition, in the course of which the previous social structures aregradually eliminated or downgraded.

Thus in the first half of the 19th century, even if industrialisation made its effectsfelt in certain sectors, cyclical movements continued to be dominated by wage levelswhich moved inversely with movements in the price of grain. This cyclical alternationalso characterised the relationship between the level of economic activity and the priceof cereals, which explains why, in the textile industry for example, the crisis in the meansof subsistence led simultaneously to an often massive contraction in employment and alowering of the money wage rate.

At the beginning of the 19th century there was a coming together of certain elementsof the ancienne regulation (conjunctural movements in opposite directions of wage levelsand the cost of living) and new developments connected with the development ofcapitalist relationships, and in particular a tendency to a lowering of wages in sectors

Wage formation 107

or trades affected by the upheaval in the conditions of production, such as (for example)the textile industry.

Towards the end of the century, it became apparent that agricultural crises were nolonger playing a key role in the development of the overall structure, so that relation-ships were gradually changed: employment levels, nominal wage levels and the costof living now tended to move in the same direction. In the case of wages in the buildingindustry in Paris (Rougerie, 1968), such a synchronisation appeared in the cycle 1834to 1842 and gathered strength subsequently, even if certain exceptional years, such as1848, marked a return to opposite movements in money wage levels and the cost ofliving, t

The competitive regulation can be seen partly as a continuation of the previous regu-lation, to the extent that the degree of dependence of movements in money wage levels incomparison with the rate of economic activity is strengthened. The major change wasthe appearance of some synchronisation between wage levels and the cost of living:prices tended to develop in the same direction as production. So, though the behaviourof money wages depended principally on the form of the mechanisms operating in thelabour market, the behaviour of real wages brought into operation all the constituentparts of the regulation through the movement of prices.

The strong dependence of wages on employment

Traditionally the rate of unemployment is supposed to be the key indicator of dis-equilibrium in the labour market. But this constitutes only one of a number of measures.Should not greater importance, for example, be attached to cyclical movements inunemployment rates as opposed to those caused by changes in the working popula-tion ? In principle, it is likely that changes in hiring and firing are at least as significantas unemployment statistics.

Because of the difficulty of obtaining reliable unemployment statistics for the 19thcentury, variations in the volume of industrial production are taken as an indicator ofthe state of the labour market.% The shakiness of the basic statistical data, however,means that the results are more suggestive than definitive. Nevertheless, the variouseconometric tests carried out are consistent with the hypothesis that the overall economicsituation has a positive influence on wage levels: as a general rule, money wages wentdown in times of slump and rose in times of boom (see Fig. 4). The nature of the labourcontract made this possible, since it authorised frequent revisions of wage levels andparticularly rapid changes in the number employed and the length of the working day.

Marked variability in the wages structure

The influence of competitive mechanisms is not limited to the determination of theaverage wage for industry as a whole, but extends to individual trades and regions,though what is important in case of the wage for a given skill is the specific rather thanthe overall markets.

Thus the overall secular movement in wages conceals marked divergences for differentoccupations, the rise in money wages from 1830 to 1911 varying from 60% to over200%. A similar conclusion emerges from calculations (Kuczynski, 1946) of changes in

t Other studies (Abel, 1973; Bouvier, 1974) offer a great deal of evidence to support this hypothesis ofa gradual transition to a new overall regulation, the only difference being the question of the date of theturning point, which might be 1835, 1848 or even 1857, as the case may be.

% This accords with previous studies of the history of wages. See, for example, Rougerie (1968).

108 R. Boyer

1-05 1-

1-00

0-95

0-90^IP M

rr+ - ^ o ' o of volume o' ^ = Po'io of money wogei dmajsTnai production

To its trend vGiueto '% trend >o..e

1840 1850 I860 1870 ,880 1890 1900 1910 1920

Fig. 4. Alonei wages and industrial nctiiih 1841-1913For the whole period 1841-1913:

M O i l IP ID-1— + , , .&=• 0-074. DW - 1-10.M* .'••i IP*

The figures in parentheses are the estimated standard deviations of the coefficients. This convention willbe used in all the following diagrams and tables.

For definitions see note to Fig. 5.Based on the series in Lhomme (1968) and Crouzet (1970).

Table 2. Variability in the wage structure in the 19th century (indices of manual money wages by sector,1850 = 100')

17891800-180118051810182019301839-19401850Annual average rate ofchange 1800-501860187018801890-9219001910-11Annual average rate ofchange 1850-19101920-2119301938Annual average rate ofchange 1920-38

Construction

69818389898596

100

0-4%113134132138141179

10%370898

1206

6-8%

Metals

75100—

m8S8295

100

0118147111115133145

0-6%450807

1144

5-3%

Mining

52687484

r

100

0-8%118144117137154166

0-8%634

12231914

6-3%

Textiles

181191—

200

132104100

- M %139163120131133140

0-6%598

11351549

5-4%

" In view of the shakiness of the basic data, the indices are intended to provide only an order of magnitudefor the developments observed. In particular, the various sub-periods relate to very uneven statisticalcoverage.

Source: Kuczynski (1946).

Wage formation 109

the average wage in several large sectors: building, metals, mining and textiles (Table 2).For example, whereas wages in mining and the building industry increased from 1800to 1850, in the textile industry they declined, possibly as a result of their relatively highabsolute value, as well as of the effect of mechanisation on rural, family-based industry.

It would seem therefore that in a competitive regulation, the various categories ofwages tend to develop relatively independently of each other. As a result, inter-sectoralchanges in wage levels constitute a means of macroeconomic adjustment. Indeed it isopen to question whether, in view of the large differences in wage and labour movementsbetween sectors, the notion of the average wage is relevant to the 19th century.

Money wages and the cost of living

The coincidence of changes in money wages and the cost of living was quite markedfrom 1852 to 1870, but less so from then onwards, though it reoccurred between 1900and 1914. Although on average during the period 1846 to 1913, the elasticity of wageswith respect to the cost of living was slightly positive or not significantly different fromzero (Table 3), the results are more satisfactory if periods of rising prices are distin-guished from periods of falling prices. Thus wages tended to increase when the costof living rose, although less than proportionately (an elasticity of the order of 0-2,significant at the 5% level), and to remain unchanged when prices fell. Real wagestherefore tended to fall in periods of inflation and to rise in periods of deflation (Fig. 1).

T a b l e 3 . The elasticity of the average wage with respect to the cost of living

Elasticity ofaveragewage withrespect tochanges incost of living

1841-70

0-11(1-6)

1871-95

- 0 0 5(1-1)

1896-1912

0 1 3(1-5)

Average1841-1913

0 0 6(1-5)

1920-30

0-75(4-1)

1930-37

0-80(4-9)

Average1920-

37

0-79(6-8)

1947-58

0-77(7-6)

1959-68

0-43(4-3)

1969-76

0-99(7-7)

Average1947-

76

0-77(18-2)

These results correspond lo the estimation of parameter a for the following equation:M - aC6l.--.-b.

The calculations were canied out on the basis of series in Lhomme (li)6H . For definitions see note to Fig. 5.

The slow 'drift' away from the competitive regulation

In the second half of the 19th century, legislation began to reflect a change in the natureof wage negotiations, which gradually became collective, and no longer merely indi-vidual. Indeed it took more than half a century for the principles of the Loi Le Chapelierto be questioned. In the last third of the 19th century, legal recognition of trade unionsand state intervention in labour relations (legislation governing working hours, creationof a factory inspectorate, compensation for industrial accidents, setting up of a pensionscheme) made an initial breach in the principles which had previously governed thelabour market. The first collective agreement appeared in coalmining in 1891, and,though the development of new types of structures was on a limited scale, they beganto influence the mechanisms which determine wage levels. Despite the shortcomings ofthe statistics, it would seem that, in the last third of the 19th century, the only significant

110 R. Boyer

influence on money wage levels were booms in production, which were associated withhigher pay. There was no symmetrical fall in times of slump. However it seems importantto differentiate between periods, since none of the econometric tests carried out canexplain increments over the whole period 1841 to 1913 (Tables 3 and 4). In particular,in the years 1896 to 1913, wages seem to have been less sensitive to growth in production,but actually rose when production fell. Thus there appear to have been various distinctforms of wage determination within the same competitive regulation.

T a b l e 4. The influence of industrial activity on money wages at the end of the 19th century

1841-70 1871-95 1896-1913 Average

Elasticity of money wagesWith respect to:

increases in industrialproduction - 0 0 3 (0-3) 0-31 (3-4) 008 (0-7) 004 (0-7)falls in industrial production 001(0-03) -0-10(0-6) -0-42(1-5) 001(0-1)

The results presented correspond to the estimates of the parameters a^ and a2 in the equation:M = <J, IP+ + aJP- + b,

where IP+ and IP' are the positive and negative variations in the volume of industrial production. Wageseries were taken from Lhomme (1968) and industrial production estimates from Crouzet (1970). Fordefinitions see note to Fig. 5.

The case of the period 1871 to 1895 constitutes a particularly significant example ofthe first of these two conclusions. Indeed, an average wage elasticity in comparison withproduction of the order of 0-2 conceals two very different mechanisms: in periods ofgrowth increases in wages respond sharply to increases in production (elasticity of0-3); in periods of depression, on the other hand, wage levels do not appear to fall (theelasticity is not significantly different from zero).

The inter-war period

The political and social climate during the war led, after 1919, to a series of measureswhich contributed to a recognition of the collective nature of wage negotiations and tothe introduction of the first elements of a 'social' wage (the law governing workers'pensions, the trend towards a certain unifying of the systems of national insurance).In addition, there was a significant growth in the use of the collective agreement pro-cedure during the 1920s.

These changes contributed to changes in the process of wage determination. Thepost-war inflation gave rise to strong pressure from wage earners for collective agree-ments to include an explicit indexation clause. There was a movement towards institu-tionalising the measurement of the cost of living, and using this index in conciliationand arbitration procedures (Singer-Kerel, 1963). The procedures recognised in asemi-explicit way the existence of a minimum, historically determined, level of con-sumption for workers.

The result was that money wages began to move more closely in line with the costof living. During the period 1920 to 1937, the elasticity of the former with respect tothe latter increased to around 08, as opposed to 01-0-2 during the 19th century.Moreover, it not only remained remarkably stable during booms and slumps (includingthe aftermath of the 1930 crisis), but was also practically the same after the Second

Wage formation 111

World War. A similar increase in the elasticity of wages to prices and a similar degree ofstability in the relationship are also evident for the USA and the UK. The analysisdeveloped here suggests that this phenomenon was related not so much to betterperception by individual wage earners of movements in price levels as to the institu-tional factors mentioned above.

This move towards 'indexation' had some effect on the underlying inflationary anddeflationary process. If the elasticity of wages with respect to the cost of living is closeto 1, a larger movement in the general price level is required to achieve a given changein real wages. Insofar as the succession of booms and slumps has the effect of regulatingthe rate of profit—of which the wage-profit share is an essential component—it isnot surprising that fluctuations in prices and wages became more pronounced betweenthe two wars. Yet this change would imply a break with the competitive regulation onlyif it were accompanied by changes in activity having a diminishing effect.

This does not appear to have been the case. Indeed, Fig. 5 shows a strong correlationbetween movements in money wages and the volume of industrial production—stronger,indeed, than in the 19th century—whether or not price changes are included in theregression. This might suggest a strengthening of the competitive mechanism, thoughit could just as well indicate a change in the method of constructing the industrialproduction series.

50

40

~ 30

I•s ^2I 10

-10

-20

Cost o' livingMoney wagesIndex of mdustnol production (volume)

1920 1922 1924 1926 1928 1930 1932 1934 1936 1938

Fig. 5. Money wages, cost of living and industrial activity, 1920-1937

iM - 0-.r>8 IP -4-8 R* = 0-65 DIV - 0-751920-1937 (.4-9) '3-6

|.Vif 0-28 / / ' - 0-52 COL-2-7 « 2 =• 084 D\V =- 1-282-r) 3-8 12-5

Af = rate of change in money wages.IP = rate of change in industrial production.CO I =

A competitive 'regulation' and the crisis of 1930

A schematic representation of the difference between competitive and monopolisticregulation would be as follows. In the former it is falls in the cost of living imposed bythe market which are the means via which productivity movements affect workers'standards of living; while money wages reflect labour market conditions, real wages

112 R. Boyer

register the favourable effects of price reductions, particularly in recessions. In thelatter, on the contrary, these same movements in productivity are associated with anincrease in money wages, without any ex ante change in prices. The growth in demandcaused by these wage increases is associated with growth in productive capacity withoutthe need for large downward adjustments in prices or wages.

The institutional arrangements prevailing in the inter-war period guaranteed thatwages in some degree maintained their buying power, but not that they increased withproductivity. (See Table 5.) Thus, despite the unprecedented increase in productivityover the period 1920 to 1930 (+5-8% a year, as opposed to around 2% a year in the19th century), real wages increased by only slightly more than in the second half of the19th century (2-2% a year as against just under 2% a year).

Table 5. The development of productivity and real wages in industry {annual average rate of change, %)

The 19th century1856-701870-95°1895-1913°

The inter-war period1913-201920-301930-37

1937-731937-491949-591959-73

Productivityper head

2-40-8/2-30-5/0-3

-1-85-82-8

-0-34-94-8

Weeklyreal wages

1-42000

- 3 02-21-5

-0-53-94-1

Productivityreal wages

10-1-2/+0-3

0-5/0-3

1-23-51-3

0-2100-7

° For the two periods 1890-95 and 1895-1913 the first figure quoted corresponds to the raw data takenfrom the various sources. The second figure is an attempt to correct for the heterogeneous nature of thesedata. For further clarification see Benassye/al. (1979).

Consequently, the boom in capital-intensive accumulation was brought to a halt bythe inadequacy of overall demand. This is without doubt one of the basic causes of thecrisis of 1929-1930 in France. If the injections of capital which followed the Poincarestabilisation policy for a time favoured the growth of credit, the constraints associatedwith the return to the gold standard contributed to preventing any continuation of theprevious boom. On this interpretation, the international problems caused by the crisis—whether they affected commercial exchanges or movements of capital—only highlightthe fact that the conditions under which wages were determined were incompatiblewith the new mode of accumulation at the end of the First World War. If the boom wasextended for a time, this was only because certain factors (the growth in credit, thedevelopment of sales abroad, to the urban petit bourgeoisie or the agricultural world)concealed the disequilibrium between the growth of productive capacity and overalldemand.

Recovery from the crisis presupposes a return to the coherent relationship betweeneconomic and social structures and the type of regulation. The history of the variousadvanced capitalist economies shows the diverse solutions which played a part inbringing the crises to an end. In certain countries new social structures emerged because

Wage formation 113

of political changes—as in the USA with the New Deal; in others, like France, attemptswere made to introduce retrogressive measures. Thus once the crisis became apparentcollective agreements declined rapidly, further strengthening the negative influenceof a high level of unemployment on money wages. The pre-eminence of competitivemechanisms therefore explains both the slight growth in real wages during the boomand the continuation of this growth during the years 1930 to 1933.

The Matignon agreements of 1936 partly laid the foundations for a new system oflabour relations, by recognising that negotiations between wage earners and managerswere collective and no longer on an individual basis. The outbreak of war, however,by stopping the development of these procedures, prevented the effective change of theregulation.

The 1960s and 1970s: a new wage regulation

In contrast with the inter-war period, a major feature of the post-war years was a waveof capital investment which lasted for nearly a quarter of a century and which broughtimportant gains in productivity. In industry, however, these gains were no greaterthan those noted for the period 1920 to 1929. On the other hand, there was a consider-able acceleration in real wages as compared with the inter-war period, with the resultthat productivity and real wages tended to increase at more or less equal rates (Table 5).Productive capacity therefore grew in line with wage earners' income, and hence withconsumption, a major component of aggregate demand. A predominately capital-intensive accumulation implies (if a 1929-30 type crisis is to be avoided) that workersthemselves consume a sizeable part of the consequent new products. Spending on foodaccounted for the major part of workers' budgets in the 19th century and the inter-warperiod (so limiting the scope for industrial expansion). From the mid-1950s, however,spending on food represented less than 50% of budgets, while an increasing proportionwas devoted to durables, the production of which was associated with high productivitygrowth.

After the Second World War a combination of factors all tended to bring into questionthe social, legal and institutional bases which underlay wage determination. Labourlegislation again recognised the explicitly collective nature of agreements made betweenwage earners and employers and granted a key role to trade unions. The new pro-cedures thus established favoured a standardisation in the determination of wages,while the various attempts from 1963 to 1967 to introduce an incomes policy onlyincreased the unification and centralisation of labour relations.

These tendencies were further strengthened in 1968, with the growth of nationalcollective agreements, which dealt with compensation for partial unemployment,professional training, payment of monthly salaries, and compensation for lay-offscaused by recessions. Moreover, new institutional procedures for wage determinationwere adopted in the public sector, which meant that wages were no longer related tolabour market conditions. Some wage agreements included provisions for linking wagesto the cost of living and the productivity of the firm or of the economy, so making possiblea new wage regulation.

These new arrangements for wage determination mark a break with the competitiveregulation in three distinct respects. First, explicit procedures for compensation for pastcost-of-living increases were introduced. Second, gains in productivity are now partlypassed on into money wages. Third, there is now a recognition of a certain parity in

114 R. Boyer

changes in wage levels, presupposing permanent disparities in the wages structure,according to qualifications, industrial sector or workers' individual characteristics. Thefirst characteristic was present to some extent from 1920 to 1937, but the two othersare features peculiar to the contemporary period.

Wage determination and the level of employment

The contemporary period differs from the previous 150 years insofar as an increase(even a massive one) in under-employment is no longer associated with a fall in moneywages, but only with a reduction in their rate of growth. This conclusion holds trueeven in the more sophisticated versions of the Phillips curve, whatever measure ofunemployment is used. At the root of this lies a paradox: money wages appear torespond strongly to variations in the rate of unemployment when this is low, but not atall (or very slightly) when it is high.

It is possible to identify three distinct periods (see Table 6). From 1947 to 1954 therewere wide fluctuations in money wages, which appear to be broadly related (negatively)to variations in the rate of unemployment. It should be noted, however, that thelatter was almost always below 1 %, so that the economy was continually very close tofull employment. From 1954 to 1966-67, the size of these fluctuations declined andan apparent negative relation rests very largely on the years 1958 and 1959, whenunemployment increased while the increase in wage levels fell sharply. From 1967onwards, the tendency is for simultaneous rises in wages and unemployment. This isconfirmed by the use of an estimate of the number of people looking for work.

T a b l e 6. The direct influence of unemployment and the cost of living on the development of money wages

1947-58 M = - 5 7 £ / + 5 1 - 5 R1 =0-50(3-0) (4-3) DW= 1-42

Af = 0-77COZ,-t-l-0£/+5-l R' =0-94(7-6) (0-1) (6-8) DW = 2-28

Average rate of unemployment 0-58%1959-68 M= -9-2 U+13-6) R* =0-45

(2-5) (5-6) DW =1-71M = 0-34COZ.-40f/+8-7 R' =0-79

(3-2) (1-6) (3-9) DW =1-35Average rate of unemployment 0-7%1969-76 M=l-6C/+9-7 R2 =0-42

(2-1) (4-6) DW = 1-32M=l-07COZ.-0-34l/+5-4 R* =0-94

(6-1) (0-7) (4-7) DW = 2bbAverage rate of unemployment 2-4%

Sources for series: INSEE (1978) and Ministere du Travail.U = rate of unemployment.For other definitions see note to Fig. 5.

However it can be argued that, once explicit or implicit indexation procedures areintroduced, wages are no longer the key variable which assures equilibrium betweensupply and demand in the labour market. Indeed, the characteristic of such proceduresis to link the market for labour and that for other commodities, which were once largelyindependent of each other. Consequently, any change in consumer prices is immediatelyreflected in money wages, whatever the employment conditions. In this institutional

Wage formation 115

context it is perfectly possible for prices to rise in spite of an increase in excess capacityand/or a rise in unemployment. This is a necessary, but not sufficient, condition for theestablishment of a monopolistic regulation. It is still necessary that the pressures ofdemand in the labour market should no longer exercise a major influence on wages.

Between 1947 and 1958, once the effect of inflation on wages is allowed for, unem-ployment does not appear to play any significant role, contrary to what the simpleregression of wages on unemployment alone would suggest (Table 6). In the periodfrom 1959 to 1968, on the other hand, unemployment has an insignificant (and nega-tive) influence on wages, though the effect of prices is also weaker. From 1969 to 1976,whereas wages are more sensitive to prices, unemployment, however measured,appears to have no systematic effects.

It is nevertheless arguable whether the rate of unemployment is an adequate measureof labour market conditions and hence of the pressure of demand. If, instead, the logrelationship between unsatisfied demand for employment (u) and unfilled vacancies(y) (i.e. log ujv) is taken as the measure of labour market conditions (Deruelle, 1974,1975; Fouquet et al., 1967; Division des comptes trimestriels de 1TNSEE, 1977), andincluded in the equation, along with the cost of living and the guaranteed minimumwage, the demand for labour so measured becomes a more important explanatoryvariable, not only for the period 1957 to 1967, but also for the years 1968 to 1973.Moreover, while the regression coefficients on the other two variables are differentbetween these two periods, the labour market coefficient has the same value.

Whatever the interpretation of the apparent change in the importance of prices andminimum wages, it is clear that the regulation at work in the 1970s is radically differentfrom that of the 1930s. Thus, according to partial simulations of the DMS model(Fouquet et al., 1976), the effect of fairly significant year-to-year falls in the demandfor labour between 1972 and 1975 (with log u/v doubling each year) was in itself toreduce nominal wages by only 0-5% in 1973, 0-9% in 1974 and 2% in 1975. Althoughthese effects are not negligible, they relate to a period of under-employment unprece-dented since the 1930s. Moreover, the contribution of the cost of living is between fiveand ten times greater in this period.

Finally, though variations in industrial activity—the proxy for the demand forlabour used for the 19th century and inter-war years—show some positive correlationwith wage movements for the whole period 1947 to 1976, the relationship does not holdfor sub-periods (Table 7).

Growth in productivity and growth in money wages

The monopolistic regulation has been defined as a new form of interdependence betweenproduction and workers' consumption. Indeed it presupposes that, in part, gains inproductivity bring about an increase in wage earners' money income, with the resultthat price reductions now only operate as an exceptional method of adjustment, con-trary to what was observed in the competitive regulation. A complex set of mechanismscontributes to this development, with minimum wage policy and claims for wageparity playing important roles. In what follows, however, the focus of attention is onthe role of wage increases for sectors in which productivity growth is relatively rapid.

Support for this so-called 'leading sector' hypothesis can be found in a number ofstudies. For example, Eatwell, Llewelyn and Tarling (1974), from an examination offifteen countries over the period 1958 to 1967, concluded that wage increases were

116 R. Boyer

Table 7. Industrial production, consumer prices and money wages

1947-58"

1959-68

1969-76

The period as a whole1947-76

Af = 2-3/P-l-8(3-1) (0-3)

CM = 0003/P+7-5(0-01) (5-3)

M = 0-44COZ.+009/P+4-9I (4-2) (0-6) (4-8)CM= -0-45//»+15-2

(1-8) (11-3)\

M = 0-92COZ.-0-12/P+6-3L (7-7) (1-3) (5-1)fM= 1-15/P+6-1

J (30) (2-2)j M = 0-78COL-003/P+5-6I (15-0) (0-2) (5-9)

R* =0-52DW=147R' = 0 0 0 0£»M^=119

R' =0-72DW = 0-99/S2 =0 -36DW=l-5\

R' =0-95iDPK=l-55R* =0-25Diy=l-13«2 =0-92Z>iy=l-69

0 Because of the strong collinearity between the cost of living and industrial production, the simultaneousestimation of the rate of change of money wages with these two variables has not been attempted.

For definitions see note to Fig. 5.

related more to productivity in the leading sectors than to average productivity overthe economy as a whole. For this to be the case, it is necessary for institutional arrange-ments to prevail which maintain the stability of the wage structure, as, of course,happens in contemporary economies.

Though the leading sector hypothesis has not been tested for France, an indicationof its importance can be gained from the statistical analyses described below.

The leading sector hypotheses and the French economy

Following Silvestre (1971), it is possible to distinguish two groups of sectors as regardsthe period 1953 to 1964. First, there are industries with high wages, which are quitehighly concentrated and unionised. They can be characterised by very regular increasesin employment during cycles and by wages being insensitive in the short term to theoverall state of the labour market, but strongly influenced by the state of the productmarket. The second group consists principally of industries with low wages, which arerelatively unconcentrated and un-unionised, and in which both employment and wagesare sensitive to the overall state of the labour market.

The close correspondence of wage movements in the two groups in the medium termcould essentially be due to two factors: first, through wage increases being spread viaworkers' mobility and, more importantly, through demands for wage parity; and,secondly, through wages in the second group catching up in periods of boom on theadvance made during recessions by wages in the first group. The most recent studies(Deruelle, 1974), though defining the leading sectors slightly differently, confirm theheterogeneous nature of wage determination.

The structure of remuneration by industry, for example, though not wage increases,appears to be linked significantly with the degree of concentration and the level of skillinvolved in the work (Jenny and Weber, 1975).

The results suggest that wages increase with concentration in industries whereunions are relatively weak, but that strong unions can increase wages largely inde-

Wage formation 117

pendently of the degree of competition in the product market. In other words, unionaction appears capable of ensuring that gains in productivity are reflected in the growthof money wages.

Unemployment and wages since 1973: non-paradoxical developments

In the light of the hypotheses developed above, it is easy to interpret the developmentof wages and employment in 1974—75, not as an exception to the competitive regulation,but rather as a logical consequence of the characteristics of the monopolistic regulation.The following four features can be distinguished.

Firstly, insofar as the leading sector hypothesis is valid, the massive increase in unem-ployment in 1974-75 played only a secondary role in regulating wage growth, whichdiffered only slightly from the previous period. The provisions included in the wageagreements reached between 1969 and 1973 were effective in preventing any fallin wages.

Secondly, the quasi-indexation of wages with consumer prices, which can be observedfrom 1969 onwards, continued during the crisis. The fall in the exchange rate reinforceddomestic inflationary tendencies and caused the acceleration in wages during 1974.The same factors were responsible for the relative stabilisation of the rate of wageincreases in 1975 and 1976, despite the massive spread of unemployment, which, if'pure' competitive mechanisms had operated, as in the 1930s, would have reducedwages independently of the movement in prices.

Thirdly, in contrast with the 1930s, social wages (social security benefits in particular)represented a considerable proportion of workers' income, and were related largely to thegeneral rate of inflation, as well as to unemployment, so that, in 1975, they increasedeven more than direct wages. It was as if a socio-political regulation in some degreereplaced market forces.

Fourthly, the changes that took place in the trade cycle from 1967 onwards wereassociated with employment levels, becoming more rigid particularly so far as downwardadjustments were concerned. This was further strengthened when the crisis broke out(Boyer and Mistral, 1978). The reduction in employment—the cause of the sharp increasein unemployment—turned out to be relatively slight compared with the movementswhich had formerly characterised the competitive regulation of employment.

In conclusion, it should be reiterated that the regulation which was built up in thepost-war years was an important factor underlying the unprecedented period of highgrowth rates which lasted until 1973. The present crisis makes clear what its limitationsare. Moreover it prompts the question whether there is now a danger of a return to amore competitive regulation.

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