Incomes policy and the 1985-1986 wage round: from non-market failure to market failure?

Abstract

Since the early 1970s New Zealand governments have relied heavily on non-market policy instruments (i.e. statutory contols. political pressure and moral suasion) to restrain the growth of wages and prices. The Labour Government has rejected this approach and is seeking to control inflation primarily through a reliance on market mechanisms. This article considers the merits of Labour's strategy in the wages arena. It is contended that there may be some significant transition costs associated with the new approach and that there is a risk that non-market failure will simply be replaced by market failure.