Vienna Feb 15,1977
Dear ^ibor,
Thanks very much f r y ur paper, I have been wait'ng for it-
It is exceedingly well written and f r that reason alone
worth having. A art fr u the first p n rt n bargaining -p 6 t 1 -
on which I have n-> definite ideas, it covers the same ground as
the Scandinavian the ry f infTati n r my h me made versi n of
it ( I read very little as y u kn *w). I, w there are obvious
differences which I would like t' menti n because I may not have
undorot od hww they are m-vivated- r rather ^ 03nd lUe„.
The difference is in the exp 1 or. at i n why i. t.'.e industry or
firm which experiences ti e priraar ■ differential pr 'ductivity increase,
the innovator, this is passed on t the wage earner r to the
cust ner, ir. other words, whether t e inn vati n in the fix'st place
le. do to wage increase or price reduction. I would say ( this seems
Scandinavian doctrine ) it depends o the lab ur market, you
might ca.ll it degree of m.>nops< ny, wh. oh is strongly influenced
by scarcity of labour and i , this way the link of inflation to
full employment is established. It might be assumed that these firms
tend to expand in terms of manpower find therefore habe to attract
labour. Youb tend to assume that they wont noe any ne lac r,
but perha a they will have to fight for it merely to keep their
c nnle'.ent of labour constant. There are, in addition special
explanations eg that the peaple on piece wa.es will earn more
if the piece rates are not cut ( I meant e standard f efficiency*
this depends ale> on full ernpl ynent in the Id times they w uld
have immediately increased the the ste lards). rr the piece wages
the increase sorea a t tine wages by well kn ■■wn mechanisms
It depends 2) >n c mpet ti n iathe pr duct market ’ ich
inter alia may depedd >n the relative sc roity of equi ment.
w y -v.r ans .er to' this alternative -price r w age res hse -
b Is dpwn t the distincti n between the case of pro uvt and
or ce s ion vati n pi 14 1 can't e convinced ' f that
The price decreases f >r the new or-d cts us'ua.ly c me in the
c urse f ti e r duct cycle when c sts decrease ■ cn r; ulsy one
account f scale and utilisati n, XKXIXJd'AXc-'vilfl . t i ■
It really belongs to the stage of iffusi nj at any'rate it has
little to do with the istiaction of product ana process ir. ration.