ees earning $3.50 or less per straight-time hour. One form covered all employees in the unit; the other covered those earning more than $3.50 per hour. Both forms were evaluated in determining allowable increases. However, in the self-administered sectors, CLC permitted employees earning more than $3.50 per hour to receive increases greater than 5.5 percent in order to maintain historical differentials in wage structures with workers under $3.50 whose increases were exempted from controls. That regulation, though not issued until August, 1973, was one which exemplified the Phase III-IV approach in its "pure" form.

Hearing Requirement

6

The other major change required by Congress was the provision that the parties to an agreement or nonunion pay practice were entitled to a hearing before appropriate officials prior to the Council taking final action that would cut back wages and salaries from the levels negotiated or agreed to by the parties. In implementing this requirement the Council instituted the procedure of sending out Interim Decisions and Orders giving the parties 21 days in which to exercise one of three options: (1) they could accept the decision without appeal; (2) they could request a review of the decision and send additional written material supporting their position; or (3) they could request an oral hearing. The hearing requirement mandated by Congress was in contrast to the procedure under the Pay Board in which hearings regarding case decisions were held only when Pay Board officials determined that a case was of great importance in establishing an industry pattern and more information or explanation was needed than was readily available to the staff preparing the case. (See paper on Wage Case Processing in Phases III and IV for a more detailed discussion.)

OTHER NEW RULES

Although the Executive Order establishing Phase III expressly forbade retroactive pay increases for work performed subject to Phase II rules,8 two types of situations developed that required the promulgation of special regulations.

One type of situation involved implementing contract rates at the beginning of a new control year without regard to deductions made as required by the Pay Board during Phase II. The effect of such an adjustment was to nullify the limitation imposed by the Pay Board.

6 Ibid., Section 152.32 (d).

7 Economic Stabilization Act of 1970, as amended, Public Law 93-28, Section 207 (b) (April 30, 1973).

8 Executive Order 11695 of January 11, 1973, Section 3 (d).

The Cost of Living Council reacted to those increases by enacting the so called "Spring" regulation. The restoration of wage and salary increases that had previously been cut by the Pay Board was forbidden unless they had been implemented prior to May 30, 1973, the date of publication of the regulations in the Federal Register. CLC retained authority to reduce such increases even if made before May 30, 1973, but it actually forced reductions in only a few cases. In general, CLC opposed the reduction of increases that had already been put into effect.

Another adjustment for which a new regulation was written involved certain retroactive adjustments in sectors under self-administration of controls. 10 Its effect was to permit increases of more than 5.5 percent for work performed prior to January 11, 1973, if both parties to the contract agreed that such an increase was consistent with an exception to the Phase II standard. The regulation was added to avoid having to deal with certain types of Phase II cases.

Comparison of Phase III-IV with Phase II

From a distance there appear to be sharp contrasts between Phase II and Phase III-IV. Phase II employed a general wage and salary standard, had no regularly active dispute mechanism, sought shortterm stabilization objectives, emphasized control over large units because of the Pay Board's belief that these tended to be inflation leaders. Also, the Program had no plan for getting out of controls even though the Program was to be of short duration. In contrast, Phase III-IV followed a case-by-case approach, employed an active dispute mechanism, emphasized long-term objectives even though from its beginning it was planned as a step toward decontrol, and recognized that small units could be inflationary leaders in certain industries. Upon closer examination, however, some of the apparent differences lessen and become a matter of degree.

STANDARD VS. CASE-BY-CASE APPROACH

Although the Pay Board established a uniform wage and salary standard applicable to all employee units, it also provided for caseby-case consideration in instances in which the parties to a wage agreement sought increases in excess of 5.5 percent and did not meet the requirements set for other exceptions. In those cases, factors such as the relationship of wages in the individual case with the industry patterns, changes in productivity or work rules, or other relevant

96 CFR 152.14 at 38 FR 23615, August 31, 1973. 10 6 CFR 152.14 at 38 FR 23616, August 31, 1973.

factors would be considered by the Pay Board or one of its panels in making a decision. Thus, in those cases, the same approach was taken during Phase II as during Phases III-IV. However, the factors of a specific case were not relevant if the wage increase for the unit was within the standard.

During Phases III-IV, CLC retained the 5.5 percent standard but used it in combination with the case-by-case approach. However, many employee units, especially nonunion units, were held by their employers or the bargaining process to 5.5 percent. Other units, more knowledgeable about the use of the standard and the philosophy behind the Phase III-IV approach, negotiated more than the standard and followed the CLC requirements for obtaining an exception.

In the mandatory sectors the case-by-case approach was the general rule, while the standard was used as an administrative tool to separate cases in order to speed their handling. Units reporting increases less than 5.5 percent were approved with almost no processing by the staff, while those requesting more than 5.5 percent were considered in relation to the structure of area wage patterns and any other factors relevant in the specific case.

In the self-administered sectors, CLC's approach was to monitor wage settlements and select for careful review those that were considered to be the most important in pattern-setting for the industry and area. Consistent with the Phase III-IV philosophy of wage stabilization, the emphasis of CLC was on attaining settlements that would maintain historical wage relationships between job classifications, or on restoring such relationships if they had become distorted, while moderating the rate of increase of the entire wage structure. In carrying out this approach the use of the 5.5 percent standard or any other standard was not vitally important. The important thing was to moderate the increase as much as possible in view of the unique characteristics of the specific industry.

DISPUTE SETTLEMENT MECHANISM

Dispute settlement was an integral part of the Phase III-IV program of wage stabilization. As already indicated, that program attempted to moderate the extent of wage increases and remove or prevent distortions in historical wage relationships. That approach required, in effect, informal negotiations between CLC officials and the two bargaining parties in each case. The attempts to moderate increases had to be done within the collective bargaining context and the settlement reached ultimately had to be acceptable to labor if work stoppages were to be avoided.

Implementation of the dispute settlement mechanism involved a number of CLC officials. The Director spent much time informally negotiating with parties to some of the key settlements in various industries. Other CLC officials who were active in informal negotiations included the Director of the Office of Wage Stabilization and the Counselor to the Director of the Cost of Living Council.

In addition to the staff, members of the tripartite committees were also very actively involved in formal and informal dispute settlement activities. For example, the Chairman of the Food Committee was the arbitrator in a dispute involving the retail grocery clerks in Southern California. Other members of the Food Committee and members of the Health Committee were instrumental in providing information and expertise and in meeting informally with bargaining parties.

With regard to contacts with government dispute bodies, close and regular relations were maintained with the Federal Mediation and Conciliation Service (FMCS). A member of that agency attended all meetings of the Food and Health Committees, providing information on developments involving bargaining problems and disputes and, in turn, gathering information to relay back to the FMCS for use by its field representatives.

In contrast to the activities during Phases III-IV, dispute settlement under the Pay Board during Phase II was not considered an essential part of the Stabilization Program. However, the possibility of a strike resulting from an action cutting back wage increases already agreed to by the bargaining parties was always a consideration in important cases. To that extent dispute settlement was a part of the Phase II program, although the Stabilization machinery had almost no means of actively intervening in disputes. In its relations with the Federal Mediation and Conciliation Service, the two bodies were in contact only on selected cases. However, they did not maintain close relations on a regular basis and coordination between the two was not an integral part of the Phase II program.

LONG-TERM VS. SHORT-TERM OBJECTIVES

Phase II controls were conceived to be of short duration. That outlook is exemplified by the nature of some of the regulations and methods the Pay Board adopted. As discussed in the prior section, Phase II had no active dispute settlement mechanism. The Pay Board felt that none was needed even though it recognized that any wage control program would cause some distortions in the wage structure. However, the Board believed that distortions would not seriously

hinder the Program because: (1) unemployment was high and was not expected to fall sharply during 1972 even though fiscal and monetary policies were expansionary, and (2) the Program was thought to be short-lived.

Regulations promulgated by the Pay Board at the beginning of Phase II were designed to deal only with the current control year (for a definition of policies in Phase II, see paper on Wage Stabilization) and decisions regarding specific cases carefully explained that a decision on the next control year would be made only at that time. The recodification of the regulations included a comprehensive broadening of the controls where necessary to make them applicable to more than one control year.

By contrast, Phase III-IV controls were based on long-term objectives even though the Program was designed to provide a transition period after which controls were to be eliminated. The creation of dispute settlement machinery and implementation of the philosophy that controls must prevent or eliminate distortions of wage structures are compatible with a longer-term program. Other facets of a long-term approach include: (1) the aim of strengthening collective bargaining, (2) the development of a close working relationship between labor and management, and (3) the creation of voluntary labor-management committees to focus on longer-term problems after controls ended.

EMPHASIS ON SIZE

Phase II controls were concentrated on large units. No wage increase could be implemented by employee units having 5,000 or more workers until approved by the Pay Board. Smaller units could put wage increases of 5.5 percent or less into effect without Pay Board approval, but needed approval for implementing more than 5.5 percent. In addition the small business exemption generally placed firms of 60 or fewer employees outside the controls program unless the units were in the fields of construction or health.11

As indicated in the paper on Phase II wage controls, the Pay Board rationale was based on 1) its position that inflationary wage patterns were generally initiated by settlements with the larger units and 2) its desire to administer wage controls with a small staff. It recognized that small units could sometimes be inflationary leaders but if the small units sought to implement more than 5.5 percent they needed Pay Board approval. The only groups totally exempt from wage controls were those units employed by a firm having fewer than 116 CFR 152.14 at 38 FR 23618, August 31, 1973.