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 concept
in 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 are
either too static or already bear inappropriate connotations. It was therefore decided to retain the
French expression in the English text.

The peculiarities of economic trends over the last decade have caused economists to
become increasingly concerned with employment and wage determination. Why have
unemployment 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 and
less sensitive to increases in unemployment? What role does the functioning of the
labour market play in the development of crisis level inflation ? These questions encourage one to go back to the logical premises and the historical foundations of the
theory which was broadly accepted until the end of the 1960s.
In essence this theory attributes to unemployment (or more generally to the overall
state 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 competitively functioning labour market, in the sense that through the workings of competition, wages and employment would tend to be determined simultaneously. This
assumption has been applied in two different ways to interpret recent experience. For
subscribers to the purest version of neoclassical analysis, the labour market is always in
equilibrium, in the sense that the wage is that consistent with supply and demand: the
wage level is then said to be in equilibrium. Under these conditions unemployment can
only be voluntary, the consequence of workers withdrawing from the labour force of
their 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 result
of various obstacles to the free functioning of the market, such as the monopoly influence
of trade unions, minimum wage legislation, or unemployment benefits maintaining too
high a wage level. The crisis of the 1970s has led to the reiteration of this latter interpretation, which was initially put forward to explain the crisis of the 1930s.
* Centre d'itudes prospective d'economie mathematique appliquees a la planification, Paris. Translated 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 fundamental
explanation of the money wage level, though there is much disagreement as to the status
of this relationship over the long or short term.
Common to all these studies is the central hypothesis that a similar type of adjustment continues to operate (or ought to continue to operate), in a way which is only
marginally affected by the development of the particular institutional structures which
have characterised capitalism since the Second World War. This being the case, the
object of econometric studies is to uncover general relationships which are invariable
over timeeven though their analytical expression might differ.
The present article adopts a different approach, and attempts to identify the factors
in wage determination which are permanent and those which are variable. This
approach depends fundamentally on the notion of regulation] and on a very long period
analysis. 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 relationships, of institutional forms and structures. (See Benassy et al., 1979.)
In contrast to the neoclassical school, which postulates unvarying and identical
principles in all markets, including the market for labour, the notion adopted here is
that the economic mechanisms in each market derive from institutions or autonomous
structures. They cannot therefore be reduced to an overall mechanism based only on
the operation of'supply and demand'.
This being the case, the stability of regulation acquires a certain inertia in structures
and in institutional forms. But this stability is only relative, for the very operation of
the economic system engenders constant movements which continually modify the
character of these relationships, the intensity of conflicts and the balance of power. In
this sense the standard systems of regulation which will be presented in this paper represent a simplification for the purposes of theoretical analysis.
This study covers more than a century of French experience, % since this is the period
over which major changes in regulations can be observed. It shows that, in comparison
with the inter-war period, and even more so with the 19th century, money wages (and
real wages) have behaved differently since the 1950s, the gradual disappearance of
downward adjustments in both constituting a priori support for the hypothesis of a
change in the mechanisms of wage determination.

The development of wages over a century

Money wages

From 1810 to 1850 or so money wages either declined or remained constant, according
to occupation. During the next 30 years, however, wages showed an almost continual
rise (Fig. 1), reaching a plateau in 1884, then increasing more gradually until 1900 and
more rapidly from 1905 onwards. At the end of the First World War, the extent of
inflationary processes was translated into a clear parallel development in the money
wage 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 recent
works 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 reconstruct such series basing their work on archives. The data used in the article are taken from the works of
Kuczynski (1946), Lhomme (1965, 1968), Sauvy (1965) and Singer-Kerel (1963).

Wage formation

101

00

60

'

50 -

Money waqesi
Cost of living
Real wages

1840 1850 I860 1870 1880 1890 1900 1910

F i g . 1. The development of money wages and the cost of living in the 19th century

Source: Lhomme f 1968 .

900 700

Money wages
Cost of living

500

300
1919

1925

1930

1935

1938

120
/
Real wages

llOh-

100

90

1919

1925

1930

_.

1935 1938

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

with the 19th century, during the course of which such synchronisation was much less
clearcut, in both the short and medium term.
Yet, if the general tendency was for wage increases between 1840 and 1940, the money
wage level still fell in certain years (1843, 1847, 1848, 1851 and 1856) and indeed fell
for 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 centuryfrom
1883 to 1888the wage level fell and then remained constant. The depression of
the 1930s saw a cumulative fall in prices and in wages for almost five years, a new
phenomenon compared with the 19th century. This pronounced flexibility of money
wages represents a priori evidence of the predominance of competitive adjustments over
this period, in the sense that disequilibrium in labour markets involved marked movements in wages in both directions.
The period 1959 to 1976 shows many dissimilarities compared with the inter-war
years. One initial change concerns the rate of increase in money wages: these increased
on average by \-2%per annum from 1840 to 1913, by 10-6% from 1920 to 1938, and then
by 16-2% from 1947 to 1959. From 1960 to 1973 they rose less quickly (by 9% on average). 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 less
marked recessions, represents evidence of changes in money wage determination (Fig. 3)

2000
Money wages

I50O

1000

Cost of living

600

Real woges

IC/
<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 by
the standard deviation of annual changes. Between 1841 and 1869 this was around
2-6%, but it then fell between 1870 and 1895 to 1-4%, and to 1-6% between 1896 and
1913. By contrast, the standard deviation increased to 10-3% in the inter-war period
and to 15% between 1947 and 1959. Between 1960 and 1973, however, it declined
markedly to 2-5%, which suggests a change in the mechanisms by which wages adjust
to 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 of
inflation (while previously these rates had been important only during wars), by the

103

Wage formation
Table 1. Money wages, cost of living and real wages, 1841-1973
Annual % rate of change
1841-1869

1870-1895

1895-1913

1920-1938

1947-1959

1960-1973

7-8
-21
9-9

4-8
-10
5-9

50
-20
7-0

35-2
-70
42-2

53-2
2-3
50-9

140
5-8
8-2

1-5
2-6

10
1-4

1-2
1-6

10-6
10-3

16-2
150

90
2-5

13 6
Maximum
-11-7
Minimum
25-3
Range
Average over the
10
period
7-0
Standard deviation

19-4
14-2
33-6

8-7
-6-0
14-7

32-5
-9-6
42-1

58-7
-1-7
60-4

7-3
0-7
6-6

0-9
4-1

5-9
11-5

14-4
18-6

4-3
1-7

19-5
16-3
35-7

6-2
-6-4
12-6

18-4
-7-1
25-5

11-6
-8-5
201

100
2-6
7-4

1-2
6-4

0-4
3-8

1-3
5-9

21
61

4-5
20

Money wages

Maximum
Minimum
Range
Average over the
period
Standard deviation
Cost of living

0-2
5-9

Real wages

Maximum
15-6
Minimum
10-5
Range
26-1
Average over the
period
0-9
Standard deviation
6-8

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

apparent disappearance of downward adjustments in the general price level, a n d finally
by very little fluctuation in the inflation rate.
Real wages

An initial distinguishing feature of the present period concerns the average rate of
increase in real wages. Estimates made by J. Lhomme suggest that four principal
periods 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 varied
little, the cost of living increased greatly. From 1856 to approximately 1902, there was
a general upward movement in real wages, the cost of living rising less than wages from
1856 to 1860, then falling. From 1902 to 1913 there were wide fluctuations in real wages
around a more or less constant level. The period 1920 to 1938 saw successive contrasting
movements 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 opposite
movements in wages and prices. However, from 1947 to 1973, an increase in the rate
of growth of real wages (+3-2% a year) was associated with great regularity in its
movements (Fig. 3).
A second distinguishing characteristic of the present period is the greater downward
rigidity of real wages. Indeed, adopting a long-term perspective, falls in real wages
become increasingly rare. From 1810 to 1870 these were pronounced and numerous,
from 1870 to 1900 more moderate and less frequent; and sharp and frequent once
more 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 circumstances and more to policies specifically aimed at a reduction in purchasing power (as
was the case in 1958, for example). Thus from 1960 to at least 1977 the rarityindeed
the absenceof falls in wage levels no longer affects merely their monetary value, but
also their real value. To varying degrees, an analogous tendency can be observed in
most other economies (Mitchell, 1975).

Changes in regulation
An examination of wages alone, however, is not sufficient to enable the conclusion to
be drawn that there was a change in the methods by which they are determined. The
reduction in the size of fluctuation may result simply from smaller movements in
unemployment rates, with an unchanged mechanism for the determination of wages;
alternatively, the apparent rigidity of money wages may be merely the reflection of a
permanent erosion in the value of money. The characteristic features of wage determination (and of employment) need therefore to be examined, starting from the precise
form of the organisation of the wage relationship in each period. By this latter term is
meant the whole set of conditions which govern the use and reproduction of the labour
force, it being understood that the present analysis is confined to those features of the
wage relationship which have a particular influence on wage determination, whether
direct or indirect.
Far from developing in a regular fashion with the development of capitalism, the
wage relationship is in fact principally derived from the nature and intensity of accumulation and the struggles that it inspires on the part of workers. It is thus necessary to
isolate a certain number of periods which are more or less homogeneous so far as the
social, institutional and legal factors governing the determination of wages are concerned. It is then important to check whether or not the periods so determined correspond to stability in the mechanism of wage determination.
The quantitative changes noted above can be regarded as corresponding to the
sequence of three principal regulations, each of them being associated, except for the
occasional significant discrepancies, with a very distinctive configuration of the wage
relationship and economic structures.
The ancienne regulation,^ characteristic of the 18th century, presupposes the preponderance of an essentially precapitalist and unproductive agricultural system. This stage of
structural development leads to a distinctive conjuncture, characterised by employment
and wages levels moving in the same direction as each other but in the opposite direction
from the cost of living. It would appear that such a regulation persisted, though becoming
constantly 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 a
change in earlier mechanisms. Even if wages remained sensitive to the level of industrial
activity, they nevertheless showed a very slight positive relationship with the cost of
living, rather than a negative one, as was formerly the case. This regulation, which itself
underwent gradual alteration, characterised the second half of the 19th century. The
period which followed the First World War did not fundamentally modify the competitive
logic, 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 of
exchange of paper money and the changes that took place in wage negotiations certainly
caused the appearance of a marked synchronisation between money wages and the
cost of living, but wages continued to be determined by the level of general activity in
accordance with the working of the former competitive regulation.
The gradual domination of a monopolistic regulation would be the logical conclusion of
the disruption in the wage relationship over the last 20 years. Indeed after 1968 a whole
set of economic, social and political changes (linked with new action on the minimum
wage level, and with the development of indirect wage benefits) reinforced and deepened
the institutional changes which, at the end of the Second World War, tended to define
new regulatory mechanisms for the incomes of wage earners. So the absence of any
marked impact of the rate of unemployment on wages is the logical consequence of the
movement from the competitive regulation to another type of regulation. For the sake of
convention we shall describe this latter as monopolistic, even if this term does not correspond to the most widely accepted meaning of the term 'monopolistic' (see pp. 111-112
below, and Benassy et al., 1979).
The interest and difficulties in moving from a 'pure' theory of wages to the study of
the regulation -clearly appear now. On the one hand it is possible to establish a fairly
close correlation between the nature of the wage relationship and the type of wage
regulation. This implies that the exact form of social relationships and of the state of
development of economic structures constitute a necessary preliminary to any study
of wage determination. On the other hand, the hypothesis of a change in regulation
may be used to explain the simultaneous rise of money wages and of unemployment, a
development which, if considered by reference to the workings of a competitive regulation, so often appears paradoxical.

The competitive regulation at work: the example of the 19th century

The 'ancienne regulation'
Historians' studies show that social relations of a specifically capitalist nature were
present well before the considerable expansion which took place at the end of the 18th
and beginning of the 19th centuries. Nevertheless, these 'embryos' were not sufficient
to give birth to mechanisms for wage determination identical with those observed once
capitalism becomes dominant. In broad terms it is possible to sum up the pattern of
economic developments in the 18th century in the following way (Abel, 1973; Bouvier,
1974; Braudel and Labrousse, 1970). Recurrent agricultural crises brought about an
explosion in agricultural prices, adding in a brutal way to the cost of living, squeezing
agricultural revenue and therefore the outlets for industrial products. In consequence,
first the agricultural and then the industrial labour force was reduced, leading to a
massive drop in money wages, a movement which reduced still further the standard
of 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 an
economy, movements in the cost of living on the one hand, and in employment and
wage levels on the other, are in opposite directions.
The rise of capitalism gradually brought into question the previous economic and
social structure. The industrial revolution shifted the central impetus from the country
to the town. Moreover it contributed to the improvement of agricultural yields, as a
result 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 the
frequency and intensity of bad harvests, which had been the origin of slumps under the
ancienne regulation, were reduced. Finally it modified the conditions under which the
reproduction of the labour force took place, by putting it into the sphere dominated by
capitalism. Despite all this, crises in the provision of the means of subsistence had far
from disappeared in the 18th century. The social movements which led to the revolution of 1789 resulted to a large extent from the explosive collision between a crisis in
the means of subsistence and a political crisis.
The Loi Le Chapelier

With the revolution of 1789, the traditional ties that were an important component of
the ancien regime were abolished and a new set of laws concerning the freedom of the
firm {decret d'' Allarde) and the free movement of merchandise (decree of 28 September6 October 1791) was codified. For our purpose it is the famous law, the Loi
Le Chapelier (1791), which is most important. Forbidding all collective action, it
established in principle the individual (but not collective) freedom of producers to sell
their products, and that workers must look to 'their own enterprise or labour'. It is
significant that the same text governs both competition between producers and the
nature of the work contract, even if for more than half a century the principles which it
put forward were used above all to deny wage earners any possibility of collectively
defending their own interests.
The freeing of the ties which previously limited the mobility of workers and the
affirmation of the individual nature of the work contract are, a priori, factors which
encouraged the formation of a wage-earning class, even if the spread of the system of
fragmented land holding after the 1789 revolution held back the development of the
industrial and urban proletariat by consolidating the position of a large part of the
peasant class.
Moreover, by codifying a perfectly 'atomistic' labour market, this set of reforms
favoured the institution of a fully competitive wage regulation. Yet it would be erroneous
to conclude from this that the establishment of a legal structure is sufficient to assure
the 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, taking
account of the overall economic and social organisation; on the other hand, the effective
domination of a new regulation can not be gained instantaneously but presupposes a
long period of transition, in the course of which the previous social structures are
gradually eliminated or downgraded.
Thus in the first half of the 19th century, even if industrialisation made its effects
felt in certain sectors, cyclical movements continued to be dominated by wage levels
which moved inversely with movements in the price of grain. This cyclical alternation
also characterised the relationship between the level of economic activity and the price
of cereals, which explains why, in the textile industry for example, the crisis in the means
of subsistence led simultaneously to an often massive contraction in employment and a
lowering of the money wage rate.
At the beginning of the 19th century there was a coming together of certain elements
of the ancienne regulation (conjunctural movements in opposite directions of wage levels
and the cost of living) and new developments connected with the development of
capitalist 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 no
longer playing a key role in the development of the overall structure, so that relationships were gradually changed: employment levels, nominal wage levels and the cost
of living now tended to move in the same direction. In the case of wages in the building
industry in Paris (Rougerie, 1968), such a synchronisation appeared in the cycle 1834
to 1842 and gathered strength subsequently, even if certain exceptional years, such as
1848, marked a return to opposite movements in money wage levels and the cost of
living, t
The competitive regulation can be seen partly as a continuation of the previous regulation, to the extent that the degree of dependence of movements in money wage levels in
comparison with the rate of economic activity is strengthened. The major change was
the 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 behaviour
of money wages depended principally on the form of the mechanisms operating in the
labour market, the behaviour of real wages brought into operation all the constituent
parts 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 disequilibrium 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 in
unemployment rates as opposed to those caused by changes in the working population ? In principle, it is likely that changes in hiring and firing are at least as significant
as unemployment statistics.
Because of the difficulty of obtaining reliable unemployment statistics for the 19th
century, variations in the volume of industrial production are taken as an indicator of
the state of the labour market.% The shakiness of the basic statistical data, however,
means that the results are more suggestive than definitive. Nevertheless, the various
econometric tests carried out are consistent with the hypothesis that the overall economic
situation has a positive influence on wage levels: as a general rule, money wages went
down in times of slump and rose in times of boom (see Fig. 4). The nature of the labour
contract made this possible, since it authorised frequent revisions of wage levels and
particularly 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 the

average 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 than
the overall markets.
Thus the overall secular movement in wages conceals marked divergences for different
occupations, the rise in money wages from 1830 to 1911 varying from 60% to over
200%. 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 of
a gradual transition to a new overall regulation, the only difference being the question of the date of the
turning 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
IP
rr+ - ^ o ' o of volume o'
majsTnai production
i
d
To its trend vGiue

0-90^

1840

1850

I860

1870

M
^ = Po'io of money woge
to '% trend >o..e

,880

1890

1900

1920

1910

Fig. 4. Alonei wages and industrial nctiiih 1841-1913

For 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 will
be 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')
Construction
1789
1800-1801
1805
1810
1820
1930
1839-1940
1850
Annual average rate of
change 1800-50
1860
1870
1880
1890-92
1900
1910-11
Annual average rate of
change 1850-1910
1920-21
1930
1938
Annual average rate of
change 1920-38

Metals
75
100

Mining

181
191

200

69
81
83
89
89
85
96
100

82
95
100

100

104
100

0-4%
113
134
132
138
141
179

0
118
147
111
115
133
145

0-8%
118
144
117
137
154
166

-M%
139
163
120
131
133
140

10%
370
898
1206

0-6%
450
807
1144

0-8%
634
1223
1914

0-6%
598
1135
1549

6-8%

5-3%

6-3%

5-4%

m
8S

52
68
74
84

Textiles

132

" In view of the shakiness of the basic data, the indices are intended to provide only an order of magnitude
for the developments observed. In particular, the various sub-periods relate to very uneven statistical
coverage.
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 1800
to 1850, in the textile industry they declined, possibly as a result of their relatively high
absolute 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 of
wages tend to develop relatively independently of each other. As a result, inter-sectoral
changes in wage levels constitute a means of macroeconomic adjustment. Indeed it is
open to question whether, in view of the large differences in wage and labour movements
between 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 marked
from 1852 to 1870, but less so from then onwards, though it reoccurred between 1900
and 1914. Although on average during the period 1846 to 1913, the elasticity of wages
with respect to the cost of living was slightly positive or not significantly different from
zero (Table 3), the results are more satisfactory if periods of rising prices are distinguished from periods of falling prices. Thus wages tended to increase when the cost
of 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 wages
therefore 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

1841- 1871- 189670

95
1912
Elasticity of
average
wage with
respect to
changes in
0-11 - 0 0 5 0 1 3
cost of living (1-6) (1-1) (1-5)

Average
Average
Average
1841- 1920- 1930- 1920- 1947- 1959- 1969- 194730
37
37
76
1913
58
68
76

006

(1-5)

0-75
(4-1)

0-80
(4-9)

0-79
(6-8)

0-77
(7-6)

0-43
(4-3)

0-99
(7-7)

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 nature
of wage negotiations, which gradually became collective, and no longer merely individual. Indeed it took more than half a century for the principles of the Loi Le Chapelier
to be questioned. In the last third of the 19th century, legal recognition of trade unions
and state intervention in labour relations (legislation governing working hours, creation
of a factory inspectorate, compensation for industrial accidents, setting up of a pension
scheme) made an initial breach in the principles which had previously governed the
labour 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 began
to influence the mechanisms which determine wage levels. Despite the shortcomings of
the 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 with
higher pay. There was no symmetrical fall in times of slump. However it seems important
to differentiate between periods, since none of the econometric tests carried out can
explain 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 distinct
forms 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

Elasticity of money wages

With respect to:
increases in industrial
production
falls in industrial production

1841-70

1871-95

1896-1913

Average

- 0 0 3 (0-3)
001(0-03)

0-31 (3-4)
-0-10(0-6)

008 (0-7)
-0-42(1-5)

004 (0-7)
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. Wage
series were taken from Lhomme (1968) and industrial production estimates from Crouzet (1970). For
definitions see note to Fig. 5.

The case of the period 1871 to 1895 constitutes a particularly significant example of
the first of these two conclusions. Indeed, an average wage elasticity in comparison with
production of the order of 0-2 conceals two very different mechanisms: in periods of
growth increases in wages respond sharply to increases in production (elasticity of
0-3); in periods of depression, on the other hand, wage levels do not appear to fall (the
elasticity 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 measures
which contributed to a recognition of the collective nature of wage negotiations and to
the 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 procedure during the 1920s.
These changes contributed to changes in the process of wage determination. The
post-war inflation gave rise to strong pressure from wage earners for collective agreements to include an explicit indexation clause. There was a movement towards institutionalising the measurement of the cost of living, and using this index in conciliation
and arbitration procedures (Singer-Kerel, 1963). The procedures recognised in a
semi-explicit way the existence of a minimum, historically determined, level of consumption for workers.
The result was that money wages began to move more closely in line with the cost
of living. During the period 1920 to 1937, the elasticity of the former with respect to
the 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 (including
the 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 of
stability in the relationship are also evident for the USA and the UK. The analysis
developed here suggests that this phenomenon was related not so much to better
perception by individual wage earners of movements in price levels as to the institutional factors mentioned above.
This move towards 'indexation' had some effect on the underlying inflationary and
deflationary process. If the elasticity of wages with respect to the cost of living is close
to 1, a larger movement in the general price level is required to achieve a given change
in real wages. Insofar as the succession of booms and slumps has the effect of regulating
the rate of profitof which the wage-profit share is an essential componentit is
not surprising that fluctuations in prices and wages became more pronounced between
the two wars. Yet this change would imply a break with the competitive regulation only
if 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 correlation
between movements in money wages and the volume of industrial productionstronger,
indeed, than in the 19th centurywhether or not price changes are included in the
regression. This might suggest a strengthening of the competitive mechanism, though
it could just as well indicate a change in the method of constructing the industrial
production series.
50

Cost o' living

Money wages
Index of mdustnol production (volume)

40
~

30

I
s ^
2

10

-10
-20

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
1920-1937
(.4-9)
'3-6
|.Vif
0-28 / / ' - 0-52 COL-2-7
2 = 0 8 4
r
2- )
3-8
12-5
Af = rate of change in money wages.
IP = rate of change in industrial production.

DIV - 0-75
D\V =- 1-28

CO I =

A competitive 'regulation' and the crisis of 1930

A schematic representation of the difference between competitive and monopolistic

regulation would be as follows. In the former it is falls in the cost of living imposed by
the 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 the

latter, on the contrary, these same movements in productivity are associated with an
increase in money wages, without any ex ante change in prices. The growth in demand
caused by these wage increases is associated with growth in productive capacity without
the need for large downward adjustments in prices or wages.
The institutional arrangements prevailing in the inter-war period guaranteed that
wages in some degree maintained their buying power, but not that they increased with
productivity. (See Table 5.) Thus, despite the unprecedented increase in productivity
over the period 1920 to 1930 (+5-8% a year, as opposed to around 2% a year in the
19th century), real wages increased by only slightly more than in the second half of the
19th 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, %)

Productivity
per head

Weekly
real wages

Productivity
real wages

2-4
0-8/2-3
0-5/0-3

1-4
20
00

10
-1-2/+0-3
0-5/0-3

The 19th century

1856-70
1870-95
1895-1913
The inter-war period

1913-20
1920-30
1930-37

-1-8
5-8
2-8

-30
2-2
1-5

3-5
1-3

1937-73
1937-49
1949-59
1959-73

-0-3
4-9
4-8

-0-5
3-9
4-1

0-2
10
0-7

1-2

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

Consequently, the boom in capital-intensive accumulation was brought to a halt by

the inadequacy of overall demand. This is without doubt one of the basic causes of the
crisis of 1929-1930 in France. If the injections of capital which followed the Poincare
stabilisation policy for a time favoured the growth of credit, the constraints associated
with the return to the gold standard contributed to preventing any continuation of the
previous boom. On this interpretation, the international problems caused by the crisis
whether they affected commercial exchanges or movements of capitalonly highlight
the fact that the conditions under which wages were determined were incompatible
with the new mode of accumulation at the end of the First World War. If the boom was
extended for a time, this was only because certain factors (the growth in credit, the
development of sales abroad, to the urban petit bourgeoisie or the agricultural world)
concealed the disequilibrium between the growth of productive capacity and overall
demand.
Recovery from the crisis presupposes a return to the coherent relationship between
economic and social structures and the type of regulation. The history of the various
advanced capitalist economies shows the diverse solutions which played a part in
bringing the crises to an end. In certain countries new social structures emerged because

Wage formation

113

of political changesas in the USA with the New Deal; in others, like France, attempts
were made to introduce retrogressive measures. Thus once the crisis became apparent
collective agreements declined rapidly, further strengthening the negative influence
of a high level of unemployment on money wages. The pre-eminence of competitive
mechanisms therefore explains both the slight growth in real wages during the boom
and the continuation of this growth during the years 1930 to 1933.
The Matignon agreements of 1936 partly laid the foundations for a new system of
labour relations, by recognising that negotiations between wage earners and managers
were 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 the
regulation.

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 wave
of capital investment which lasted for nearly a quarter of a century and which brought
important gains in productivity. In industry, however, these gains were no greater
than those noted for the period 1920 to 1929. On the other hand, there was a considerable acceleration in real wages as compared with the inter-war period, with the result
that 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 with
consumption, a major component of aggregate demand. A predominately capitalintensive accumulation implies (if a 1929-30 type crisis is to be avoided) that workers
themselves consume a sizeable part of the consequent new products. Spending on food
accounted for the major part of workers' budgets in the 19th century and the inter-war
period (so limiting the scope for industrial expansion). From the mid-1950s, however,
spending on food represented less than 50% of budgets, while an increasing proportion
was devoted to durables, the production of which was associated with high productivity
growth.
After the Second World War a combination of factors all tended to bring into question
the social, legal and institutional bases which underlay wage determination. Labour
legislation again recognised the explicitly collective nature of agreements made between
wage earners and employers and granted a key role to trade unions. The new procedures thus established favoured a standardisation in the determination of wages,
while the various attempts from 1963 to 1967 to introduce an incomes policy only
increased the unification and centralisation of labour relations.
These tendencies were further strengthened in 1968, with the growth of national
collective agreements, which dealt with compensation for partial unemployment,
professional training, payment of monthly salaries, and compensation for lay-offs
caused by recessions. Moreover, new institutional procedures for wage determination
were adopted in the public sector, which meant that wages were no longer related to
labour market conditions. Some wage agreements included provisions for linking wages
to the cost of living and the productivity of the firm or of the economy, so making possible
a new wage regulation.
These new arrangements for wage determination mark a break with the competitive
regulation in three distinct respects. First, explicit procedures for compensation for past
cost-of-living increases were introduced. Second, gains in productivity are now partly
passed 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. The
first characteristic was present to some extent from 1920 to 1937, but the two others
are 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 money
wages, but only with a reduction in their rate of growth. This conclusion holds true
even in the more sophisticated versions of the Phillips curve, whatever measure of
unemployment is used. At the root of this lies a paradox: money wages appear to
respond strongly to variations in the rate of unemployment when this is low, but not at
all (or very slightly) when it is high.
It is possible to identify three distinct periods (see Table 6). From 1947 to 1954 there
were 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 the
latter was almost always below 1 %, so that the economy was continually very close to
full employment. From 1954 to 1966-67, the size of these fluctuations declined and
an apparent negative relation rests very largely on the years 1958 and 1959, when
unemployment increased while the increase in wage levels fell sharply. From 1967
onwards, the tendency is for simultaneous rises in wages and unemployment. This is
confirmed 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

Average rate of unemployment

1959-68

Average rate of unemployment

1969-76

Average rate of unemployment

M=-57/+51-5
(3-0)
(4-3)
Af = 0-77COZ,-t-l-0/+5-l
(7-6)
(0-1) (6-8)
0-58%
M= -9-2 U+13-6)
(2-5)
(5-6)
M = 0-34COZ.-40f/+8-7
(3-2)
(1-6) (3-9)
0-7%
M=l-6C/+9-7
(2-1) (4-6)
M=l-07COZ.-0-34l/+5-4
(6-1)
(0-7) (4-7)
2-4%

R1 =0-50
DW= 1-42
R' =0-94
DW = 2-28
R*
DW
R'
DW

=0-45
=1-71
=0-79
=1-35

R2
DW
R*
DW

=0-42
= 1-32
=0-94
= 2bb

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 are
introduced, wages are no longer the key variable which assures equilibrium between
supply and demand in the labour market. Indeed, the characteristic of such procedures
is to link the market for labour and that for other commodities, which were once largely
independent of each other. Consequently, any change in consumer prices is immediately
reflected 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 capacity
and/or a rise in unemployment. This is a necessary, but not sufficient, condition for the
establishment of a monopolistic regulation. It is still necessary that the pressures of
demand 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, unemployment does not appear to play any significant role, contrary to what the simple
regression of wages on unemployment alone would suggest (Table 6). In the period
from 1959 to 1968, on the other hand, unemployment has an insignificant (and negative) 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 measure
of labour market conditions and hence of the pressure of demand. If, instead, the log
relationship 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), and
included in the equation, along with the cost of living and the guaranteed minimum
wage, the demand for labour so measured becomes a more important explanatory
variable, 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 different
between these two periods, the labour market coefficient has the same value.
Whatever the interpretation of the apparent change in the importance of prices and
minimum wages, it is clear that the regulation at work in the 1970s is radically different
from 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 demand
for labour between 1972 and 1975 (with log u/v doubling each year) was in itself to
reduce nominal wages by only 0-5% in 1973, 0-9% in 1974 and 2% in 1975. Although
these effects are not negligible, they relate to a period of under-employment unprecedented since the 1930s. Moreover, the contribution of the cost of living is between five
and ten times greater in this period.
Finally, though variations in industrial activitythe proxy for the demand for
labour used for the 19th century and inter-war yearsshow some positive correlation
with wage movements for the whole period 1947 to 1976, the relationship does not hold
for sub-periods (Table 7).

Growth in productivity and growth in money wages

The monopolistic regulation has been defined as a new form of interdependence between
production and workers' consumption. Indeed it presupposes that, in part, gains in
productivity bring about an increase in wage earners' money income, with the result
that price reductions now only operate as an exceptional method of adjustment, contrary to what was observed in the competitive regulation. A complex set of mechanisms
contributes to this development, with minimum wage policy and claims for wage
parity playing important roles. In what follows, however, the focus of attention is on
the 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 of
studies. For example, Eatwell, Llewelyn and Tarling (1974), from an examination of
fifteen 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"

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

R*

=0-52

DW=147

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

R'
=0000
M^=119

M = 0-44COZ.+009/P+4-9
I
(4-2)
(0-6) (4-8)
CM= -0-45//+15-2
(1-8)
(11-3)

R' =0-72
DW = 0-99
/S2 = 0 - 3 6

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

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

1959-68

1969-76

The period as a whole

1947-76

DW=l-5\

(30)

(2-2)

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

0
Because of the strong collinearity between the cost of living and industrial production, the simultaneous
estimation 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 over
the economy as a whole. For this to be the case, it is necessary for institutional arrangements 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 indication
of 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 regards

the period 1953 to 1964. First, there are industries with high wages, which are quite
highly concentrated and unionised. They can be characterised by very regular increases
in employment during cycles and by wages being insensitive in the short term to the
overall state of the labour market, but strongly influenced by the state of the product
market. The second group consists principally of industries with low wages, which are
relatively unconcentrated and un-unionised, and in which both employment and wages
are sensitive to the overall state of the labour market.
The close correspondence of wage movements in the two groups in the medium term
could essentially be due to two factors: first, through wage increases being spread via
workers' mobility and, more importantly, through demands for wage parity; and,
secondly, through wages in the second group catching up in periods of boom on the
advance made during recessions by wages in the first group. The most recent studies
(Deruelle, 1974), though defining the leading sectors slightly differently, confirm the
heterogeneous 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 skill
involved in the work (Jenny and Weber, 1975).
The results suggest that wages increase with concentration in industries where
unions 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, union
action appears capable of ensuring that gains in productivity are reflected in the growth
of money wages.

Unemployment and wages since 1973: non-paradoxical developments

In the light of the hypotheses developed above, it is easy to interpret the development
of wages and employment in 197475, 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 unemployment in 1974-75 played only a secondary role in regulating wage growth, which
differed only slightly from the previous period. The provisions included in the wage
agreements reached between 1969 and 1973 were effective in preventing any fall
in wages.
Secondly, the quasi-indexation of wages with consumer prices, which can be observed
from 1969 onwards, continued during the crisis. The fall in the exchange rate reinforced
domestic inflationary tendencies and caused the acceleration in wages during 1974.
The same factors were responsible for the relative stabilisation of the rate of wage
increases in 1975 and 1976, despite the massive spread of unemployment, which, if
'pure' competitive mechanisms had operated, as in the 1930s, would have reduced
wages 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 the
general rate of inflation, as well as to unemployment, so that, in 1975, they increased
even more than direct wages. It was as if a socio-political regulation in some degree
replaced market forces.
Fourthly, the changes that took place in the trade cycle from 1967 onwards were
associated with employment levels, becoming more rigid particularly so far as downward
adjustments were concerned. This was further strengthened when the crisis broke out
(Boyer and Mistral, 1978). The reduction in employmentthe cause of the sharp increase
in unemploymentturned out to be relatively slight compared with the movements
which had formerly characterised the competitive regulation of employment.
In conclusion, it should be reiterated that the regulation which was built up in the
post-war years was an important factor underlying the unprecedented period of high
growth rates which lasted until 1973. The present crisis makes clear what its limitations
are. Moreover it prompts the question whether there is now a danger of a return to a
more competitive regulation.

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