CONFIDENTIAL
་
very large degree by natural market forces. Historically, a tight labour market has produced wage increases year by year at a somewhat faster rate than increases have occurred in the cost of living, thus producing until the past year a steady rise in real wages averaging about 5.2% per annum. The rate of growth of the economy and improvements in productivity have made possible these higher wages. The relatively stable cost of living which has assisted the upward trend of real wages has, until recent months, owed much to China's helpful pricing policies on the food she exports to Hong Kong.
By
Up
6. This balanced situation is now threatened. The price of imported food - including food from China - is rising sharply. to November 1973 the General Consumer Price Index had increased during the year by 21% and 17 of these 21 percentage points resulted from increases in the retail prices of foodstuffs. contrast, wages in manufacturing industries increased by only 11.3: in the first nine months of 1973 (as compared with 10.65 in the same period of 1972). In the six month period to September 1973 real wages fell by 9%. These changes have been accompanied by a decline in the consumption of most categories of fresh foodstuffs during 1973.
7. It has been suggested 'that the impact of rising consumer prices on the standard of living may not have been as great as movements in the General Consumer Price Index might suggest'. It could be argued that on the contrary it may have been much greater - for four reasons at least.
(a)
(b)
The decline of 81% in the consumption of fresh vegetables (6% for fresh pork) to give two examples represents ar average. It is a safe assumption that at the bottom end of the wage scale the percentage fall was much greater.
Averages are deceiving. As one economist said "If I had one foot in the fire and the other in the fridge I would on average have a normal temperature. But I would be very uncomfortable!"7
Movements in the cost of living of the industrial worker are more correctly measured by the Modified Consumer Price Index. (It is this MCPI that is used for adjusting the wages of Class 1 public service employees, not the GCFI. The MCFI has a weighting of 55.6 for foodstuffs, while the corresponding weighting in the GCPI is 48.3).
(c) There is evidence to suggest that both indices are
becoming out of date (they are being reviewed); it is thought that they no longer reflect correctly, for example, present patterns of expenditure in respect of rents, transport and services.
(a)
The averaging of wages and their subsequent comparison even with the MCPI may conceal falls in the living standards of workers in the less well paid jobs.
3
CONFIDEIPITAL
18