EXCHANGE RATE POLICY AND PAY POLICY

Exchange rate policy and pay policy are closely linked: if a country's unit labour costs rise in relative terms (i.e. more than the average for its trading partners), this is equivalent to an upwards revaluation and the price factor results in a worsening of the country's competitive position on the world markets.

In the 1970s, when oil and raw materials prices exploded and the import of inflation led to a serious danger of a wage-price spiral, the Austrian Trade Union Federation proposed pegging the Austrian schilling to the Deutschmark, in order to control imported inflation through a “hard-currency policy” (revaluation policy). The unions have therefore adopted this as a basis of their policy on pay and taken account in their pay demands of the country's international competitiveness. See also Austro-Keynesianism.))