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Cost-of-living clauses in union contracts: Determinants and effects

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  • Wallace Hendricks
  • Larry M. Kahn

Abstract

This study investigates, for the period 1969 - 81, the determinants of the incidence and strength of cost-of-living adjustment (COLA) clauses in U.S. manufacturing and the effect of those clauses on wage inflation. The sample includes approximately 5,570 union contracts in over 2,600 bargaining relationships. The authors find that both union bargaining power and inflation uncertainty positively affected the probability that a COLA clause was adopted as well as the strength of the clause adopted. Negatively influencing the incidence and strength of COLA clauses during the period studied were unanticipated changes in an industry's prices. The authors also find evidence that wage inflation was greater under contracts with uncapped COLAs than under all other contracts, a result that also was positively influenced by the amount of unanticipated inflation. From these results, the authors suggest a number of possible trends in the use and effects of COLA clauses. (Abstract courtesy JSTOR.)

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 36 (1983)
Issue (Month): 3 (April)
Pages: 447-460

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Handle: RePEc:ilr:articl:v:36:y:1983:i:3:p:447-460

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Cited by:
  1. Louis Christofides & Amy Chen Peng, 2007. "Real Wage Chronologies," CESifo Working Paper Series 2096, CESifo Group Munich.
  2. Louis Christofides & Amy Chen Peng, 2003. "Contract Duration and Indexation in a Period of Real and Nominal Uncertainty," CESifo Working Paper Series 994, CESifo Group Munich.
  3. Fregert, Klas & Jonung, Lars, 1998. "Monetary Regimes And Endogenous Wage Contracts: Sweden 1908-1995," Working Papers 1998:3, Lund University, Department of Economics, revised 21 Apr 1999.
  4. Louis Christofides & Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series 1700, CESifo Group Munich.
  5. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc.
  6. Murphy, Kevin J., 2000. "What effect does uncertainty have on the length of labor contracts?," Labour Economics, Elsevier, vol. 7(2), pages 181-201, March.
  7. Amy Peng & Louis N. Christofides, 2009. "Real Wage Chronology," Working Papers 011, Ryerson University, Department of Economics.

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