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Cost-of-Living Adjustment Clauses in Union Contracts

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Author Info
Ronald G. Ehrenberg
Leif Danziger
Gee San

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Abstract

Our paper seeks to provide an explanation for why the prevalence of COLA provisions and their characteristics vary widely across U.S. industries. We develop models of optimal risk sharing between a firm and union that allows us to investigate the determinants of a number of characteristics of union contracts. These include the presence of wage indexation, the degree of wage indexation if it exists, the magnitude of deferred noncontingent (on the price level) wage increases, the duration of labor contracts and the trade-off between temporary layoffs and wage indexation. Preliminary empirical tests of some of the implications of the model are conducted using industry data on both the prevalence of COLA provisions and layoff rates, and using contract level data on the characteristics of COLA provisions and contract duration. One key finding is that the level of unemployment insurance benefits appears to simultaneously influence the level of layoffs and the extent of COLA coverage.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0998.

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Date of creation: Jan 1984
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Handle: RePEc:nbr:nberwo:0998

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  1. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Louis Christofides & Amy Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Louis N. Christofides & Thanasis Stengos, 2003. "Wage Rigidity in Canadian Collective Bargaining Agreements ," University of Cyprus Working Papers in Economics 1-2003, University of Cyprus Department of Economics. [Downloadable!]
    Other versions:
  4. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March. [Downloadable!]
  5. Joseph S. Tracy, 1986. "Seniority Ruels and the Gains from Union Organization," NBER Working Papers 2039, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Louis N. Christofides & Amy Peng, 2007. "Real Wage Chronologies," Working Papers 0707, University of Guelph, Department of Economics. [Downloadable!]
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  7. Christofides, Louis N. & Stengos, Thanasis, 2001. "Nominal Wage Rigidity: Non-Parametric Tests Based on Union Data for Canada," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Leif Danziger, 2006. "Extension of Labor Contracts and Optimal Backpay," IZA Discussion Papers 2366, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Louis N. Christofides & Man Tuen Leung, 2002. "Nominal Wage Rigidity in Contract Data: A Parametric Approach," University of Cyprus Working Papers in Economics 0210, University of Cyprus Department of Economics. [Downloadable!]
    Other versions:
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