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Wage Indexation: Social Benefit and Private Incentives

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  • Martin Prachowny

Abstract

Do the conditions that give rise to social benefits from wage indexation coincide with conditions that generate private incentives to incorporate COLA clauses in union contracts? If unions and management are both risk-averse, the have incentives to index when monetary uncertainty exists. When the economy faces real shocks, unions still have incentive to index if the elasticity of labour demand is low; firms prefer indexation if the elasticity is high. General conclusions of coincidence of social and private benefits are sensitive to assumptions about utility functions of the two sides.

Suggested Citation

  • Martin Prachowny, 1980. "Wage Indexation: Social Benefit and Private Incentives," Working Paper 368, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:368
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    Cited by:

    1. Ronald G. Ehrenberg & Leif Danziger & Gee San, 1982. "Cost-of-Living Adjustment Clauses in Union Contracts," NBER Working Papers 0998, National Bureau of Economic Research, Inc.

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