The COLA is making a comeback.
Higher prices, a worker shortage and a revitalized labor movement are bringing about the return of pay increases tied to inflation, known as cost-of-living adjustments, or COLAs. Two major labor agreements in recent weeks have featured COLAs, and analysts say they could appear in future negotiations between employers and unions.
Under a COLA, a worker’s pay rises to compensate for the increase in consumer prices. The idea is to protect wages in times when consumer prices are rising rapidly and unpredictably.
The provisions were often part of union contracts 40 or 50 years ago when inflation was high. Starting in the 1990s, as inflation slowed to more modest levels, COLAs became less prominent.
Now, resurgent inflation is leading some workers to ask for higher wages. Annual inflation in November accelerated to 6.8%, the Labor Department reported, the fastest in 39 years.
Economists and Federal Reserve officials have acknowledged they don’t know how high inflation will get nor how long it will last. Such uncertainty could make COLAs more attractive, said Harry Katz, an economist at Cornell University specializing in labor relations.
“COLAs exist not primarily because inflation is higher, it’s because there’s uncertainty about inflation,” he said. The provision “provides a way of basically sharing the risk.”
COLAs thus offer one avenue through which workers could be protected from the surging cost of living. But COLAs could also themselves...
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