Cost-of-Living Adjustment Clauses in Union Contracts

93 Pages Posted: 7 Apr 2004 Last revised: 25 Sep 2010

See all articles by Ronald G. Ehrenberg

Ronald G. Ehrenberg

ILR-Cornell University; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

Gee San

National Central University; Cornell University

Date Written: October 1982

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.

Suggested Citation

Ehrenberg, Ronald G. and Danziger, Leif and San, Gee, Cost-of-Living Adjustment Clauses in Union Contracts (October 1982). NBER Working Paper No. w0998, Available at SSRN: https://ssrn.com/abstract=303490

Ronald G. Ehrenberg (Contact Author)

ILR-Cornell University ( email )

Higher Education Research Institute
Ithaca, NY 14853-3901
United States
607-255-3026 (Phone)
607-255-4496 (Fax)

National Bureau of Economic Research (NBER) ( email )

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IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Leif Danziger

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
8-6472295 (Phone)
8-6472941 (Fax)

HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gee San

National Central University ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Cornell University

Ithaca, NY 14853
United States

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