Cost-of-Living Escalators in Major Union Contracts

Abstract

This paper analyzes the price-indexation provisions of a sample of major Canadian collective bargaining agreements concluded between 1968 and 1975. Under these contracts, escalated wage increases comprised about one-third of total wage increases and represented a major source of erosion in the relative wages of skilled workers. The author argues that indexation provisions are usefully characterized by the marginal elasticity of the contractual wage rate to increases in prices. Measures of this responsiveness indicate that, on average, contractual wage rates are only slightly less than unit elastic with respect to price increases. There is considerable variation across industries, however, in the extent to which wages respond to price changes.