Cost-of-Living Escalators and Price-Wage Linkages in the U.S. Economy,1968–1980

Abstract

This paper examines the importance of cost-of-living escalator clauses as a link between price changes and money wage changes. It surveys the possible kinds of price-wage linkages and estimates the importance of COLAs in overall wage changes in the economy. The author concludes that despite growth in the coverage and yields of escalator clauses since the mid-1960s, they still accounted in 1980 for less than 10 percent of total money wage changes in the U.S. economy and are therefore not a major cause of inflation.