Critics claim that the CPI exaggerates the rate of inflation and question whether price increases should be the major element in wage decisions. Increased emphasis on gain sharing and tax incentives for gain-sharing plans may be the answer to their criticism.
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References
1.
Sources of data: LeRoyDouglas R., “Scheduled Wage Increases and Cost-of-Living Provisions in 1981,”Monthly Labor Review, vol. 104 (January 1981), p. 11; U.S. Bureau of Labor Statistics, press release USDL 81-468 (30 September 1981); Congressional Budget Office, Indexing with the Consumer Price Index: Problems and Alternatives (Washington: GPO, 1981), p. xiii; DoutyH. M., Cost-of-Living Escalator Clauses and Inflation, report prepared for the Council on Wage and Price Stability (Washington: GPO, 1975), p. 12.
2.
The announcement is reproduced with documentation in Daily Labor Report (27 October 1981), pp. X1–X3.
3.
A brief history of the CPI and a technical explanation can be found in U.S. Bureau of Labor Statistics, BLS Handbook of Methods, bulletin 1910 (Washington: GPO, 1976), chapter 13.
4.
LowensternHenry, “Adjusting Wages to Living Costs: A Historical Note,”Monthly Labor Review, vol. 97 (July 1974), pp. 21–25. As an example of early clauses as reproduced in a “how-to-do-it” text, see Bureau of National Affairs, Inc., Collective Bargaining Contracts (Washington: BNA, 1941), pp. 604–606.
5.
U.S. Bureau of Labor Statistics, Characteristics of Major Collective Bargaining Agreements, January 1, 1980, bulletin 2095 (Washington: GPO, 1981), p. 57.
6.
The proportion of major strikes (10,000 or more workers) which stemmed from contract negotiations ranged during the period 1968–79 from 67 percent in 1972 to 89 percent in 1974. See U.S. Bureau of Labor Statistics, Analysis of Work Stoppages, 1979, bulletin 2092 (Washington: GPO, 1981), p. 2.
7.
SheiferVictor J., “Cost-of-Living Adjustment: Keeping Up with Inflation?”Monthly Labor Review, vol. 102 (June 1979), p. 15.
8.
As of late 1980, the BLS found that of major escalated contracts, 45 percent provided for quarterly intervals, 21 percent for semiannual intervals, and 30 percent for annual intervals. (The rest had other timing arrangements.) See LeRoy, op. cit., p. 13.
9.
In May 1977, 26.5 percent of employed wage and salary earners were represented by labor organizations. The figure may have declined somewhat since then. See U.S. Bureau of Labor Statistics, Earnings and Other Characteristics of Organized Workers, May 1977, report 556 (Washington: GPO, 1979), p. 7.
10.
In the mid 1970s, an estimated 72,000 nonunion workers in manufacturing were covered by escalators; others may have been covered in nonmanufacturing. See FergusonRobert H., Cost-of-Living Adjustments in Union-Management Agreements, bulletin 65 (Ithaca, N.Y.: N.Y. State School of Industrial and Labor Relations, Cornell University, 1976), p. 9.
11.
A recent survey indicated that 93 percent of employers used wage and salary survey data as part of the wage-setting process. See Bureau of National Affairs, Inc., Wage and Salary Administration, personnel policies forum survey no. 131 (Washington: BNA, 1981), p. 3.
12.
An annual regression of the percentage change in compensation per hour in the nonfarm business sector against percent change in CPI-W produces an R2 of 85 over the period 1954–80. There are obvious ambiguities of causality in such a regression since wages and prices determine each other.
13.
MitchellDaniel J. B., Unions, Wages, and Inflation (Washington: Brookings Institution, 1980), chapter 4.
14.
Revisions in CPI-U in 1983 will widen the potential for divergence until 1985 when CPI-W will be revised. See below in the text. The coverage estimates for CPI-U and CPI-W appear in “Labor Month in Review,”Monthly Labor Review, vol. 101 (March 1978), p. 2.
15.
The BLS provides absolute dollar budget surveys for purposes of comparing inter-area living costs. These can be useful for wage setting purposes when employers have multi-area operations or are transferring employees between locations. There is evidence that, after appropriate adjustment for industry composition, local absolute living costs influence wage levels. See BuckelyJohn E., “Do Area Wages Reflect Area Living Costs?”Monthly Labor Review, vol. 102 (November 1979), pp. 24–29.
16.
See BraithwaitSteven D., “The Substitution Bias of the Laspeyres Price Index: An Analysis Using Estimated Cost-of-Living Indexes,”American Economic Review, vol. 70 (March 1980), pp. 64–77.
17.
The CPI also includes in homeownership the costs of repairs, maintenance, and property taxes.
18.
In 1979, 68 percent of occupied rental units were in buildings with more than one unit. See U.S. Bureau of Census, Statistical Abstract of the United States, 1980 (Washington: GPO, 1980), p. 795.
19.
In December 1977, the weight on homeownership in the actual CPI-U was 22.8 percent, compared with weights of 14.5 percent and 8.7 percent that would have been in effect under the X-1 or X-5 approaches. See U.S. Bureau of Labor Statistics, press release USDL 81-55 (23 January 1981).
20.
The new-car issue is discussed in MitchellDaniel J. B., “Does the CPI Exaggerate or Understate Inflation?”Monthly Labor Review, vol. 103 (May 1980), pp. 31–33.
21.
Source of the average vehicle selling price is the National Automobile Dealers Association.
22.
There is also a “chain-weighted” version produced in which the weights are always those of the previous period. These indexes are available from the Bureau of Economic Analysis, U.S. Department of Commerce.
23.
TriplettJack E., “Reconciling the CPI and the PCE Deflator,”Monthly Labor Review, vol. 104 (September 1981), pp. 3–15.
24.
The wage gap between the union and nonunion sectors has generally widened since the mid-1950s. The only exception was in the period encompassing the early to mid-1960s, when many bargaining units stopped using escalators. See MitchellDaniel J. B., “Unions and Wages: What We've Learned Since the Fifties,”California Management Review, vol. 22 (Summer 1980), pp. 56–64.
25.
See BosworthBarry, “Policy Choices for Controlling Inflation,”Alternatives for the 1980's (1:1981), pp. 16–22.
26.
See MitchellDaniel J. B., “Labor-Market Contracts and Inflation,” in BailyMartin N., (ed.), Workers, Jobs, and Inflation (Washington: Brookings Institution, forthcoming).
