COLA

UAW demands cost-of-living salary adjustment as Americans feel pinch of inflation

Bailey Schulz, USA TODAY
Updated Tue, September 26, 2023 

Americans' paychecks just aren't keeping up.

Although workers’ annual pay increases have outpaced inflation since May, their spending power has shrunk over the past two years as inflation drove up overall prices by roughly 12%. Essentials like groceries and utilities have jumped even higher.

With high costs eroding millions of household budgets, unions like the United Auto Workers are now starting to push employers to reinstate a once common but now rarer mechanism for ensuring that wages keep up with inflation.

COLA, or cost-of-living adjustments to paychecks, are well-known by Social Security recipients, millions of whom live on a fixed income and carefully track the yearly, inflation-adjusted tweaks to their benefits. But for anyone else, the pay bumps that were baked into many union contracts for decades have fallen away over the last half-century. The government has even stopped tracking data on them.

But COLA is returning to the national conversation. The striking UAW, in its tense negotiations with automakers, has said it will not accept a contract agreement without a COLA, an unnamed source familiar with the contract talks told the Detroit Free Press, part of the USA TODAY network.

"(We've seen) very high inflation. Workers are feeling that pain and they're saying, 'We want to be protected,'” said Rebecca Kolins Givan, an associate professor at the Rutgers School of Management and Labor Relations in New Jersey

Why COLA provisions disappeared

COLA provisions used to be common among union contracts, with 61% including them in 1976, according to data from the Bureau of Labor Statistics. Twenty years later, the percentage had dropped to about one-third of that peak level.

The 61% included UAW contracts with the Detroit Three automakers (General Motors, Ford and Stellantis – formerly Chrysler), which adopted the wage adjustments in 1948 and 1950. The provisions followed a spike in inflation, with overall consumer prices up nearly 20% from the year prior in March 1947.

Inflation spiked once again ahead of COLA’s peak in the mid-1970s, with overall consumer prices growing 11.8% year-over-year in January 1975.

The prominence of unions in the 1970s and '80s also helped COLA numbers. Data from the BLS shows that 20% of American workers were union members in 1983 ‒ the first year for which comparable data are available ‒ versus 10% in 2022.

"When unions were stronger, they were able to fight for COLAs and win them," Givan said.

But as union power waned and inflation eased, so did COLA coverage. By 1995, 22% of union contracts had the provisions, according to BLS data.

The benefit was suspended in UAW contracts with the Detroit Three in 2009 after the automakers faced bankruptcy during the 2008 financial crisis. While the companies' finances have since bounced back, the COLA clauses have not. The latest ratified contracts from 2019 show that COLA language was removed from Ford and Chrysler agreements and remains suspended in the GM contract.

It’s unclear how many union contracts include COLAs today; BLS stopped collecting data on it after 1995 because of funding restrictions, according to the agency.

Experts say they have no reason to believe the cost-of-living adjustments have picked up substantially since then.

"I don't have any evidence that it was rebounding before the pandemic," said Harry Katz, a professor of collective bargaining at Cornell University.

Do nonunion workers get COLA?

COLA clauses were meant to help workers and employers deal with the uncertainty of multiyear contracts. Instead of both sides trying to predict future inflation rates during wage negotiations, COLA provisions helped them account for any unforeseen consumer price hikes.

While data on the prevalence of cost-of-living adjustments today are slim, Katz noted that they don’t make much sense in nonunion jobs without multiyear contracts.

“I don’t know of an instance where a nonunion workforce has a COLA,” he said. “You’re setting pay annually and you don’t have uncertainty with inflation. You don’t need a mechanism for that.”

Nonunion jobs typically do not have guaranteed raises. Instead, pay increases tend to vary by industry, company, location and job performance. Eighty percent of organizations surveyed by compensation research and software firm Payscale in late 2022 said they planned to provide base pay increases this year, with 56% planning to give bumps of more than 3%.

However, data show that U.S. wages have struggled to keep up with inflation over the past two years. While average U.S. wage growth finally began outpacing price increases in May, many Americans say they still haven’t caught up to the big run-up in prices.

US wage growth is finally outpacing inflation. Many Americans aren't feeling it.

Future of COLA

If the UAW secures a COLA provision in its contract negotiations, that could help “set a new standard” for other union contracts, according to Givan of Rutgers.

“Other workers will also fight for a cost-of-living increase,” she said.

While there’s no good data that shows the state of COLA provisions, a number of unions have started demanding cost-of-living adjustments in recent months. Canada’s British Columbia General Employees’ Union and Hospital Employees’ Union, for instance, both secured deals last year that include COLA clauses.

Whether more contracts will include COLA depends on inflation levels and union power, according to Cedric de Leon, a professor of sociology and labor studies at the University of Massachusetts Amherst.

If high inflation continues, “then I would bet that the labor movement continues to explore this sort of older COLA mechanism for addressing that,” he said, adding that an increase in union participation would also make future COLA provisions more likely.

But if inflation continues to ease, then contract negotiators may not prioritize COLA and instead focus on giving employees an overall pay increase.

“The thing is that we're living through history,” de Leon said. “We don’t actually know (what to expect). So it's just up in the air.”

This article originally appeared on USA TODAY: