The cost of living became an economic issue after World War II as workers worried about the impact of inflation, and the inclusion of COLA clauses in labor union contracts became common.
The cost of living is considered to be the amount of money needed to purchase the goods and services required to maintain a certain standard of living. Since World War I, when knowledge of price movements was thought to be helpful in order to maintain a stable national economy, cost-of-living statistics, provided by the Bureau of Labor Statistics (BLS), have become important figures for economic management.
Although cost-of-living wage adjustments were made during World War I when economists identified unstable prices as an economic problem, interest in COLAs fell when prices stabilized in the late 1920s. Interest in COLAs reappeared, however, as World War II destabilized prices and inflation began to affect real earnings. A 1942 survey of manufacturing firms disclosed that 40 percent had agreements which included COLA clauses, whereas only 5 percent of the contracts had included such provisions in 1939. When the War Labor Board applied the Economic Stabilization Act to freeze wages in 1942, approximately 2 million workers were covered by COLA clauses.
The union movement was at its peak in 1948 when General Motors (GM) and the United Auto Workers Union (UAW) attracted national attention with the settlement of a two-year agreement that included a COLA clause adjusting basic wages for the rise in the cost of living since 1940. The COLA clause was based upon the BLS Consumer Price Index (CPI), a monthly report used to determine the cost of living by measuring the change in prices for a mixed market basket of goods and services. The agreement additionally allotted a 2 percent “annual improvement factor” wage increase, intended to share GM’s productivity gains with workers.
While other unions and companies were at first reluctant to follow GM and the UAW, by 1956, renewed inflation had fostered the adoption of COLA clauses into most union-management contracts. From 1958 to 1960, 4 million workers, half of all employees under major labor-management agreements were covered by COLA clauses. Just as COLA agreement popularity peaked during the late 1950s, prices fell by half in 1958, and averaged only 1.4 percent annually over the next eight years. As a result, union interest in COLAs sharply fell again. BLS surveys revealed that between 1961 and 1970, the proportion of workers under major agreements who were covered by COLA clauses averaged only 25 percent.
A new period of inflation beginning in 1966 once again fostered an increasing union interest in COLAs. It was a sharp increase in prices from 1973 to 1975, however, that brought a renewed interest in COLAs comparable to that of the late 1950s. By the end of 1975, an estimated 8 million workers were covered by some version of a COLA clause.
Further reading: Daniel Quinn Mills, Govern'ment, Labor, and Inflation (Chicago: University of Chicago Press, 1975).
—Jason Reed
World History
