Un‐COLA: Why Have Cost‐of‐Living Clauses Disappeared from Union Contracts and Will They Return?

Abstract

For more than 20 years, unions have been trading cost‐of‐living adjustment clauses (COLAs) for other forms of compensation. Various explanations have been offered for the erosion of COLA coverage—including reduced inflationary uncertainty, lower union power, and structural shifts in the economy—but the relative importance of these and competing hypotheses remains untested. We investigate the reasons for the decline in COLA coverage using a pooled cross‐sectional, time‐series model that accounts for industry fixed effects and recognizes the multiyear nature of most union contracts. After assessing the relative importance of alternative hypotheses, we conclude with a discussion of the potential for a rebound in COLA rates.