COLA

written by CHRC
5 · 10 · 22

There’s a word that compensation consultants of a more recent era have shunned for at least two decades:  COLA

And not in favor of the unCola – in favor of NO COLA.

In fact, the consultants at CHRC have spent a fair amount of time explaining the differences between

Merit Budgets

and

COLA – Cost of Living Adjustments

Until their faces turn an unattractive shade of blue.

The phrase that gets economists animated is “wage-price spiral” … and many are turning an unattractive shade of red believing that the current wage increases are going to take the U.S. to the kind of wage-price spiral that the U.S. economy experienced in the 1970s.

So much to our delight, last week Mitchell Hartman on Marketplace did a story that featured the COLA that we don’t like to imbibe.  More importantly, in addition to economists that are convinced we are headed for the spiral, he featured two that pointed out key distinctions of what separates the current situation from that in the 1970s.

Ross Mayfield of Baird points out that unlike the 1970s, the worker’s demands aren’t driving inflation, supply constraints caused by the war in Ukraine and Covid are.  Economist Joe Brusuelas underscores the statistic that undergirds Mr. Mayfield’s point:

“At that time, labor unions represented approximately 1 in 4 American workers.”

Why were those COLAs so worrisome?  They were built right into those union contracts for years at a time, regardless of market conditions. That was a very large factor in the wage-price spiral

How many Americans belong to a union right now? 

CHRC

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