Escalator Clause in a Labor Agreement
An escalation clause is a provision within a labor agreement, which guarantees an employee's wages will be automatically reduced or increased, when a pre-established cost-of-living index changes. The clauses, also referred to as cost-of-living agreements (COLAs), are negotiated during the collective bargaining process between an employer and the employee's union.
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Purpose
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Labor agreements set out the terms and conditions that the employer and employee are contractually obligated to fulfill in the workplace. Escalator clauses are enacted and enforceable through a labor agreement.
Conditions
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Various economic conditions can have an influence on the cost-of-living for employees, some of which include inflation, deflation and the price of housing. Escalator clauses are negotiated by unions to match their worker's wages with rising costs.
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Indexing
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Many escalator clauses use the Consumer Price Index (CPI) as a means to determine whether or not the cost of living has changed. According to the Bureau of Labor Statistics, the CPI "measures the average change in the prices paid for a market basket of goods and services."
History
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The first escalator clause was enacted in 1948, as the result of the labor agreement reached between General Motors and the United Auto Workers union.
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References
- U.S. Legal: Escalator Clause Law & Legal Definition
- Entrepreneur: Un-COLA: Why Have Cost-of-Living Clauses Disappeared from Union Contracts and Will They Return?
- Bureau of Labor Statistics: How to Use the Consumer Price Index for Escalation
- Illinois Labor History Society: A Curriculum of United States Labor History for Teachers.
Resources
- Photo Credit workers image by mangia from Fotolia.com
