Union COLA clauses lose fizz in recession
Cost-of-living clauses that burdened employers during the high-inflation '70s are being eased off during the current recession.
Some of the largest US corporations have made substantial gains in 1982 against cost-of-living adjustments in labor contracts--the so-called COLA clauses blamed for pushing up wages dramatically during the past three decades.
Trucking companies have renegotiated their contracts with the International Brotherhood of Teamsters to ease COLA clauses. Ford Motor Company and General Motors have done the same with the United Auto Workers. American Motors is expected to sign a similar agreement with UAW.
Last weekend the moderation of COLA provisions was extended into electrical manufacturing with a tentative settlement between GM and the International Union of Electrical Workers (IUE). Next month, COLA will be an issue in bargaining between the IUE and General Electric and Westinghouse. It also has appeared as a bargaining issue in the rubber industry, where some COLA concessions already are in effect. And the steel industry is preparing to ask the United Steelworkers for an early renegotiation of labor contracts that expire in August 1983 and for concessions in wage and COLA increases.
Behind these developments is a growing anxiety by major employers over linking wages to the rate of inflation in a contract. For years, many of the country's major employers have complained that COLA clauses, first negotiated by GM and UAW in 1948, actually have fed inflation and have hampered long-range corporate planning.
Unions consider the COLA agreements important gains. They have fought for over 30 years to link wages more closely to rising living costs as measured by the government's Consumer Price Index (CPI).
Typical COLA clauses provide for quarterly or semi-annual increases (usually in the form of a supplement, not an actual boost in hourly pay) of one cent for every 0.3-point increase in the CPI. Some contracts are more generous, calling for a penny more for every 0.26-point rise in living costs. Recent high inflation rates have caused many employers to point to COLA as the most burdensome and unpredictable of their operating costs.
When first negotiated on a basis of proposals by GM, COLA was seen as a means of avoiding annual wage negotiations. It was designed to promote three-year contracts that would stabilize labor relations.
At the time, the national inflation rate was around 2 percent a year. COLA, calling for a penny-an-hour pay supplement for a 0.4-point increase in the CPI, seem to be a cheap price to pay for a longer contract.
When the inflation rate rose into the 3 percent to 6 percent a year range in the late 1960s, employers became uneasy; labor costs were rising too high too quickly, they said. The uneasiness became a critical problem in the eyes of industry when the CPI soared into double-digit rates in the 1970s. COLA had become extremely costly. For example, in 1980 an average GM worker received adjustments that added about $1,780 to annual wages.
In industry generally, 50 percent to 70 percent of annual labor cost increases have been due to COLA.
Uniroyal Inc., in financial trouble, sought and won concessions from the United Rubber Workers in June 1981 that ''temporarily'' eliminated COLA increases as a part of a program to save the company $10 million a year. At the time, a URW official said ''we have to be very realistic'' in making a choice between job security and COLA.
That position now is being taken by the Teamsters, UAW, and other unions threatened by further losses of jobs.
With unions now willing to negotiate an easing of COLAs, employers are pressing for deferrals of adjustments, limits or caps on adjustments, or, less likely, the elimination of COLA clauses.