cost-of-living adjustment

An adjustment made in wages that corresponds with a change in the cost of living.

An adjustment made to Social Security and supplemental security income in order to adjust benefits to counteract the effects of inflation. COLAs are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers (CPI-W) for a specific period.

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For example, if Kevin received $10,000 last year for Social Security benefits and COLAs for this year were 4.1%, then his benefits for this year would be $10,410.

During the 1970s, inflation was really high, and as a result compensation related contracts, real estate contracts and government benefits, led to the popularized usage of COLAs to protect against inflation.

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Adjustment of wages designed to offset changes in the cost of living, usually as measured by the Consumer Price Index. COLAs are key bargaining issues in labor contracts and are politically sensitive elements of Social Security payments and federal pensions because they affect millions of people.

Adjustment of wages designed to offset changes in the cost of living, usually as measured by the Consumer Price Index. COLAs are key bargaining issues in labor contracts and are politically sensitive elements of Social Security payments and federal pensions because they affect millions of people.

A change in payments, such as the amount of rent, based on a change in an index that measures inflation.

The Cost-of-Living Adjustment (COLA) is an adjustment of wages or benefits designed to offset changes in the cost of living. It is often measured By the Consumer Price Index (CPI), reported monthly By the Bureau of Labor Statistics, and usually varies at a percentage at or near the average Inflation rate. In the case of pensions, COLA begins when the pension starts. In some pension plans, the monthly pension benefit remains at a fixed amount; with COLA-adjusted pensions, the monthly pension benefit grows each year. The dramatic increase in the rate of inflation during the 1970s led to the widespread use of cost-of-living adjustments in wage agreements, real estate leases, and such government benefits as Social Security. To compensate for inflation, Congress periodically adjusted and increased social security benefits, but by 1975 had begun to make the adjustments on an annual basis. However, in recent years, labor unions have traded cost-of-living adjustment clauses for other forms of compensation. Various explanations have been offered for the erosion of COLA coverage in union contracts, including reduced inflationary uncertainty, diminished union power, and structural shifts in the economy away from manufacturing. The federal government in recent years has also tried to reduce COLAs in social security, but has met with fierce resistance.

Bibliography

Johnson, Richard W. "A Not-So-Unkind Cut—Social Security COLAs." Christian Science Monitor, 29 March 1999, 11.

Ragan, James F., Jr., and Bernt Bratsberg. "Un-COLA: Why Have Cost-of-Living Clauses Disappeared from Union Contracts and Will They Return?" Southern Economic Journal 67, no. 2 (October 2000): 304–324.

—Meg Greene Malvasi