Abstract
This paper proposes a new measure for the insurance value of a cost of living escalator (Cola) — theex ante uncertainty of real wages over the life of the contract. We use a sample of 3,224 U.S. collective bargaining agreements to find that indexation lowers and large contract duration raises this uncertainty. The positive association of Colas and contract length implies that when workers obtain a Cola, a portion of itsceteris paribus insurance value is diminished through the resulting longer contract length.
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