Since the UAW-General Motors negotiations in 1948, wage escalator clauses have become quite common in collective agreements in the basic mass-production industries. Usually, such clauses have been accepted by managements as the price for long-term agreements. In recent months, however, there has been a reaction, among management groups especially, against the continuance of the escalator clause, and attempts have been made to eliminate such provisions from new agreements, or to modify them. A notable feature of the recently concluded agreement in the steel industry, for example, was the provision setting an upper limit to the adjustment in hourly wages that could be made in response to increases in the Consumer Price Index. Although there is little question that wage escalation increases wage costs, the larger questions of whether and to what extent wage escalators contribute to general price inflation are moot. In this article, the author argues that escalation is a facilitating rather than an initial condition for inflation, but that efforts should nevertheless be made to dampen the inflationary effects of wage escalation by modifying existing provisions. Experience with wage escalation in other countries, the mechanism by which escalated wage increases are transmitted into cost-price increases, methods of dampening the cost effects of escalator provisions, and a comparison of wage escalation with other types of wage adjustment provisions are considered in the author's discussion. (Author's abstract courtesy EBSCO.)
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Jun 1, 1978
Costas Azariadis 
Open Access