Working Paper: NBER ID: w1388
Authors: David Card
Abstract: Cost of living escalators are an important feature of North American labor contracts. This paper presents a measure of the response of index-linked wage increases to concurrent price increases for a sample of Canadian contracts, and then analyses this response in terms of a simple model of indexation to the aggregate price level. The model highlights the importance of aggregate price movements in conveying information about industry-specific prices. The empirical analysis confirms that industry-specific correlations between input and output prices and the Consumer Price Index are important determinants of the response of wage to prices across index contracts.
Keywords: wage indexation; labor contracts; consumer price index; inflation; union contracts
JEL Codes: J31; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher prices (D49) | higher indexed wage increases (J31) |
| industry-specific factors (L69) | elasticity of wage responses (J31) |
| aggregate prices (P22) | wage adjustments based on market-specific input and output prices (J31) |
| industry characteristics (L81) | wage-price relationship (J31) |