COLA Raises Grow in Popularity Amid Soaring Inflation

COLAs Protect Wages

Inflation is nearing a 40-year high, prompting a return of the cost-of-living raise. Popular during the 1990s when inflation was soaring, a cost-of-living-adjustment or COLA is an increase in an employee’s salary to reflect higher consumer prices. It is designed to protect workers in inflationary periods. Prior to the pandemic, COLAs were considered largely a thing of the past, but they are regaining popularity.

COLAs are in demand as inflation soars and labor activists demand more for workers. Striking workers at Kellogg (K) ratified a contract that included a COLA this week, while Deere (DE) workers signed off on a deal that includes quarterly wage adjustments based on inflation.

Could COLAs Fuel Inflation?

It’s not clear how inflation trends will unfold in the new year. COLAs alleviate some of that uncertainty for workers. But critics argue cost-of-living raises could add to inflation if companies raise prices to recoup the extra cost of labor. Employees could in turn demand more money because of the higher prices, creating a cycle.

That would only occur if COLAs were adopted by the masses, which some economists don’t think is likely. Unions are big supporters of COLAs, but only 6.3% of private sector workers are members of unions. In 1983, when COLAs were more popular, 16.8% of workers were union members.

Minimum Wage Workers to Get a Raise

It is not only union workers who are seeing their wages increase. Workers in several states including Washington, Ohio, and Arizona who make minimum wage will see that increase in 2022. For 2022 the minimum wage in Arizona will increase 5.3% to an hourly rate of $12.80. Meanwhile, Washington’s hourly minimum wage will increase by 5.8% to $14.49 next year.

Inflation is impacting all aspects of individuals’ lives including their salaries. If the cost of goods and services continues to rise in 2022, expect more calls for COLAs.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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