To Protect Workers From Inflation, Unions Want to Bring Back the COLA Clause

Cost-of-living adjustment clauses — which protect wages against inflation — used to be standard fare in collective agreements. By fighting to bring the COLA clause back, Canadian workers are refusing to bear the brunt of spiraling costs.

Garment workers demand pay raise while parading down Spadina Avenue in Toronto, Canada. (Toronto Star / Getty Images)

“No COLA? No Beer!” read the signs of striking British Columbia General Employees’ Union (BCGEU) workers on the picket line this past summer. With inflation at highs we haven’t seen this century, employees in BC’s public sector — including clerks at the province’s liquor stores — reached an impasse at the bargaining table over the rise in cost of living. What they wanted was a cost-of-living adjustment (COLA) clause, a guarantee that their wages would keep pace with the tidal wave of inflation.

As inflation is seized upon by the capitalist class to make everyone’s lives miserable, unions should fight to ensure that workers aren’t thrown under the bus. A raise is meant to be a raise — if it can’t keep up with increases to costs of living, it’s not actually a raise.

What Is a COLA Clause?

A COLA clause is a piece of language in a union’s collective agreement which requires that the rate of inflation is taken into account when wage rates are set. There are multiple kinds of COLA clauses. They can link a percentage wage increase to a percentage inflation increase, or they can link a dollars-and-cents amount to a change in the inflation index. Or they can do a combination of the two. Some only come into effect once inflation hits a certain level, others are always in effect. They can be very confusing.

In essence, a good COLA clause does two things. First, it provides a short-term salve against temporary increases in the cost of living by guaranteeing wages will keep pace with expenses. Second, it gives insurance that future inflation will be accounted for at the moment it occurs rather than after the fact, thereby providing income security for those covered by it.

That sense of security is crucial for union organizers, which is why COLA clauses get more popular not only when inflation is high, but also when it is volatile. Indexing provides a hedge against uncertainty. In essence, COLA clauses aim to stop wage erosion and ensure that raises actually count for something.

The Rise and Fall of COLA

Throughout the high-inflation years of the 1970s, unions in Canada made cost-of-living issues a serious priority at the bargaining table and the picket line, achieving significant gains in the process. So intense was the push for COLA in the high-inflation years that Quebec construction unions actually boycotted contractors who did not include cost-of-living indexing in their contracts. The Confédération des syndicats nationaux in Quebec, meanwhile, called upon the provincial government to legislate mandatory COLA clauses in collective agreements.

Data from the 1970s and 1980s in the Canadian Labour Law Reporter shows how heightened inflation and COLA clauses went hand in hand. In 1980, 45 percent of new Canadian collective agreements covering almost 70 percent of unionized workers included a COLA clause:

New settlements in collective bargaining units of five hundred or more employees. (Graph courtesy of author, data from Statistics Canada)
(Graph courtesy of author, data from Statistics Canada)
(Graph courtesy of author, data from Statistics Canada)

Even in the mid-1970s, when Pierre Trudeau imposed wage controls on workers to try and curb inflation by disciplining labor, COLA clauses were still permitted — albeit in circumscribed and convoluted fashion. Their popularity was such that they endured even through this anti-labor period.

Since the inflation peak in the early 1980s, COLA clauses have largely fallen out of vogue and are no longer a bargaining priority. This is partially because of the success of the anti-inflationary political strategy of neoliberal politicians — to diminish workers’ expectations of annual raises. Of course, the inflationary pressures we face now — against the backdrop of decades of declining real wages — puts the lie to explanations that fault wage growth for inflation woes.

Canada’s labor movement has faced decades of wage deflation. Just look at how the average annual wage increase for care workers in Ontario has changed since the early 1980s:

(Graph courtesy of author, data from Statistics Canada)

Government after government, both federal and provincial, especially in the 1980s and ’90s, conspired to smack down the annual wage increase that unionized workers had come to expect. Even in the current context — where inflation is reaching heights comparable to the late 1970s — wage increases have been nowhere near their previous heights. This year, wages are barely creeping up to half of the rate of inflation.

Most COLA clauses existed in collective agreements in heavy industry — in 1974, more than two-thirds of COLA clauses were in manufacturing, and they remained a staple of the steel industry. However, they were often won by some unions in the public sector as well.

In 1974, the federal government conceded a $500/year cost-of-living bonus to 310,000 public servants. Teachers in Toronto, meanwhile, won a COLA with a 7 percent threshold in 1979, a big win in the education sector.

Now, with Canada’s inflation at a four-decade high, the time has come to bring back cost-of-living adjustments to the levels once seen in the steel and auto sectors. Wages have been kept artificially low in the care sector for decades.

The COLA Comeback

Unions in Canada have started taking it upon themselves to return COLAs to their former glory. A multi-month strike by transit drivers in Whistler, British Columbia, was brought to an end in June 2022 when a mediator proposed the introduction of a clause which would guarantee a wage increase directly pegged to inflation.

Deals secured by the BCGEU and the Hospital Employees’ Union (HEU), meanwhile, have a guaranteed wage increase of 5.5 percent alongside inflation indexing up to 6.75 percent. Neither of these COLA clauses are perfect. Whistler Transit System’s only pays out in 2024, and therefore doesn’t give drivers the support they need in the here and now. The cap on BCGEU’s, meanwhile, raises concerns at a time when inflation continues to be around 7 percent. Indeed, it was due to these concerns that both the BCGEU’s and HEU’s new contracts barely passed ratification — workers want real raises. Compared to the wage agreements of the 1970s, these increases are modest. Both COLA and non-COLA collective agreements produced wage increases of over 10 percent with regularity during the high-inflation years:

New settlements in collective bargaining units of five hundred or more employees. (Graph courtesy of author, data from Statistics Canada)

To win COLA, unions have to take a page from BCGEU’s book and make it a priority. COLAs should feature heavily in campaigns and unions should organize around the issue of inflation. Millions of workers are currently feeling the pinch of increasing prices while grocery chains make unprecedented profits.

Workers Shouldn’t Pay the Price for Inflation

By indexing wages to inflation labor can also dodge accusations of contributing to inflation through out-of-control wage demands. Indexing keeps the real cost of labor static relative to inflation, thereby making sure that inflation drives wages, rather than vice versa.

For the ruling class, inflation provides an opportunity to diminish workers’ expectations. Governor of the Bank of Canada Tiff Macklem recently clutched his pearls in an address to Canada’s small business lobby about the prospect of a wage-price spiral. Don’t give in to increased wage demands, he implored them. Keep your labour costs low! Just like in the 1970s, workers are scolded for greed at exactly the same time that the price of existence goes out of control.

The capitalist class wants workers to bear the brunt of inflation — for people to starve, freeze, and get evicted so that prices can come back down. Now is the time for labor to seize the initiative and fight for wage increases that keep heads above water. Economists at Canada’s biggest banks claim that the solution is mass unemployment. Common sense says that the solution is inflation indexing. Long live the COLA clause!