Will Workers Demand Cost-of-Living Adjustments?

Glick, Reuven; Leduc, Sylvain; Pepper, Mollie

Journal Article

Will Workers Demand Cost-of-Living Adjustments?

Abstract: Households are currently expecting inflation to run high in the short run but to remain muted over the more distant future. Given this divergence, what role do short-run and long-run household inflation expectations play in determining what workers expect for future wages? Data show that wage inflation is sensitive to movements in household short-run inflation expectations but not to those over longer horizons. This points to an upside risk for inflation, as workers negotiate higher wages that businesses could pass on to consumers by raising prices.

Keywords: inflation; inflation expectations; wages; prices; COLA; cost-of-living adjustment; pandemic; covid19;