I feel a couple of "Wonkish Posts" coming on! - 1. COLA
When Economists talk about the Consumer Price Index (CPI), often the next words include "COLA."
Now my thoughts are this:
COLA is a Cost of Living Allowance, when we are talking about "wage indexation" - that is, when wages or salaries are linked to a price index.
COLA is also a Cost of Living Adjustment, when only talking about a "one-off" change, as we have here at our school.
Now my thoughts are this:
COLA is a Cost of Living Allowance, when we are talking about "wage indexation" - that is, when wages or salaries are linked to a price index.
The best example is Social Security, which is linked to the three month average inflation rate ending on September 30th (the end of the U.S. fiscal year). Of course COLAs have problems, and the four problems were on the test: substitution bias, quality changes, the introduction of new products and there is no such thing as a "typical urban market family" - which especially applies to Social Security. Those receiving SS tend to be older so seek and receive more medical help and pharmaceutical products, products which prices are increasing MUCH more quickly than the CPI! (Substitution bias means that when a price increases, we look for a cheaper substitute to buy - generic (if possible), however the CPI does not account for these choices.)
COLA is also a Cost of Living Adjustment, when only talking about a "one-off" change, as we have here at our school.
Because of the high inflation rate recently, SILC decided to give us an increase in our pay to offset these increases. Now SILC gave us two of these increases, one in January and one in September, mostly I am surmising, because they want to retain English teachers. However, SILC would not want teachers to "EXPECT" any future increases and the government still "EXPECTS" a year long CPI of 4.8%. (EXPECTATIONS will also be an important topic in the near future!)So why the post? Because I see these two words used interchangeably in the textbooks for Principles of Economics, so clarity is sometimes hard to come by and I teach to Chinese students in English so clarity is important (and our Board of Directors receives English reports too!).
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