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How the Cost-of-Living Bonus Works

(29 March 1948)

From The Militant, Vol. XII No. 13, 29 March 1948, p. 4.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

In 1938 The Militant proposed, a wage program for the American labor movement in anticipation of the coming war and the inevitable war-borne inflation, called “The Sliding Scale of Wages.”

The predicted inflation has followed a nine-year course. Despite the recent slump in the wholesale commodity market prices, the cost-of-living is substantially what it was in January, at the peak of the price spiral and prices are resuming their upward trend.

Today, many far-seeing union militants have come to the conclusion that the principle of the sliding scale of wages, or, as it is often called, the cost-of-living bonus, contains the only immediately effective protection for real wages against rising prices.

Set Wage, Sliding Bonus

This is a bonus to be paid in addition to the negotiated wage scale. The latter remains fixed during the life of the contract regardless of the ups or downs of prices. But the bonus is paid over and above regular wages if the cost of living rises, and in amounts directly proportional to the increase of prices, Thus, the bonus is adjustable; the basic wage is fixed. If prices go up, the bonus goes up proportionately. If prices go down, the bonus goes down. But the basic hourly wages remain the same during the life of the contract.

The demand for the sliding scale cost-of-living bonus was first put forward by the CIO Packinghouse Workers during negotiations in the Spring of 1947. The UPW leaders did hot press for the demand, however, and settled for a small fixed wage increase. The CIO Rubber Workers have now called for a sliding scale cost-of-living bonus in addition to a 30-cent hourly basic wage increase in their present negotiations.

For the most part, however, the top CIO leaders have opposed this program. Their method of opposition has usually been evasion of the issue, rather than direct attack. But now, for the first time since 1938 we have the opportunity to defend this program in debate with attempted reasoned arguments against it. The Reutherites in the CIO Automobile Workers, who have opposed the sliding scale bonus demand as proposed by five UAW local presidents in Flint, have set forth the reasons for their opposition publicly and in detail.

Opposition’s Arguments

Their arguments are contained in a lengthy article entitled Escalator Clause, signed by Coburn S. Walker, financial secretary of Chevrolet Local 659, Flint, and published in the Feb. 12 issue of The Searchlight, Local 659’s paper.

Walker’s article is based largely on the example of the operations of a sliding scale wage clause in the contract of the Sinclair Oil Co. with the CIO Oil Workers International Union. Walker rests his arguments on his interpretation of a letter sent to the UAW by E.E. Phelps, OWIU Director of Research and Education.

This letter also published in The Searchlight, says the Sinclair workers secured a cost-of-living sliding scale contract which was in effect from Januarv to Sept. 15, 1947. After eight months, the escalator clause was dropped and a fixed wage increase alone was written in the contract.

What were the effects of the escalator clause and would the Sinclair workers have done better if they had retained the clause? Phelps’ letter, though it attempts to justify the discontinuation of the clause, shows that if it had been retained, the Sinclair workers would have received higher wages than they now have.

He says that only Sinclair and a few of the smaller oil companies agreed to the sliding scale of wages principle. The big companies insisted on fixed wage scales “sometimes nearly meeting” the wages paid the Sinclair workers. At the time the Sinclair workers’ contract was changed, they were getting “3 cents above what competitive companies’ agreements called for.”

At that time – midsummer of 1947 – the leaders of the OWIU thought that the economic situation “didn’t forecast any further sharp increases” in prices. They decided to consolidate their sliding scale increases on the basis of a 25-cent an hour raise in basic wages. The actual contracts signed provided, in most cases, a 15-cent basic raise, plus a 10-cent bonus to continue until the summer of 1948.

Had the old contract continued, however, Phelps now admits, “the economic conditions would have benefited the membership to the extent of about 10 cents an hour.”

Phelps further reveals that “a few settlements have been made containing these minimum base rate adjustments (25-30 cents an hour), ACCOMPANIED WITH A FURTHER COST OF LIVING BONUS THAT PAYS AS MUCH AS 7 TO 12 CENTS (an hour)).”

Two Things Clear

Two things stand out pretty clearly in Phelps’ letter. First, the oil workers raised their wages 28 cents an hour during the period that all other CIO unions, including the auto workers, got raises of only 10 to 15 cents an hour. Second, for some of the oil workers, their full cost-of-living increase has been converted into a permanent basic increase – plus cost-of-living bonuses of 7 to 12 cents.

Walker takes the fact that the Sinclair workers discontinued their particular escalator clause as a demonstration that all such clauses are no good. He says, for instance,

“If the UAW accepts the Sinclair Oil type of escalator clause, AS RECOMMENDED BY PALMER (former Local 659 president), a fall in prices would leave the workers with no gain in their living standards.”

But then, in the very next sentence, Walker contradicts himself: “Palmer and his friends are really asking for something different from what the Oil Workers got.”

The original Sinclair Oil contract tied all wages to prices. That is one type of escalator clause. It has a possible weakness if prices should fall below those at the time the contract was signed.

Basic and Bonus

But the program advanced by the Flint local presidents and the rubber and packinghouse workers doesn’t tie basic wages to prices. It calls for basic wage increases PLUS a cost-of-living bonus adjustable for price rises. Walker’s only answer to the real demand formulated by the Flint local presidents is that it is “illogical.” Why, he asks, should the basic wage be fixed, while only the bonus is adjusted to price movements?

Far from being “illogical,” it is exactly what the situation calls for. Even Phelps’ letter indicates that in some of the oil companies, WHERE THE WORKERS WERE READY AND ABLE TO ENFORCE THEIR DEMANDS, they got not only a basic wage increase of 25 to 30 cents an hour, but also “a further cost of living bonus that pays as much as 7 to 12 cents.” During the same period the auto workers have received only an 11½-cent basic raise.

Another argument of Walker is that “escalator clauses freeze workers living standards and prevent them from improving the conditions of their families.” This would not have happened if the UAW contracts even had an admittedly inadequate escalator clause like the Sinclair Oil workers. It is estimated that, even in that case, the average auto worker would have received $500 more in wages than he actually received and today would be enjoying $50 more a month.

But the Sinclair contract, as Walker admits, is not what the UAW progressives ask. They ask for a wage program that will improve the workers’ living standard and keep it improved. That’s why they want their basic wages fortified by a cost-of-living bonus.

Present UAW Demands

As a matter of fact, the present basic wage demands of the UAW are not designed to improve living standards, at all, but just to restore them to the level of June 1946. Walker himself says that 15 cents of the demand is to restore the living standards of two years ago and the other 10 cents is for further price rises which “the Board expected.” This is just a program of chasing after high prices.

Walker’s – or rather the Reutherites’ – arguments break down at every stage. They say escalator clauses might result in pay cuts. Then they say that the sliding scale cost-of-living bonus, which does not have this weakness, is an “illogical” demand. Why this is any more illogical than the simultaneous demand for basic wage increases and pensions, they don’t explain.

The two wage demands proposed by the UAW progressives deal with two different aspects of the wage question:

  1. The improvement of living standards through basic wage increases;
  2. The protection of basic wage increases from future price rises through a cost-of-living bonus clause.

It is because they confuse these two different aspects of the wage question that the Reutherites raise such contradictory and foolish arguments against the cost-of-living bonus wage programs.

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