Cost of Living Adjustment
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A Cost of Living Adjustment is a periodic adjustment in workers' salaries and wages based on an specified index tied to the Standard of Living Measure.
- AKA: COLA.
- See: Purchasing Power Parity, Cost, Standard of Living, Cost of Living Index, Consumer Price Index.
References
2016
- (Wikipedia, 2016) ⇒ https://en.wikipedia.org/wiki/Cost_of_living#/Cost-of-living_adjustment_(COLA) Retrieved:2016-10-21.
- Employment contracts, pension benefits, and government entitlements such as Social Security can be tied to a cost-of-living index, typically to the consumer price index (CPI). A COLA adjusts salaries based on changes in a cost-of-living index. Salaries are typically adjusted annually. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves. In this later case, the expatriate employee will likely see only the discretionary income part of their salary indexed by a differential CPI between the new and old employment locations, leaving the non-discretionary part of the salary (e.g., mortgage payments, insurance, car payments) unmodified.
- Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as cost-of-living adjustments or cost-of-living increases because of their similarity to increases tied to externally determined indexes. Cost-of-living allowance is equal to the nominal interest minus the real interest rate.
2008
- (MA DoR, 2008) ⇒ Massachussets DoR. (2008). “Municipal Finance Glossary.” Massachussets Department of Revenue - Division of Local Services
- Cost of Living Adjustment (COLA) – It is often used in municipal contracts that provide for annual or periodic increases in salaries and wages for employees over the course of the contract. The amount of an increase is most often negotiated based on a community's ability to pay, but is sometimes tied to the annual change in a specified index, i.e., consumer price index (CPI). In Massachusetts, it is also used in the Optional Cost of Living Adjustment for Property Exemptions.