Inflation-busting with union contracts—a brief explainer

If you ask the Bank of Canada, they would tell you that one of the main drivers of inflation is workers’ wages. Tiff Macklem, governor of the Bank of Canada, has been frank about it, saying that “we need to rebalance the labour market.”

What does that mean? For Macklem, the answer is clear. “The unemployment rate in June [2022] hit a record low—and while that seems like a good thing, it is not sustainable,” he said in the same remarks. The “rebalancing” of “supply and demand” in the labour market means triggering unemployment and bringing down wages.

That’s certainly one vision for how to fight inflation—with misery for working people.

As the CCPA has covered extensively, working people’s wages didn’t cause inflation—corporate profits are its main driver. Bringing down workers’ wages, which have already been lagging behind inflation, is asking for workers to pay the increased cost of living twice.

There is, in fact, a better way to combat the rising cost of living—by paying workers more. While most workers’ pay is still lagging behind inflation, some workers have been winning inflation-busting wage increases in their union contracts. If your wages are rising along with the cost of living, it certainly hurts a lot less.

Unifor members at Resolute Pulp & Paper signed a pattern-setting agreement in May 2022, which will be the basic framework for much of the rest of the forestry sector. Those union members won a 20-24 per cent pay increase, on average.

For Unifor members at WestJet, some workers at the bottom of the pay scale will be seeing 40 per cent pay increases over the life of their next contract.

Workers at the Molson brewery—members of the Teamsters—near Montreal won pay increases of between 40 and 50 per cent for the lowest-paid workers following a months-long strike.

Teamster school bus drivers at GD Paquette in Quebec just won a “spectactular” immediate wage increase of 33 per cent, followed by a cost-of-living adjustment (COLA) for every year of the rest of the contract, making sure that their wage increases are never lower than the rate of inflation.

In simple terms, a COLA increase means that every year at some designated time—let’s say January 1—wage increases automatically occur at the most recent rate of year-over-year inflation. If the rate of inflation from January 2022 to January 2023 was 5.9 per cent, and COLA raises occur automatically in January, then everyone gets a 5.9 per cent raise starting on January 1.

The language of COLA increases is fairly straightforward. It should be tied to a specific measure of inflation (most often, the Consumer Price Index), triggered at a specific date, and applied universally within a bargaining unit, as best practice.

Of course, while the contract language is straightforward, actually winning that language is not. Employers often fight tooth and nail to prevent workers from winning any type of wage increase—never mind one that is more unpredictable because it is tied to an external measure. The fight for inflation-busting wages isn’t just a policy argument, it’s an organizing one.

In Belgium—home of one of the world’s strongest labour movements—over a million workers across many different industries saw their wages jump by nearly 12 per cent due to automatic COLA increases, guaranteed by the law. Those workers didn’t get that raise because of some immutable charitability in Belgian culture, but because they fought for it.

A lot of mainstream economists talk about the cost of living as if it were the weather—some naturally occurring phenomenon that we don’t really have much control over and simply need to be subjected to. But workers do have the power to offset the most harmful effects of increased inflation. Like so many other things, the most powerful way for workers to make change is through their union contract.