Final answer:
The most common formula for adjusting wages to cost of living is by increasing wages by 1 cent per hour for each 0.3 point increase in the CPI-W, which helps employees maintain purchasing power amidst inflation.
Step-by-step explanation:
The most common formula for adjusting wages to the cost of living is wages increase by 1 cent per hour for each 0.3 point increase in the CPI-W. This method of wage adjustment is typically used to ensure that employees' purchasing power keeps up with the rate of inflation. Cost-of-living adjustments (COLAs) are critical as they help protect workers from the eroding effects of inflation on their earnings.
The rise in the cost of living can be calculated as the percentage increase, which is derived from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the prices of goods and services purchased by the typical urban consumer, making it a relevant index for wage adjustments. During the 1970s and 1980s, labor unions often negotiated wage contracts with COLAs to guarantee wages kept pace with inflation, showing the historical importance of such adjustments.