Final answer:
Cost-of-living adjustments (COLAs) are agreements that ensure wages adjust with inflation, maintaining the real value of salaries in the face of changing costs of living. They were commonly used in labor union negotiations during the 1970s and 1980s.
Step-by-step explanation:
The blank in the question should be filled with the term cost-of-living adjustments (COLAs). These are special types of agreements that are indexed to the consumer price index to reflect changes in the cost of living, ensuring that wages rise with inflation. This mechanism was prevalent in the labor agreements of the 1970s and 1980s, allowing for wages to be adjusted in line with inflation, which means that if inflation increased, wages would be automatically adjusted to a higher percentage accordingly. For instance, a contract stating a COLA plus 3% would mean that if inflation was at 5%, a wage increase would be set at 8%, and similarly, if inflation rose to 9%, the wage increase would be automatically set at 12%.
These adjustments help maintain the purchasing power of workers' wages amidst inflation, hence benefiting both employees and employers by establishing equitable and sustainable wage practices over time. In the context of business, such indexed agreements also exist concerning prices and rates adjusting automatically with inflation, which protects both parties from unexpected inflation changes, ensuring an agreed-upon real price.