Purpose

• Labor agreements set out the terms and conditions that the employer and employee are contractually obligated to fulfill in the workplace. Escalator clauses are enacted and enforceable through a labor agreement.
  
  

Conditions

• Various economic conditions can have an influence on the cost-of-living for employees, some of which include inflation, deflation and the price of housing. Escalator clauses are negotiated by unions to match their worker's wages with rising costs.
  
  

Indexing

• Many escalator clauses use the Consumer Price Index (CPI) as a means to determine whether or not the cost of living has changed. According to the Bureau of Labor Statistics, the CPI "measures the average change in the prices paid for a market basket of goods and services."
  
  

History

• The first escalator clause was enacted in 1948, as the result of the labor agreement reached between General Motors and the United Auto Workers union.