COST OF LIVING INDEX. - It is the technical-legal instrument for preserving intact over time the purchasing power of the working and white-collar masses relative to a given period. This period is established as the reference base for fixing the necessary indices, so as to be able to carry out correctly, from the economic and social point of view, the determination of the variations in the remuneration and compensation of each work activity in relation to changes in the cost of living.
The adoption of the s. m. [sliding scale], as a particular system of remuneration for the work of manual workers and white-collar employees, arises, in countries with considerable development, especially industrial, during periods of economic disorder and monetary instability, when frequent variations occur in the prices of goods and therefore in the cost of living.
The establishment of a sliding-scale system requires, therefore, beforehand: a) the fixing, first of all, of a cost-of-living index; b) the determination of the remunerations subject to variation; c) the determination of the period of time to which the ratio for the application of the system is to be attributed.
This implies the resolution of very laborious problems on the part of the representatives of the categories. Thus, the fixing of the cost-of-living index cannot be done except after having drawn up a standard family budget and having resolved the problem of prices (that is, whether account must be taken only of administered prices or only of free-market prices).
As regards the identification of the remuneration to be subjected to the sliding scale, the criterion generally adopted is to limit the variations to a single part of the remuneration. This is for the purpose of conferring on the remaining part a certain stability over time and at the same time bringing about a certain redistribution of real income within the categories.
The origins of the sliding scale for wages and salaries, in Italy, go back to 1945, when it seemed necessary to reorganize the criteria for the remuneration of labor, linking its course to that of the cost of living. Since it was not possible to think of too frequent an adjustment of labor contracts, the device of the sliding scale was devised, instituted, for the northern provinces, by the agreement of 6 Dec. 1945 and extended to the central-southern provinces by the agreement of 23 May 1946. Finally, by the agreement of 27 Oct. 1946 the sliding-scale system was unified for the entire territory. Four years of experience (Oct. 1946-Oct. 1950) served to reveal, along with the substantial soundness of the sliding-scale system, also certain inadequacies, and after long negotiations, begun at the end of 1948, on 21 March 1951 a new agreement was concluded in Milan. The greatest merit of that agreement consists in the fixing of a new family budget, on the basis of which the national index number of the cost of living is determined from the average of the budget's expenses, calculated in 16 provincial and regional capitals: Milan, Turin, Genoa, Venice, Bologna, Florence, Ancona, Pescara, Perugia, Rome, Naples, Potenza, Bari, Catanzaro, Palermo and Cagliari. Every upward variation of the cost-of-living index number gives rise to an increase in the cost-of-living allowance, on the basis of special tables differentiated according to the qualifications of the employees, age, sex and place of work. Every downward variation of the same index translates into a reduction of the cost-of-living allowance, but this occurs with special correctives to make the descent of the sliding scale slower than its ascent: up to at least an overall reduction of 11% relative to the level of the cost of living in the two-month period Nov.-Dec. 1950. Once this limit is exceeded, the mechanism will operate in full, and should the cost of living, relative to the base period, increase by more than 25%, the whole system will have to be renegotiated.
It is the general opinion that the automatic application of the sliding scale to the remunerations of labor corresponds to a principle of justice; nevertheless, certain economists hold that once it has been made systematic and universal, it may run the risk of encouraging the phenomenon of devaluation and thus bring grave harm and suffering to those for whom, on the contrary, the defense of their standard of living was intended to be assured.
Bibliography2 works
Raffaele de Leva