How many times have you of heard employees demanding (via union activity or individual agitation) that their employers should recognize the cost of living when determining pay raises? A lot of times, right?
How often have you read / heard about the rising cost of living, followed almost immediately by the author / commentator making a comparison with recent or imminent employee pay rises. Same frequency, right?
Well then, how many times have you heard tell that the cost of living has nothing to do with a company's determination of employee pay increases? Did I hear you say, never?
The truth of the matter is that companies only talk about the cost of living when that information supports the decision about pay increases that has *already* been made. That coincidence always makes for a wonderful and compassionate soundbite, doesn it?
Employers will react to the cost of labor, *not* to the cost of living. To define: the cost of LIVING is the relative cost required to purchase essential goods and services. The cost of LABOR is the amount necessary to attract employees, retain them and reward them for their performance (contribution to the business).
Employers are interested in paying a competitive wage, in order to avoid losing employees but also to attract new employees. Thus they are *very* concerned about what other companies pay for like jobs, and what other companies are granting by way of wage & salary increases. Once that determination is made (the cost of the annual pay rise), companies will use the cost of living figure *only* if that figures supports their decision. If it doesn't, then the message will go out about affordability, assurances that they still pay competitively and that they are conscious of the need to treat employees fairly.
But you will never hear a company publicly discuss a cost of living rate unless that rate agrees with their cost of labor determination. Granted, continued exposure to one rate *may* eventually be replicated to a degree by the other, but the key determinant is always "what is everyone else doing?"
Meanwhile, employees and the general public continue to be oblivious to the disconnect between their concerns (cost of living) and the concerns of their employer (cost of labor).
Going forward, let's hope that the cost of labor will keep pace with the cost of living (there *is* an arguement to be made about "the cart before the horse" or "chicken and the egg", but that's for another article). It's our only way to keep our heads above water, financially speaking.