<p>This was the topic of our lunch conversation at work. If cost of living raises are supposed to compensate for rising prices, why does everyone not get the same amount of money? If the price of gas/food/utilities/etc. increases, it seems that the increase affects everyone equally (or affects people making less money to a greater extent than people making more money). Yet, a 3 percent cost of living raise seems to be based on the idea that an increased cost of living has a greater effect on people making more money, because they get a larger amount of money as a raise.</p>
<p>The idea is that most people spend most of their income. So if person 1 has an income of $30,000 and spends 90% of that, their cost of living is $27,000. If person 2 has an income of $90,000 and spends 90% of that, their cost of living is $81,000. If prices rise by 3%, then person 1’s cost of living has increased .03 x $27,000 or $810. Person 2’s cost of living has increased .03 x $81,000 or $2,430.</p>
<p>True “cost of living” salary increases are relatively rare these days. Most companies I’ve worked for have a pool for salary increases. The pool may be 3%, but high performers and those near the bottom of their salary range may get a 9% raise, while poor performers or those near the top of their salary range may get a 1% raise or no raise at all.</p>
<p>Someone who earns $100K is 10 times more affected by inflation than someone who earn $10K. That assumes that both people spend everything they make.</p>
<p>Who gets a ‘cost of living’ increase - government or union?</p>
<p>I get cost of living every year, and I’m neither government nor union.</p>
<p>If a high earner gets a cost of living increase, that’s because the person has the implicit or explicit bargaining power to get it, not that a percentage of a larger amount is fair. COLA in the usual sense was an employer derived solution from dealing with large unions, notably the UAW. The unions, who aggregated the negligible bargaining power of lower compensated people, wanted to increase the relative welfare of their members. Employers found that COLA was an effective limit on rising real wages; the nominal wage rises but the real wage stays about the same, depending on how COLA is measured. This was a victory for employers - and for many years for unions as well - because it essentially capped real income as improvements in technology and other productivity factors decreased the cost of things. That meant a union family had more “wealth” though the increase in income was largely nominal, not real. In other words, you can buy a microwave for $30 instead of $800 and can buy a blu-ray player for $80 not $600 and so on. Those are recent examples but the same is true if you go back through the 20thC and look at refrigerators, washing machines, TV’s, even radios. </p>
<p>(Remember, increases in real household income have been largely non-existent outside the top earners and any increases, even maintenance, has required 2 earners for more families. The flatness and decline in incomes was hidden by cheaper stuff coming into the country and, of course, debt.)</p>
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That’s interesting. Do they actually refer to it as a cost of living increase? I didn’t think many private companies were doing them anymore outside of possibly some union contracts.</p>
<p>I did not get a col increase last year. I’m both government and union.</p>
<p>Because the alternative to that is to reduce the buying power of the higher earner’s salary.</p>
<p>Of course, another way to look at it is that the person earning $10,000 has to spend everything s/he makes on necessities, while the person earning $100,000 has disposable income. So it doesn’t make sense to give them both, say, a 3% COLA. </p>
<p>Just another point of view. Not sure what I really think.</p>
<p>NO cost of living raises at my work.
But there is a pool of money for ‘merit increases’ based on performance reviews each year.
0-4% of salary depending on each employees metric.</p>
<p>we don’t get a cost of living raise at all. We do get merit increases which are from maybe 0-10 percent. They vary every year and there are always people who get zero. Be happy you’re getting something.</p>
<p>My husband has a union contract, the most recent COLA deducts $.09 from his base hourly rate as per the March adjustment CPI.</p>
<p>I have no idea what is cheaper though.
Our health insurance costs are more expensive as are our copays & out of pockets & deductibles.</p>
<p>Also factor in that a $3000/year increase for someone making $30,000 isn’t subject to the same tax scale and that the $3000 is “worth” more to someone making less money. You would also have to continue to increase that flat rate each year to keep up with the inflation adjustment. It’s not common to get a COA adjustment every year–usually that is given every few years if you are getting regular raises. If that is the only raise you get, then it makes sense.</p>
<p>I am union. This year I got a raise for the first time in 4 years, but that was more than eaten up by the increase in what I pay for healthcare.</p>
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<p>They call it a CPI increase, and everyone gets it, from the receptionist right up to the VP. (The CEO has a separate compensation deal.) In most years, we also get merit increases, which can vary a lot from one employee to the next. But the CEO believes that not giving a COLA is tantamount to cutting his employees’ pay, and he doesn’t want to do that.</p>
<p>CA State employees have not had an increase for about 6 years. This year they propose a 2% increase and that requires Union rectification.</p>
<p>I guess the trade off is a more steady employment than a high tech private company.</p>
<p>I get a cost of living increase nearly every year from the churches that employ me. It is matched to the rate of inflation. If the annual inflation rate for the past year was 2%, I get a 2% salary increase, for example. Some churches also tack on a merit increase so that we get an actual raise.</p>
<p>The home healthcare agency for whch I moonlight increased their charge to clients last year, but did not increase the salraies of the employees…</p>