"These numbers indicate some troubling economic trends," stated Dr. David Thompson, ERI president and founder. "When the CPI starts to show rapid increases each month, the expectations of salary increases at least equal to the 'cost of living' also grow. The recent CPI increases represent a significant change from the pattern in recent years, and the pressure will be on to grant salary increases based on these changes in CPI."
But there are reasons why wage increases sometimes don't match the CPI.
"What you spend -- your specific cost of living -- depends on how you choose to spend your money. And what you earn depends on what you do for a living and where you do it. The reality is that different people have different expenses, even though cost of living is often discussed as if it were a single discrete universal number," added Linda Lampkin, ERI Research Director. "The federal government tries to measure the changing prices of a fixed market basket of goods and services over time, but there is no one single cost figure that accurately measures individual expenses. The real 'cost of living' is based on decisions by individual consumers on how to spend the money they have."
On the cost-of-living side of the equation, increasing costs may cause consumers to make different choices - for example, take the subway to work rather than drive. Then commuters using public transportation will minimize the impact of the increasing cost of gasoline. Obviously, CPI is useful as a measure of changing costs in the economy, but does not really represent what most consumers actually experience.
On the cost-of-labor side, companies pay what they do because that's what the labor market for a specific skill requires. In recent months, the labor market has weakened from the point of view of employees. A report by Challenger, Gray & Christmas Inc., just found that firing announcements increased in May 2008 to the highest level since December 2005. Similarly, the Bureau of Labor Statistics reported that the figure for median duration of unemployment among those out of work in April increased to the highest it has been since June 2005. The consequences of wrong pay choices are serious. If companies don't pay enough, they lose good people and can't hire new ones. If they pay too much, the prices of their products or services won't be competitive.
According to the ERI 2009 Salary Increase Survey, employers are currently expecting to give increases for 2009 of around 4%, but what is received by any individual employee may be very different, based on what a person does and in what industry. While employees may be feeling the pinch of increased costs and may feel entitled to at least an increase that keeps them even with the "cost of living," employers must face the reality of setting pay levels based on the demand for labor and the goods and services that they produce.
Basing a salary increase on the increase in the cost of living just doesn't really work. Although such an across-the-board increase is easily understood and appears equitable, companies realize that increases must reflect the market for labor in their industries or they won't be in business for very long.
ERI provides information on living expenses in various geographic locations for families with different characteristics (income, size of the home rented or owned, number of family members, number of automobiles and miles driven) in its Relocation Assessor, so employers can compare living expenses between different cities and determine if a geographic differential is needed to attract and retain workers. ERI created the Geographic Assessor to evaluate how pay varies at different income levels at over 7,000 locations. In addition, information on competitive wages for different jobs (over 5,700 titles) can be found in ERI's Salary Assessor, searchable by specific industry, geographic location, and size of employer.
For more information on ERI and its research on competitive salaries and cost of living data, visit www.erieri.com or call 800-627-3697. For questions on the information in this release, please contact Research Director Linda Lampkin at 877-799-3428.
About ERI Economic Research Institute
ERI Economic Research Institute, Inc. is a leader in compensation and job content information. With data gathered from online surveys and an extensive survey library, ERI's staff of 60 researchers provides subscribers with assessments of salaries, relocation cost, cost-of-living comparisons, and executive compensation. ERI's compensation databases contain 20 years of collected data, covering the United States, Canada, the United Kingdom and other countries throughout Europe. ERI subscribers include the American Red Cross, Alaska Airlines, Monster Worldwide, Aon Consulting, Honda, Amtrak, Adidas America, Inc., the IRS, CIA, and United Nations. ERI's products include the Salary Assessor®, Geographic Assessor®, Relocation Assessor®, Executive Compensation Assessor®, and Nonprofit Comparables AssessorT software and Occupational Assessor, eDOT®. For more information about ERI and its products, visit www.erieri.com.
Linda Lampkin | ERI
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