Cost of Living Adjustments Should Not Be Treated Like Raises

Note: I'm speaking from my experience as an American. I'm not sure how things work elsewhere in the world, but I'd love to know in the comments.

This month, many of those fortunate enough to work for employers that give cost-of-living adjustments (COLAs) received one to their salary. Before I get going, I want to be clear - this is absolutely a benefit, and employers that do this are fairly rare in my experience. It's good to see it happen.

However, some employers treat COLAs as if they are giving their employees an actual raise. To explain what I mean, let's define both a COLA and a regular old pay raise.

A pay raise is an increase in wages or salary. That's it.

A cost-of-living adjustment is (usually) an increase in salary to counteract inflation. By "counteract inflation" I mean "continue to be able to live your current lifestyle." The key words are adjustment and current. Your pay is being adjusted so that you can continue to afford the things you currently can. This is different than, say, a 5% raise.

To illustrate my point (and I'm certainly no mathematician, so if you think I'm wrong about any of this, let me know), let's imagine your yearly salary for 2021 was $50,000. In other words, you made $50,000 in 2021 dollars. However, because of inflation increases, that same $50,000 in 2022 dollars will be worth less than it was in 2021 dollars.

To continue to be able to live your current lifestyle, which is based on 2021 dollars, you need your pay to be adjusted so that your 2022 salary equals $50,000 in 2021 dollars. If it's a 3% adjustment (I'm totally making that number up), your 2022 salary should be $51,500 to continue to be able to afford your current lifestyle in 2022.

A 3% raise, on the other hand, would mean your 2022 salary equals $50,000 in 2021 dollars ($51,500) multiplied by 1.03, or $53,045. In this scenario, you can afford a 3% larger lifestyle in 2022, whatever that means to you.

When companies send out self-congratulatory communiques about COLAs, backs are patted; high-fives are exchanged; proclamations of love for the company are shouted; but all that's happened is that you're able to live the same lifestyle this year that you did last year.

Yes, that means if you're not getting COLAs, or if your raises (if you even get them) don't at least match inflation, you're making less money every year.

This all might seem pedantic, but I think it's a necessary thought shift that the labor force needs to undergo. COLAs shouldn't be celebrated, they should be table stakes. If some non-insignification portion of the labor force is losing spending power every year, it very obviously weakens the labor force.

As for communications, simple email from HR should be all that's necessary - something like "Your salary has been adjusted based on the CPI blah blah your new salary is $X."

This also means that when a raise is given to you, it's an actual raise in your spending power related to the economy. This is something that employers can and should celebrate - the way some of them do now with COLAs.

Don't let the company you work for trick you. Without COLAs or sufficient pay raises, they're paying you less every year.

I'm going to try and write more like this on Substack: https://selectalldelete.substack.com/p/cost-of-living-adjustments-should?r=oy50b&utm_campaign=post&utm_medium=web

Thanks for reading!