Organization Salary Determinations

Cost of living vs. salary levels

Applying cost of living as a salary level determinant is somewhat controversial.

They are as different as apples and oranges.

The two may move in the same or opposite directions as they function independently. Thus, one geographic region may have a high salary level and a low cost of living, while another may have the exact opposite conditions.

Overall, the correlation of changes in salaries with the cost of living is less than 10%.

Measuring the cost of living

Employers may still use cost of living as one salary determinant, since tying salaries to changes in the cost of living provides a measure of fairness to employees by assuring them that their real salaries are not devalued.

But using the cost of living as a determinant also implies a constant standard of living. Historically, unions have opposed the principle for this reason.

Methods that provide the same absolute cost-of-living adjustment for all employees may actually impair fairness to employees.

Such flat adjustments imply that everyone's cost of living:

• is the same

• AND

• has changed by the same amount.

Unfortunately, technical problems in measuring changes in the cost of living may make such effects inequitable.