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What Is a Standard Cost of Living Raise? Is It Required?

written by: •edited by: DaniellaNicole•updated: 3/1/2015

At your annual raise, your employer may tell you they are only passing out a cost of living raise. What is the standard cost of living raise, and how is it determined?

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    Who Determines the Cost of Living?

    It's Still Popular by LungStruck Flickr Commons One method of determining the cost of living is to turn to the Bureau of Labor Statistics (BLS). The government collects data every year to determine the Consumer Price Index or CPI. The CPI reflects increases or decreases in cost of living based on items like food, housing, transportation, gas, and insurance costs to the average consumer.

    One problem with the calculations researched by the BLS is that often, apples are not compared to apples. For example, an in-depth analysis of expenses from household to household is not considered. One family may be paying for two children in college where another family has two children relying on student loans to pay for college. Their analysis will only show a household with two children in college, regardless of the expense of tuition.

    The size of a household is considered but cost of upkeep will vary from lifestyle to lifestyle. This is one reason it’s almost impossible for the BLS to come up with an accurate cost of living raise or adjustment each year.

    The BLS carefully chooses approximately 14,000 households and analyzes income and expenses, or the cost to live. While you may not be on that list of households analyzed, the BLS argues that it is a good representation of both urban and rural households.

    Of those 14,000 households, data experts determine annually how the cost of living should be adjusted. In 2013, the CPI was 1.2%. This included lower energy costs that offset rising costs in food and other commodities. Where you live in the United States is also a factor that is not necessarily determined by the BLS.

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    How Do Employers Calculate Cost of Living Raises?

    Most employers use the Occupational Outlook Handbook issued annually by the BLS. If you search this free service you can get an idea of what wages are current for a particular industry. The only problem is the data is several years behind. Also, they fail to take into account locations, similarly to the CPI. However, they can provide you with a starting point.

    By looking at the data we find that the average salary for auto technicians in 2012 was $18.97 per hour. Becuase this is the average, some earned much more, while some may have earned much less. Suppose an employer is paying their auto technician $20 per hour. A 1.2% cost of living increase would mean their new pay would become $20.24 per hour.

    Using this handbook is a great tool for employees as well. It can help you argue what your cost of living raise should be based on your work industry. However, if the cost of living is down based on the Consumer Price Index, if you do receive a cost of living raise of any kind, be happy with that increase.

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    Should You Expect a Cost of Living Increase?

    It depends. Employers are not required to give out raises based on the cost of living. Depending on what area of the economy you work in, wages may actually trend downward. The reason for this is usually due to a glut or workers in the marketplace, meaning employers don't have to offer attractive wages. It could also signal a company that is in trouble, and cannot afford to raise wages for their employees.

    Where you live will also make a significant difference in your likelihood of getting a raise. Large metropolitan areas in California and New York may receive a cost of living raise on the higher end (4% to 5%), while areas of the world with a lower cost of living may get a more modest raise (1-2%)

    If the industry where you make your living has suffered significantly due to the economy, some employers are relying on a one-time bonus and skipping cost of living raises.

    Good employers will take the time to answer the questions you may have on raises, will consider increases or explain their business goals for the new year. In the long run, with today’s economy still in recovery, most should only expect a very modest cost of living raise, at best.


  • US Bureau of Labor Statistics
  • Image Credit: It's Still Popular by LungStruck/The Commons