What is cost of living raise (+ 7 Steps to ask your boss for a raise)

With cost of living adjustments happening every year, price increases can be devastating to employees who have a fixed income or are in a position where they’re not up for a major raise.

A cost of living raise can help these employees afford an increase in expenses due to economic fluctuations.

Unfortunately, not all employers offer raises automatically, making it necessary for some employees to request a raise.

This article will teach you all you must know about a cost of living raise, including what it is, how to calculate it, and how to ask for a raise to make sure you can pay your expenses.

What does “cost of living” include?

The cost of living is the amount of money an individual needs to cover all their living expenses in a certain period. It includes housing, taxes, transportation, food, healthcare, etc.

Increases in the cost of living can be paired with inflation in the economy (i.e., the general price level in an economy). The inflation rate affects everyone that’s part of the economy, including businesses, consumers, firms, and the government.

Cost of living is an extremely important factor in building up personal wealth since a salary can provide a higher-quality lifestyle in places where rent, food, and healthcare are less expensive. The higher the cost of living, the higher the salaries employees need to survive.

The cost of living differs depending on where you live in the U.S. For example, the cost of rent and food is usually higher in cities than in more rural areas.

Consider the cost of living index for the U.S. The average cost of living is represented by 100, meaning that any state with a number above 100 is more expensive than the U.S. average, and any number below 100 is less expensive.

The image below shows the cost of living index for New York. The overall cost of living in New York is 121.5, so it’s far more expensive to live in New York than the U.S. average.

The cost of living increases due to inflation. In fact, in June 2022, prices in the U.S. had increased by 3.7% in one year.

Inflation stands at 6.4% as of January 2023.

What is a cost-of-living raise?

A cost of living raise is an income growth that correlates with rising costs. It can also be called a cost of living adjustment (COLA), cost of living increase, and cost of living allowance.

The goal of a COLA is to keep the buying power (also known as purchasing power) of an employee’s salary the same during times of inflation. Without COLA increases, the dollar’s declining value leaves consumers with less money to spend in their pockets.

The raise is most often given in terms of salaries, wages, and benefits, which businesses and the government can implement.

The most common instance of cost of living adjustments is the increase in Social Security benefits the government applies yearly.

The cost of living adjustment for Social Security benefits was 5.9% for 2022, which is the biggest raise in 40 years. This means retirees saw an increase of 5.9% in their 2022 Social Security benefits.

Some employers are required to give their employees a cost of living raise, while others aren’t. For example, employees who work for the government typically must receive a cost of living raise.

Suppose employees are part of a labor union such as Teamsters, United Auto Workers, or Service Employees International Union. In that case, the union might negotiate a cost of living adjustment for them.

Some employers may incorporate a cost of living raise into their compensation plans to accommodate for the annual growth in cost of living. However, many companies base their raises in compensation on employee performance rather than the increase in living costs.

So, employees may be left with low increases that can’t cover their living expenses.

How does a cost of living raise work?

In the U.S., the cost of living adjustment is mostly determined based on the Consumer Price Index (CPI). This is an approximation of how much someone needs to spend to obtain a certain level of well-being.

It’s a measurement done by economists for tracking changes in the annual cost of a typical “basket” of goods or services that consumers purchase.

The Bureau of Labor Statistics (BLS), which put together the CPI, bases its measurement on a standard sample of urban wage earners and clerical workers. This is known as the CPI-W.

While the cost of living tends to increase every year, there are some specific circumstances outside of an annual raise in which cost of living raises apply.

Cost of living raises for relocation

Some employees may negotiate for a cost of living increase if they’re transferred to a new city while still working for the same company.

For example, say an employee is asked to transfer from Kentucky to New York, where the cost of living is far higher. To maintain the same quality of life, the employee needs a higher salary upon moving there.

The three most expensive countries to live in the world in 2023 are Monaco, the Cayman Islands (U.K. Territory), and Switzerland, which have monthly costs of living of $3,743, $2,844, and $2,497, respectively. The United States comes in tenth place at $1,951 per month.

Employers and employees can use different states’ cost of living index to determine whether a salary offer is suitable for a new job in a different location.

Find out where to find hourly work in high cost-of-living cities.

Cost of living raises for retirement income

Retirees who live on a fixed income also benefit from cost of living adjustments.

Over time, inflation leads retirement investments and savings to decrease in value. As a result, retirees who might have been living comfortably at the beginning of their retirement may struggle to make ends meet as the years go by.

For this reason, some COLA-based pension plans and Social Security Administration retirement benefits factor the cost of living into retirement income.

How are cost of living adjustments calculated?

Cost of living raises should reflect increases in living expenses. Many factors affect a person’s cost of living, including:

• Housing

• Transportation

• Childcare

• Food

• Utilities

• Taxes

• Healthcare

With a cost of living raise, when the prices of these elements increase or decrease, an employee’s salary changes. With the cost of living growing each year, employees’ paychecks need to be higher so that their income can cover their expenses.

As mentioned above, the cost of living is typically calculated based on the Consumer Price Index (CPI).

The BLS calculates the CPI by taking the average weighted cost of a basket of goods in a specific month/year and dividing it by the cost of that same basket in the previous month/year. This shows the monthly and annual increase in prices.

After looking at the CPI, employers can see how much of a raise they need to give their employees to cover the cost of living.

Example of a cost of living raise

Here’s an example of how a company may provide a cost of living raise to an employee so you can better understand how this would look in a real-life scenario.

Let’s imagine that in the past year, the cost of living has increased by 3%. A company provides its employees with an annual raise based on the cost of living increase in that area.

This means that all its employees would receive a 3% raise.

Thus, if an employee at the company currently earns a yearly salary of $50,000, their 3% raise would equate to an additional $1,500 per year.

This is calculated with the following formula:

• Current employee salary x increase in the cost of living = Cost of living raise

So, for the above-mentioned example, the calculation would look like this: 50,000 x 3% = 1,500

With a raise of $1,500, the employee’s new salary would be $51,500 yearly.

Which employers are more likely to offer a cost of living raise?

Most non-profit, corporate, and military employees will get a cost of living raise. Certain state laws also require COLA as part of state employee contracts — making it mandatory for government employees to get raises.

However, private employers aren’t required to give cost of living raises to their employees. This has led to a huge difference between the wage increases of public workers vs. private workers.

That being said, many private employers will still give their workers cost of living raises since it increases retention rates. According to Statista, 63% of employees leave their jobs because of too low pay.

Higher salaries, on the other hand, seem to keep employees happy, resulting in far more positive work environments. They also help companies attract better talent, which can improve their performance and profitability.

This means more and more private companies are seeing the benefits that offering cost of living raises could bring them.

Furthermore, whether employers choose to give cost of living raises or not, they’re still required to pay at least the minimum wage.

The federal minimum wage in the U.S. for nonexempt employees is $7.25 per hour. However, some minimum wages ultimately vary by state.

For example, the minimum wage in Washington is $15.74 per hour, while the minimum wage in Georgia is $5.15 per hour.

Discover what the minimum wage is in your state here.

Employers are also often expected to pay workers for any overtime.

How to ask your boss for a cost of living raise

If your employer doesn’t offer cost of living raises, you can either ask for a raise or switch to a company that offers COLA.

Since hiring new employees can be extremely expensive, employers are often willing to give workers a raise since it’s more cost-effective than finding someone to replace them. Sometimes, all they need is a little bit of a push.

Here are the steps you can take to request a cost of living raise:

Step 1: Choose the right time to ask

When asking for a salary raise, you need to choose your timing carefully. Ask yourself the following questions to identify which time is best to ask for a raise:

• How’s your manager’s workload?

If your manager is under a lot of stress and pressure at work, it might not be the right time to ask them for a raise. By paying attention to their workload and moods, you’ll be able to identify a good time to catch them in a conversation.

• What is the financial situation of the company?

If the company you’re working for isn’t doing well, it’s not a good time to ask for a raise. If you don’t know the company’s financial health, you can look for signs such as layoffs or cutbacks in spending. Check the news for updates on your employer or industry.

If your company isn’t doing well financially, it may be better to consider looking for another job at a different company that can pay you more.

Step 2: Do research

If you don’t know how much of a raise you need to ask for, you can do one of two things:

1. You can write down a list of your expenses to determine how much you spend each month on necessities. Compare your expenses with your salary to determine the percentage increase you need to be able to cover those expenses.

2. You can do market research to determine how much other workers with the same job title are earning.

For example, according to the BLS, accountants and auditors earn an average salary of $77,250 per year or $37.14 per hour.

In addition to your job title, your area plays a big role in how much you’re supposed to earn. This is because, as mentioned above, the cost of living is higher in some cities than in others.

For example, marketing specialists in Chicago earn 12% more than average, while those living in Atlanta earn 5% less.

Your skills can also impact your salary. For example, accountants with consulting management skills can earn up to 52% more than average.

By learning about the trend of your job title and city, you’ll have a foundation on which to base your raise expectations, which may make it easier to convince your manager to give you a raise.

Remember to consider your qualifications, years of experience, and skills to make your request even more convincing.

Step 3: Let your boss know what’s in it for them

Keep in mind that people are innately selfish beings. We care more about what’s in it for us than what others can get out of it.

The same goes for your boss.

They don’t care about your mortgage payments. They care about what’s in it for the company. You can show your boss what’s in it for them by explaining your plan for the future (regarding the company).

Present your boss with your goals, how you plan to benefit the company, and the plan you’ll follow to get there.

Step 4: Set up a meeting and prepare

It’s far better to ask for a raise face-to-face rather than over the phone or via email. You can arrange a video meeting with them if you’re not in the same location as your manager.

Ask your manager which day suits them best and schedule a meeting on your calendar. However, remember to give yourself enough time to prepare.

Here are some things to consider when preparing for your meeting:

Step 5: Rehearse

Practice what you’re going to say before your meeting. This way, even if you’re nervous, you can stick to your script. Remember to focus on professional reasons instead of personal reasons when asking for a raise.

Step 6: Give specifics

Ask your manager for the specific salary figure you’re looking for. Cite the research and/or calculations you’ve done to arrive at that specific number. Give reasons why you believe you deserve the raise by showing how you’ve added value to the company.

For example, if you’re a salesperson, give figures regarding the sales you’ve brought in for the company.

Step 7: Be confident

While asking your boss for a raise can be intimidating and extremely uncomfortable, you need to be confident. The more confidently you present your case, the more confident your boss will be that you deserve the raise.

And your confidence shouldn’t just be in your posture but in the words you use, too.

Also, remember that if you’ve researched industry standards and salary ranges properly, you’ll have supporting evidence that shows you’re not simply grabbing numbers out of thin air.

You know when you deserve a raise. Now it’s time to convince your boss of it.

Step 8: Provide your request in writing

Your boss likely has a boss who they’ll need to consult with about your cost of living raise request.

That’s why, after your meeting, it’s a good idea to provide them with a written request that they can show to their manager.

The written request doesn’t have to go into extreme detail. It can simply be a summarized version of your request that includes only the most important information, such as comparable pay ranges.

Step 9: Follow up on your request

Your manager might not agree to give you a raise then and there. They’ll likely want to speak to the executive team or the company owner.

Write a thank-you note or email laying out what you requested in the meeting. This may help the manager remember your request.

You also need to be prepared for a “no.”

While being met with a “no” can sting — after all, it’s human nature to feel upset by it — it’s important to respond diplomatically. Perhaps your boss has a good reason for saying no.

And even if you think the reason your boss gives you isn’t feasible and you decide to start looking for a new job at a different company, you don’t want to burn any bridges.

How to find a new job easily

If you’re unsatisfied with being told a cost of living raise isn’t feasible, you might want to reassess your career path and decide if a new job might be the right choice.

You can find a job by heading over to Jobcase’s job board. We have thousands of jobs for you to choose from.

Simply type the position you’re looking for in the search bar alongside your location.

For example, if you’re looking for a job as an accountant in Los Angeles, you can simply type “accountant” into the search bar. You can even choose the maximum distance from your home you’d like the position to be.

You can also select the “remote” option if you’d prefer a work-from-home position.

Considering switching professions? Here’s a list of the eight best work-from-home jobs that also pay well.

Need a cost of living raise?

You’ve seen what a cost of living raise is and how to calculate it. If rising prices result in your expenses outweighing your income, you need to request a raise by following the steps outlined above.

If a cost of living raise isn’t something your employer can offer you, use our Getting Hired resource center to begin your next employment opportunity.