Understanding Salary Increases: A Closer Look at Inflation
Written on
Chapter 1: The Paradox of Salary Increases
Congratulations on your salary bump! It’s a sign of your hard work and skill. However, there are mixed blessings. While many are fortunate to receive consistent paychecks, an increase that doesn’t keep pace with inflation effectively equates to a pay cut.
To illustrate, consider the data presented: the blue line represents U.S. inflation, indicating that your earnings buy less over time. In contrast, the red line signifies real wages—your actual purchasing power after adjusting for inflation. For instance, $30,000 in 2022 has far less purchasing power than it did in 2012.
You can see from the graph that as inflation rises, real wages decline, currently showing a negative trend. The median wage means that half of the workforce earns less, placing the lowest wage earners at a greater disadvantage during inflationary periods. Those with limited financial resources are hit hardest when their dollars lose value.
If you've landed a new role or received a significant raise, that's commendable. However, keep in mind that for your company to afford that increased salary, they will likely raise prices for their customers. This collective response among businesses leads to a cycle of inflation, which diminishes the value of your earnings. It’s a reminder that everyone plays dual roles—as both employees and consumers.
The educational system grades on a curve for a reason: if every student achieves the top grade, its significance diminishes. Similarly, inflation reflects a devaluation of money; our earnings and the effort invested in earning them lose worth over time.
Moreover, inflation is contributing to inflated egos in the workforce. As companies lower their hiring standards due to a labor shortage, some individuals may overestimate their qualifications and pursue positions for which they are unprepared.
As reported by the Wall Street Journal, many who changed jobs during the pandemic are discovering that the appeal of new opportunities isn’t always what it seems. Before you get envious of others’ LinkedIn updates celebrating new roles, remember your own journey—most likely, you experienced an initial period of excitement that eventually faded, leading to the realization of the job's demands.
If you're involved in hiring, take a moment to envision yourself conducting a performance review for the candidate you’re considering. Evaluate their qualifications critically; if you have any doubts about their fit, take a moment to reflect before making a hasty offer.
As an advocate for capitalism and market freedom, I value the increased power of workers. However, it’s crucial for the Federal Reserve to address the current economic situation before it spirals out of control. We face a choice: either brace for an economic downturn or accept a decline in living standards. The age-old adage rings true: there’s no such thing as a free lunch; resources must come from somewhere.
So, enjoy your salary increase and celebrate with a meal—just be prepared for rising costs soon.
The first video, "Don't 'Ask' For a Raise (How High-Earners Get Pay Raises)," discusses strategies for negotiating salary increases effectively while navigating the complexities of inflation and market dynamics.