When Is A Raise Not A Raise?

I know. More talk about money and finance at a time when you probably have less money and a greater concern about where we go from here. Nonetheless, this is worth understanding:

There are two, and only two, reasons why somebody should get a raise. The first reason is that the money that is being used to pay the salary is being devalued (inflation). But that sort of raise is just getting you to tread water in a rough sense. You’re not really getting ahead because inflationary price rises eat up the entire salary increase and usually more. The second thing is that productivity has risen and you’re creating more goods or services for the same inputs. This is labor productivity. It is the one thing that allows for real sustainable rises in wages.

Productivity. It’s what buys whatever is for dinner.

2 thoughts on “When Is A Raise Not A Raise?

  1. Technically, the first one is not a justification for a raise. It might be necessary for retaining employees but not a justification.

    The value of employees is related to the value created by the work. Even in inflationary times, the value of the work might be diminishing. Example: If a business is unable to pass on inflationary cost increases to its customers, the business is unable to afford a raise because the “value” of the same work is worth less to the business.

    1. Troy,

      I think that’s part of the point–the increase to match inflation is not really a raise, though it would appear to be one, superficially speaking.

      And yes, things (raises and inflation included) are often more complex when one digs into them.

      When one looks a periods of history where there was essentially no inflation for decades at a time, it is useful to contrast it with the fact that I’ve never not known regular inflation since I first understood what the word was.

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