Cost of Living

Topics: Cost of living, Purchasing power parity, Price index Pages: 3 (754 words) Published: November 17, 2011
'''Cost of living''' is the [[cost]] of maintaining a certain [[standard of living]]. Changes in the cost of living over time are often operationalized in a [[cost of living index]]. Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas. Geographic differences in cost of living can be measured in terms of [[purchasing power parity]] rates.

==Cost-of-living adjustment (COLA)==
Employment contracts, pension benefits, and government entitlements (such as [[Social Security (United States)|Social Security]]) can be tied to a cost-of-living index, typically to the [[Consumer Price Index]] (CPI). A [[Cost of Living Allowance]] (COLA) adjusts salaries based on changes in a cost-of-living index. Salaries are typically adjusted annually. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves.

Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as cost-of-living adjustments or cost-of-living increases because of their similarity to increases tied to externally-determined indexes. {{Weasel date=April 2010}}Most [[economists]] and compensation analysts would consider the idea of predetermined future "cost of living increases" to be misleading for two reasons: (1) For most recent periods in the industrialized world, average wages have actually increased faster than most calculated cost-of-living indexes{{Citation needed date=April 2010}}, reflecting the influence of rising [[productivity]], [[efficiency wages]], and worker [[bargaining power]] rather than simply living costs, and (2) most cost-of-living indexes (see above) are not forward-looking, but instead compare current or historical data. {{citation needed date=November 2011}} Cost of living allowance is equal to the...
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