<< Click to Display Table of Contents >> Navigation:  Using the Geographic Assessor > Frequently Asked Questions > Data Background Information > Data Background FAQ #26 Frequently Asked Questions

QUESTION:  Does ERI account for inflation when updating geographic pay differentials?

 

Cost of living and inflation are primarily employee-expense based, while cost of labor and geographic pay differentials are employer-pay oriented. As a result, geographic pay differentials can reflect the long-term effects of inflation as market pay levels adjust, but they are not designed to capture short-term inflationary swings in real time. Inflation can move more quickly and more sharply than labor costs, both upward and downward, so updates to geographic pay differentials will more likely reflect sustained trends rather than immediate fluctuations.

 

Over time, these measures are often correlated. Locations with a higher cost of living frequently develop higher market pay levels, which, in turn, can contribute to higher local living costs. Geographic pay differentials are intended to reflect pay variation across geographic areas, whereas broader national increases in the cost of living are more appropriately reflected in changes in average U.S. salary levels over time. Those salary changes, however, also tend to occur with some lag and are typically less volatile than inflation itself.