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'{{short description|Cost to maintain a standard of living}} {{Other uses|The Cost of Living (disambiguation)}} {{Multiple issues | {{Globalize|2=US|date=December 2022}} {{More citations needed|date = March 2023}} }} [[Image:Enfrentamientos en Puente Presidente Ibáñez.JPG|thumb|[[2012 Aysén protests]] due to the high cost of living in [[Patagonia]]]] '''Cost of living''' is the [[cost]] of maintaining a certain [[standard of living]]. Changes in the cost of living over time can be 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. Differences in cost of living between locations can be measured in terms of [[purchasing power parity]] rates. A sharp rise in the cost of living can trigger a [[cost of living crisis]] where purchasing power is lost and the previous lifestyle is no longer affordable. ==Definition== {{unreferenced section|date=October 2022}} Cost of living is the [[cost]] of maintaining a certain [[standard of living]]. Changes in the cost of living over time can be operationalized in a [[cost-of-living index]]. Cost of living calculations can be used to compare the cost of maintaining a certain standard of living in different geographic areas. Differences in cost of living between locations can be measured in terms of [[purchasing power parity]] rates. ==Cost-of-living adjustment (COLA)== {{unreferenced section|date=October 2022}} Employment contracts and pension benefits can be tied to a cost-of-living index, typically to the [[consumer price index]] (CPI). A 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. In this latter case, the expatriate employee will likely see only the [[disposable income|discretionary income]] part of their salary indexed by a differential CPI between the new and old employment locations, leaving the non-discretionary part of the salary (e.g., mortgage payments, insurance, car payments) unmodified. 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. The cost-of-living allowance is equal to the nominal interest minus the real interest rate. == Consumer Price Index (CPI) == [[File:Inflation M2 CPI.webp|thumb|300px|right|{{legend-line|#00BFFF solid 3px|[[Money supply|M2]] % change from a year ago}}{{legend-line|Chartreuse solid 3px|[[Consumer price index]]}} ]] When cost-of-living adjustments, negotiated wage settlements and budgetary increases exceed ''CPI'', media reports frequently compare the two without consideration of the pertinent tax code. However, CPI is based on the retail pricing of a [[Market basket|basket]] of goods and services. Most purchases of that same basket require the use of after-tax dollars—dollars that were often subject to the highest ''marginal tax rate''. Consequently, the COLA will necessarily have to exceed the CPI inflation rate to maintain purchasing power.<ref>{{Cite web|url=https://www.bls.gov/cpi/|title=CPI Home : U.S. Bureau of Labor Statistics|website=www.bls.gov|language=en-us|access-date=September 30, 2019}}</ref> The widely recognized problem known as [[bracket creep]] can also occur in countries where the marginal tax brackets themselves are not indexed — COLA increases simply place more dollars into higher tax rate brackets. Only under a [[flat tax]] system would a percentage gain on gross income translate into a comparable inflation-offsetting gain at the after-tax level. Some salaries and pensions in the [[United States]] with a COLA include: * [[Social Security (United States)|Social Security]] * [[Civil Service Retirement System]] (CSRS)<ref name="cola wars">{{cite web |url=http://www.govexec.com/dailyfed/0906/090806rp.htm |title=COLA Wars |date=September 8, 2006 |publisher=[[National Journal Group]] |access-date=September 23, 2008 |last=Flanagan |first=Tammy |archive-url=https://web.archive.org/web/20081005120234/http://www.govexec.com/dailyfed/0906/090806rp.htm |archive-date=October 5, 2008 |url-status=dead }}</ref> * [[Federal Employees Retirement System]] (FERS)<ref name="cola wars" /> Pensions in Canada with a COLA include: * [[CAW Local 200|Canadian Auto Workers union (CAW) Local 200 (Ontario)]] == Social security benefits == ===United States=== Social security benefits in the United States receive cost-of-living adjustments (COLAs) to match increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). They can also receive funds from public charities for specific issues. The COLAs are made at most annually and are calculated based on the value of the CPI-W in the third quarter of the year (averaging the values from July, August, and September). COLAs can only increase benefits, so in deflationary years when the CPI-W drops there is no COLA.<ref>{{cite web |url=https://www.ssa.gov/cola/|title=Cost-of-Living Adjustment (COLA) Information|website=Social Security|publisher=Social Security Administration|access-date=August 11, 2021}}</ref> ==Worldwide survey== The [[Economist Intelligence Unit]] produces a semi-annual (twice yearly) worldwide cost of living survey that compares more than 400 individual prices across 160 products and services. They include [[food prices|food]], drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help and recreational costs. The survey itself is an internet tool designed to calculate cost-of-living allowances and build compensation packages for corporate executives maintaining a western lifestyle. The survey incorporates easy-to-understand comparative cost of living indices between cities. The survey allows city-to-city comparisons, but for the purpose of this report all cities are compared to a base city of [[New York City]], which has an index set at 100. The survey has been carried out for more than 30 years. The most recent survey was published in March 2017. [[Singapore]] remains the most expensive city in the world for the fourth year running, in a rare occurrence where the entire top five most expensive cities were unchanged from the year prior.<ref>{{cite news| url=https://www.bloomberg.com/news/articles/2015-03-03/singapore-maintains-top-spot-as-world-s-costliest-city-eiu-says | work=Bloomberg | title=Singapore Maintains Top Spot as World's Costliest City | date=March 3, 2015}}</ref> [[Sydney]] and [[Melbourne]] have both cemented their positions as top-ten staples, with Sydney becoming the fifth most expensive, and [[Melbourne]] becoming the sixth. Asia is home to more than five most expensive cities in the top twenty but also home to eight cheapest cities of the cheapest ten. == Rising cost of living == [[Larry Summers]] estimated in 2007 that the lower 80% of families were receiving $664 billion less income than they would be with a 1979 income distribution, or approximately $7,000 per family.<ref>{{cite web |author=Larry Summers |title=Harness market forces to share prosperity |url=http://larrysummers.com/commentary/financial-times-columns/harness-market-forces-to-share-prosperity-june-24-2007/ |access-date=September 21, 2015}}</ref> Not receiving this income may have led many families to increase their debt burden, a significant factor in the 2007–2009 [[subprime mortgage crisis]], as highly leveraged homeowners suffered a much larger reduction in their net worth during the crisis. Further, since lower income families tend to spend relatively more of their income than higher income families, shifting more of the income to wealthier families may slow economic growth.<ref name="Mian and Sufi2014">{{cite book |last1=Mian |first1=Atif |title=House of Debt |title-link=House of Debt |last2=Sufi |first2=Amir |publisher=University of Chicago |year=2014 |isbn=978-0-226-08194-6}}</ref>{{specify|date=April 2020}} The 2022 [[World Inequality Report]], a four-year research project organized by the economists [[Lucas Chancel]], [[Thomas Piketty]], [[Emmanuel Saez]], and [[Gabriel Zucman]], shows that "the world is marked by a very high level of income inequality and an extreme level of wealth inequality".<ref>{{cite news |last=Elliott |first=Larry |date=December 7, 2021 |title=Global inequality 'as marked as it was at peak of western imperialism' |work=[[The Guardian]] |location= |url=https://www.theguardian.com/business/2021/dec/07/global-inequality-western-imperialism-super-rich |access-date=December 8, 2021}}</ref> According to the report, the bottom half of the population owns 2% of global wealth, while the top 10% owns 76% of it. The top 1% owns 38%.<ref>{{cite news |last1=Kaplan |first1=Juliana |last2=Kiersz |first2=Andy |date=December 7, 2021 |title=A huge study of 20 years of global wealth demolishes the myth of 'trickle-down' and shows the rich are taking most of the gains for themselves |work=[[Business Insider]] |location= |url=https://www.businessinsider.com/how-bad-is-inequality-trickle-down-economics-thomas-piketty-economists-2021-12 |access-date=December 8, 2021}}</ref><ref>{{cite web |title=World Inequality Report 2022 |url=https://wir2022.wid.world/ |access-date=December 8, 2021}}</ref> ==Other uses == {{unreferenced section|date=October 2022}} Stipends or extra pay provided to employees who are being temporarily relocated may also be called cost-of-living adjustments or cost-of-living allowances. Such adjustments are intended to offset changes in welfare due to geographic differences in the cost of living. Such adjustments might more accurately be described as a per diem allowance or tied to a specific item, as with housing allowances. Employees who are being permanently relocated are less likely to receive such allowances, but may receive a base [[salary]] adjustment to reflect local market conditions. A non-taxable cost-of-living allowance is frequently given to members of the [[Military of the United States|U.S. military]] stationed at [[United States military bases|overseas bases]] if the area to which a service member is assigned has a higher cost of living than the average area in the United States. For example, [[United States Forces Japan|service members stationed in Japan]] receive a cost of living allowance of between $300 and $700 per month (depending on [[pay grade]], years of service, and number of dependents), in addition to their base pay. ==See also== * {{annotated link|Living wage}} *[[ACCRA Cost of Living Index]] *[[Cost of living in Namibia]] *[[Eardex.com]] *[[Housing stress]] *[[United Kingdom cost of living crisis]] * [[United States Consumer Price Index]] * [[Consumer Price Index]] * [[Inflation]] * [[Precariat]] * [[Price index]] * [[Cost of Living Allowance (U.S. Military)]] * [[List of U.S. states by adjusted per capita personal income]] '''Specific:''' * [[List of most expensive cities for expatriate employees]] * [[Middle class squeeze]] * [[Cost of raising a child]] * [[Walk to work protest]] ==References== {{Reflist}} ==External links== {{EB1922 Poster|Cost of Living}} * [http://www.eiu.com/WCOL2012 Economist Intelligence Unit worldwide cost of living survey results] (requires registration) * [http://www.aier.org/article/48-cost-living-calculator Cost-of-Living Calculator] relative to time from [[American Institute for Economic Research]] (AIER) {{Authority control}} {{DEFAULTSORT:Cost Of Living}} [[Category:Personal finance]]'