In today’s economy, many workers are struggling just to pay basic bills. Yet far too many employers are failing to give workers meaningful raises or cost-of-living adjustments (COLAs). This isn’t just bad for employees—it’s bad for business.
American workers are hurting financially.
Recent surveys show that a large share of workers are dipping into savings—just to cover everyday expenses. Nearly half of Americans tapped into savings to meet basic needs like housing, food, and utilities over the past year.
Without wages that keep pace with inflation and rising living costs, employees face financial instability, mounting stress, and a diminished ability to invest in their future.
Cost of Living Adjustments (COLAs) are increases in pay designed to offset inflation and protect employee purchasing power. Unlike merit raises, COLAs are typically given across the board and tied to economic measures like the Consumer Price Index (CPI).
Raises (merit-based or performance-based) reward individual contributions and encourage development—but neither alone is sufficient if pay no longer buys what it used to.
Why Employers Avoid Raises and COLAs
Some employers argue that:
- They can’t afford salary increases, especially smaller organizations.
- Raises tied to inflation can feel like “automatic giveaways.”
- Workers should focus on performance rather than market forces.
But these short-term cost savings often lead to much higher turnover, lower morale, and reduced productivity—which can cost far more in the long run.
Business Costs of Not Adjusting Pay
- Turnover Costs Rocket
When workers feel underpaid, they look for other jobs. Hiring and training new employees can cost up to several months’ worth of salary per lost employee—a huge drain on resources.
- Morale Drops and Performance Suffers
Low or stagnant pay erodes trust. Workers who struggle financially are less engaged, more stressed, and less productive at work.
In fact, research shows that wage stagnation is a major contributor to employee dissatisfaction. When raises are denied without transparent reasoning, employees are significantly more likely to look for work elsewhere.
- Recruitment Becomes Harder
Competitive labor markets mean workers have choices. Employers who don’t offer wages that keep pace with the cost of living struggle to attract—and retain—top talent.
Why Raises & COLAs Help
- They Sustain Purchasing Power
Inflation erodes what workers can buy. Wage growth that lags behind inflation effectively cuts real income—and forces employees to dip into savings to cover essentials.
By adjusting pay for inflation, employers help workers maintain stability and financial peace of mind.
- They Boost Retention & Engagement
Pay that feels fair leads to more loyalty. Employees who see their employer acknowledging economic realities are more motivated, engaged, and less likely to leave.
- They Reduce Turnover Costs
Replacing an employee can be far more expensive than giving a small annual raise. Turnover disrupts teams, drains HR resources, and slows productivity.
A New Approach: Strategic Compensation Planning
Employers can’t just decide to give raises—they need a thoughtful compensation strategy that balances business sustainability with employee well-being. This includes:
✔ Regular market wage analyses that are recalibrated to actual inflation data since 2020
✔ COLAs tied to economic indicators like CPI
✔ Merit increases for performance
✔ Transparent communication about pay decisions
A compensation strategy like this positions your organization as a place where people want to stay and grow.
Failing to give raises or COLAs might appear to save money today—but it costs far more in turnover, low morale, and reduced performance tomorrow. Employers who invest in fair, responsive compensation not only support their workers—they safeguard their own long-term success.
References:
Half of American workers draining savings to cover basic needs