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What Is the Relationship between Cost of Living and Wages?

G. Wiesen
G. Wiesen

The relationship between cost of living and wages is typically one in which each of these figures is used to determine how well a person is able to financially survive. Cost of living indicates the minimum amount of money a person or household needs to have each month, or sometimes annually. Wages, on the other hand, refer to the average income someone in a particular industry is likely to make each month or year, though it can also refer to the actual amount a person makes. By comparing people’s cost of living and wages, others are able to determine how well people are able to financially survive in a particular area.

Both cost of living and wages are commonly used in economic forecasts and analysis of a particular country or region. This information can be gathered in a number of different ways, though it is typically available from a government department of labor or similar agency. Cost of living typically refers to the estimated or average expenses a person or household is likely to need to pay over a certain period of time. This usually includes only necessities such as food, housing, medical bills, and similar expenses.

Businessman with a briefcase
Businessman with a briefcase

For cost of living and wages to be considered together, the wages of a particular profession or person needs to be determined. Wages refer to the income of a person or profession, usually for a certain period of time such as monthly or annual wages. This number is typically expressed for a particular industry as an average of what people working in that industry, with the same level of experience, are likely to make. The amount can be expressed both in terms of raw income prior to taxes, as well as actual income a person takes home after taxes and other payments that do not include living expenses.

By using both the cost of living and wages, a person can reasonably determine how well he or she is able to survive in a particular area. Someone, for example, can look at information regarding the cost of living in New York City and the average wages for people in his or her career in that city and determine whether or not the wages are enough for the cost of living. In order for an accurate comparison of cost of living and wages to be established, people need to look at both figures in a particular area. While the cost of living in Paris and Toronto, for example, may be quite different, any difference in average wages for a particular career between those cities is vital for a realistic comparison to be made.

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