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The Free Market
Aug. 9th, 2007 06:48 amRecently at work, I had to go in and ask for a raise. While there was no problem getting the raise, the conversation I had with my supervisor made me think about some things.
When I went in and asked for the raise, I presented the demand framed in the terms of my budget. I went in and said, I've worked out a budget, and I'd like a raise of n percent based upon that budget. My boss didn't seem to be upset at the amount, because n percent wasn' out of line, but he did seem to take a shot at the framing of the issue, saying that we'd all like to have a "dream salary" that allowed us to purchase what we liked and still plan for the future, and then he left it like that, as if asking for what you actually *need* to get paid at work was just a pipe dream, especially in San Francisco, where housing is so high.
I wondered to myself when this change occurred. I would think that twenty or thirty years ago, everyone would have asked for a raise, or sought a job, based upon their budget, plus some amount to plan for the future. Given that everyone has the right level of education and the skills for the job they seek, then compensation would have been in line with that request. It's the free market, right?
Now though, salaries are not in line with the cost of goods and the bills. I think this is due largely to credit card debt. Credit cards are filling the gap between the worker's salary and the cost of goods and services. In recent years there has been a lot of talk about credit card users making unnecessary purchases on their cards. That the high personal debt was due to "people living beyond their means" and wanting what the "Joneses" have. This is partly because the credit card companies have made an effort to target spenders when they are in college. Still adults, but are not really in tune with the actual cost of living, and they haven't developed the means to budget and control in a mature fashion. I think they teach a concept of spending without thought. Get that CD this week instead of next, if you really want it. I don't think it stays that way. As soon as someone is in financial trouble, they tend to get counsel, or they develop better spending habits out of necessity. Most people I know that are older, are long through with that wave of college debt, and are behind because they are putting the occasional grocery bill, or Target run on the card.
I think this is because that original lesson, the thought that the credit card is there to augment your income without thought, is firmly entrenched. This has a negative effect twice. First, when the consumer purchases outside his budget, which is to some degree his own fault. But the second time, is when the consumer uses the card to purchase staples that his salary doesn't account for. The card takes up the slack that would normally be required to be filled by salary. The credit line is literally making up for the amount of money that should be falling on the employer, who should be offering a wage that is in-line with the cost of living. Since purchasing isn't interrupted, the cost of goods and services do not fall, but since the consumer isn't paying for all goods with their incoming salary, they don't demand a proportionate raise in their pay, and salaries never go up. We just see an increase in the dollar amount of the credit line.
In the bay area, I see that logic extended, to home loans and housing prices. Rather than "not buying" (a foreign concept, it seems) the home seekers opt instead to fill the gap in their budget with a larger loan with risky terms.
When I went in and asked for the raise, I presented the demand framed in the terms of my budget. I went in and said, I've worked out a budget, and I'd like a raise of n percent based upon that budget. My boss didn't seem to be upset at the amount, because n percent wasn' out of line, but he did seem to take a shot at the framing of the issue, saying that we'd all like to have a "dream salary" that allowed us to purchase what we liked and still plan for the future, and then he left it like that, as if asking for what you actually *need* to get paid at work was just a pipe dream, especially in San Francisco, where housing is so high.
I wondered to myself when this change occurred. I would think that twenty or thirty years ago, everyone would have asked for a raise, or sought a job, based upon their budget, plus some amount to plan for the future. Given that everyone has the right level of education and the skills for the job they seek, then compensation would have been in line with that request. It's the free market, right?
Now though, salaries are not in line with the cost of goods and the bills. I think this is due largely to credit card debt. Credit cards are filling the gap between the worker's salary and the cost of goods and services. In recent years there has been a lot of talk about credit card users making unnecessary purchases on their cards. That the high personal debt was due to "people living beyond their means" and wanting what the "Joneses" have. This is partly because the credit card companies have made an effort to target spenders when they are in college. Still adults, but are not really in tune with the actual cost of living, and they haven't developed the means to budget and control in a mature fashion. I think they teach a concept of spending without thought. Get that CD this week instead of next, if you really want it. I don't think it stays that way. As soon as someone is in financial trouble, they tend to get counsel, or they develop better spending habits out of necessity. Most people I know that are older, are long through with that wave of college debt, and are behind because they are putting the occasional grocery bill, or Target run on the card.
I think this is because that original lesson, the thought that the credit card is there to augment your income without thought, is firmly entrenched. This has a negative effect twice. First, when the consumer purchases outside his budget, which is to some degree his own fault. But the second time, is when the consumer uses the card to purchase staples that his salary doesn't account for. The card takes up the slack that would normally be required to be filled by salary. The credit line is literally making up for the amount of money that should be falling on the employer, who should be offering a wage that is in-line with the cost of living. Since purchasing isn't interrupted, the cost of goods and services do not fall, but since the consumer isn't paying for all goods with their incoming salary, they don't demand a proportionate raise in their pay, and salaries never go up. We just see an increase in the dollar amount of the credit line.
In the bay area, I see that logic extended, to home loans and housing prices. Rather than "not buying" (a foreign concept, it seems) the home seekers opt instead to fill the gap in their budget with a larger loan with risky terms.
