Negotiate Like An Economist: When to ask For a Raise

by Katie Bardaro

Negotiate Like An Economist

When it comes to pay increases, there are really three key things that contribute to bringing in more dollars: 1) increased competency/responsibility in one's role; 2) inflation, and 3) changes in market demand for your position. Ultimately, you are responsible for evaluating when you have successfully "leveled up" your skills and job performance enough to merit a higher salary, but the latter two might be a little more challenging to evaluate if you aren't a trained economist. Thankfully, I am, and I can help you understand how they can impact when you should ask for a raise.

Let's first start with inflation. For those of you who don't know, inflation occurs when the purchasing power of one's dollar decreases. Or in other words, when it takes more dollars to buy the same amount of stuff, we are in an inflationary period. What does this mean for your paycheck? Well, if inflation is rising faster than increases in your income, then you actually are able to buy less stuff even if your paycheck has more dollars. This suppression of real wages (wages taking account of inflation) is a national phenomenon that transcends location, industry, and job family. According to the Q4 2015 release of the PayScale Index, which measures the change in wages, real wages for full-time private industry workers have decreased by nearly 7 percent since 2006, meaning their incomes today buy them less stuff than it did in 2006, all else equal.

Now that I've painted a dismal picture about the current state of affairs when it comes to compensation increases, let's talk about how to improve it. When it comes to seeking out a raise, one additional piece of information to arm yourself with is what's happened to inflation recently. The Bureau of Labor Statistics (BLS) provides monthly releases of the consumer price index (CPI), which measures the average change in the price of a fixed market basket of consumer goods and services; namely it tracks the buying power of urban consumers' dollars. By keeping tabs on inflation, you can better understand the buying power of your income and when to seek out more buying power (i.e., more dollars). Of course, as any negotiation expert would tell you, walking up to your boss with a chart showing the increase in inflation is not the correct way to ask for a raise, but it can help you determine when you should ask for a raise.

In addition to inflation, a better understanding of market trends can go a long way in helping you better understand when to seek out a raise. When the market demand for your position is high, you have more bargaining power as your skills are actively being sought out and employers are competing for what you have to offer. When demand for your position is low or conversely when there is an overabundance of people like you in the market (high supply), you have less bargaining power when it comes to raises. Many different factors contribute to market demand and what is hot today will not necessarily be hot tomorrow. This is why you must arm yourself with better information when it comes to market demand for people like you. One of the best measures of market demand is change in wages. When wages increase, this is often a sign of increased demand. The aforementioned PayScale Index reports quarterly changes in wages in 20 metros, 19 industries, 15 job families, and three company sizes and can help inform you about market demand. From the index you can see demand for tech positions is high as their wages continue to increase, while demand for marketing and advertising jobs has fallen off recently.

Just like with inflation, showing your boss proof of market demand for your position is not always the best bargaining chip to play, but it can help to inform you on when you should considering broaching the subject of salary negotiation. If inflation is increasing and demand for your position is going up, it's time to start gathering talking points about your accomplishments over the last year, your increased duties, and your proven results, as these topics are shown to strengthen your position when asking for a raise.

There is no single key to successful salary negotiation, but if you build a strong case for why you deserve a raise, approach your manager in the right way, and use PayScale data to determine how much you should earn and when you should ask, your chances of walking away with a bigger paycheck increase substantially.

Katie Bardaro

About the Author
Katie joined PayScale in 2008. In addition to leading the data analytics team and building and maintaining PayScale’s proprietary compensation model, Katie serves as PayScale’s lead economist.