How much is my rise worth?
Next time you’re thinking about a pay rise, it might pay to think about the actual worth of the additional income. It taps into the behavioural economics idea of money illusion – or our tendency to think of the face value of money, rather than how far it will actually go.
Be aware of money illusion
What is … Money illusion tells how experiments have shown that, in general, people think of a 2% cut to their wages as unfair. But they tend to think of a 2% rise as fair, even when inflation is running at 4%. In reality, those two scenarios produce a very similar financial outcome – yet one is considered fair and the other unfair. It is particularly useful at the moment because inflation is relatively high in many regions, estimated at 3% in the Eurozone last month.
Stay employed, stay happy
But with unemployment also high in many places due to pressures from the global economic crisis, workers might find themselves in a difficult situation when trying to get a pay rise. Economic research suggests keeping your job – actually being employed – is key to emotional as well as economic wellbeing. Chris Dillow blogs for eZonomics that Research on the policy portal Vox finds unemployment reduces happiness by much more than just the loss of a wage.
Dillow writes: “Working is like living – it might be miserable at times, but alternative is worse.”