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CPI Adjusted Wages

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I need some assistance answering the attached problem.

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Part of this question does not make sense. It states "Repeat your calculations with 0.03 reduced to 0 and 0.5 increased to 1 ." The formula in question reads ΔW/W= 0.03 +0.05 ΔCPI/CPI, not ΔW/W= 0.03 +0.5 ΔCPI/CPI. So I am thinking that this is a typo and it really means "0.05 increased to 1." However, it could also mean that the formula should in fact be ΔW/W= 0.03 +0.5 ΔCPI/CPI. I will show you how to do it both ways, but you should ask your instructor which way he or she wants the question done.

For the first part, we can find the inflation rate given by either the CPI or the GDP deflator using a spread sheet (see attached file). By dividing the change in CPI by the prior year's CPI, we ...

Solution Summary

This posting illustrates how the use of CPI based formula for raises to employee wages. How adjustments to this formula affect real wages.

See Also This Related BrainMass Solution

Human Resources: Min Wage, Exempt Employees & COLA

Maxim is a large, regional department store chain located on the West Coast. As the store manager of the Portland, Oregon, store, you are responsible for overseeing all operational aspects of the store, including making decisions about how employees will be paid. Maxim gives you a great deal of autonomy in deciding how to run the store, one of the factors that attracted you to this particular assignment. One of the first tasks you have decided to do is evaluate the wages being paid to employees. This task is particularly important given the high turnover rate the store experiences. Comments made by exiting employees suggest that the primary reason for their decision was the lower than market pay for their jobs. Sales associates currently make $8.50 per hour. Department supervisors make $14.25.

1. What is the current federal minimum wage and what employees are entitled to receive this wage? Investigate whether or not the state in which your store is located has a higher minimum wage than the federal minimum wage.

2. You know that some of your employees are classified as exempt and some as nonexempt. Find out what these terms mean and how the decision is made about which employees are exempt and which are nonexempt. According to these guidelines, are your sales associates considered to be exempt or nonexempt employees?

3. The store has a policy of periodically giving cost-of-living adjustments (COLAs) to all employees. Search the Web and find: (a) what cost-of-living salary adjustments are usually based on, and (b) what is the most recent consumer price index (CPI)? How does the West CPI compare to the national CPI? Based on this information, what COLA do you propose for the store in Portland?

4. You are not sure how the wages of your store compare with wages at similar establishments in town. Locate wage data for the area in which your store is located. You want to find information about sales associates and retail managers. How do the local wages for both jobs compare with what Maxim is currently paying? Summarize your results and make a recommendation as to how much Maxim should pay for both jobs.

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