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Wednesday
Oct272010

WAGES

"In weighing the pros and cons of the hiring of workers the employer does not ask himself what the worker gets as take-home wages. The only relevant question for him is: What is the total price I have to expend for securing the services of this worker?"  -- Mises -- Human Action -- Work and Wages -- Gross Wage Rates and Net Wage Rates

How much money do you make ?

It's a common enough question, at least among people that you know reasonably well. Most people will answer by talking about how much money they "take home" each week. This makes sense in a way, as this is the only portion of your money that you get to make any choices with, it's the only part of your pay with which you can pay for the things that you need to live, but this or course is not how much money you make.

The work that you do, your labor, is a product, and like any other product it has a price. We usually refer to that price as your wage. That price however is not what you take home....the price of a product is the total dollar amount that the buyer of the product must part with when purchasing it.

So in this case, how much money must your employer part with in order to obtain your labor?

There was a time when the price the employer must pay and the amount the worker received was one and the same thing, however starting with the imposition of the income tax, unemployment insurance, medicare and medicaid deductions, the amount received by the worker began to be chipped away at.

Also, the FDR administration instituted wage controls in the 40s in an attempt to control inflation caused by WWII. It was at this time that companies began offering things like health insurance as an additional incentive to workers without incurring the wrath of the feds. This dealt another blow to the worker, as this decreased the amount of his pay that he actually received, and lowered the amount of control he could exert over his way of life. (For example, instead of receiving money which he could use to purchase the health insurance he wanted, if he wanted it, that choice was taken away. He now received the health insurance the employer provided, whether he wanted it or not. This will come up again when we talk about health care.)

I currently work for Prudential, and they do a pretty decent job of breaking down how much they spend on privilege of employing me. They calculate that 83 percent of what it costs them to employee me is actual pay, with the other 17% being made up of various benefit programs...health insurance, 401(k) etc. However this does not include things like their share of my unemployment insurance. So the exact percentage is a bit lower. Amounts contributed by companies to unemployment vary, so for purposes of this example we'll go with a reasonable 3% for now....(I have inquired Prudential HR on exact figures, which I will insert here when made available) This puts my take home percentage at 80%, with 20% being spent by the company to secure my employment before I ever even see it. This 20% does not even appear on my W-2 as income!

But of course the pain doesn't end there. This 80% of my wage that is actually designated as pay is what then shows up on my W-2 as my gross wage, and the government mandated deductions begin again...here the Federal and State withholding is taken, plus more unemployment, health care, medicare, medicaid and retirement deductions. Excluding 401k contributions I actually take home 69% of my 80% W-2 gross wage...which equates to 55% of my original real gross wage....depressing.

The freedom to choose how to spend (or save) 45% of my money has been denied to me before I even receive it.

I oppose all mandatory restrictions, deductions and garnishments of wages taken by employers by the order of government. Employees should receive the full amount of their earned wages, and should be free to spend it as they choose. As such I oppose all income taxation. This is one of many reasons why I support the Fair Tax, as it eliminates ALL of these deductions.