This section examines financial and legal aspects of employment to consider when analyzing your career plans, and it includes the Decision Making Worksheet: Assessing the Value of a Second Income.
Compare Salary and Living Costs in Different Cities
Incomes range by geographic region, community, and size of employer. Median household income is lowest in the South, a little higher in the Midwest, higher still in the West, and highest in the Northeast. These regional differences reflect the industrial base, unemployment rates, general economic conditions, costs of living (especially for housing and transportation), and the supply and demand for skilled workers. Incomes in rural areas are usually much lower than in urban areas. The highest incomes are paid in metropolitan areas exceeding 1 million in population. Higher salaries are paid in the largest communities for the reasons just mentioned but also because employers compete for the most skilled workers since so many people often live in these communities. Employers with fewer than 100 employees typically pay lower salaries for comparable positions than do larger employers.
Compare Using City Indexes
Compare Salary and Living Costs in Different Cities
Incomes range by geographic region, community, and size of employer. Median household income is lowest in the South, a little higher in the Midwest, higher still in the West, and highest in the Northeast. These regional differences reflect the industrial base, unemployment rates, general economic conditions, costs of living (especially for housing and transportation), and the supply and demand for skilled workers. Incomes in rural areas are usually much lower than in urban areas. The highest incomes are paid in metropolitan areas exceeding 1 million in population. Higher salaries are paid in the largest communities for the reasons just mentioned but also because employers compete for the most skilled workers since so many people often live in these communities. Employers with fewer than 100 employees typically pay lower salaries for comparable positions than do larger employers.
Compare Using City Indexes
Comparing salary offers from employers located in different cities can be tricky without sufficient information on the approximate cost of living in each community. Sometimes those costs vary drastically. Information from the Internet reveals, for example, that life in a high-cost city such as Seattle is more expensive than life in a lower-cost city such as Portland, Oregon. The data are reported in index form, with the “average cost” community being given a rating of 100.
The following example demonstrates how to compare salary offers in two cities. Assume the Seattle (city 1) index is 138, and Portland’s (city 2) is 114. You want to compare the buying power of a salary offer of $52,000 in Portland with a $65,000 offer in Seattle. The costs can be compared using Equations (2.1) and (2.2).
The following example demonstrates how to compare salary offers in two cities. Assume the Seattle (city 1) index is 138, and Portland’s (city 2) is 114. You want to compare the buying power of a salary offer of $52,000 in Portland with a $65,000 offer in Seattle. The costs can be compared using Equations (2.1) and (2.2).
Thus, the $65,000 Seattle salary offer would buy $53,695 of goods and services in Portland, an amount more than the Portland offer of $52,000. All things being equal (and they are both nice cities), the Seattle offer is slightly better ($53,696 $52,000 $1,695). To compare the buying power of salaries in the other direction, reverse the formula:
Thus, the $52,000 Portland offer can buy only $62,947 of goods and services in Seattle—an amount less than the $65,000 Seattle salary offer. All things being equal, the Seattle offer is still better. For fairer comparisons, add the value of employee benefits and redo the calculations
Place Values on Employee Benefits
Employee benefits are tremendously important to employees, especially when comparing the benefits provided by one employer with another. Nonsalary benefits (or employee benefits) are forms of remuneration provided by employers to employees that result in the employee not having to pay out-of-pocket money for certain expenses. Examples include paid vacations, health care, paid sick leave, child care, tuition reimbursement, and financial planning services.
You can place a monetary value on each employee benefit that is available. Some nonsalary benefits might not be applicable, such as child care if you are single. Others are supervaluable, such as a health plan, since a policy purchased in the private market for a single person might have a premium of $5000 a year. To put monetary values on employee benefits, you may (1) place a market value on the benefit or (2) calculate the future value of the benefit. See www.salary.com to calculate the value of your employee benefits.
Place a Market Value on the Benefit
If instead of enjoying a certain employee benefit, you had to pay out-of-pocket dollars for it, you can easily determine its market value. Private child care might cost $300 a week in your community; thus, when provided free from your employer, that is a whopping $15,000 ($300 50 weeks) saved annually. Actually, it is more because you would likely have to earn perhaps $22,000 to have $15,000 left over after paying $7000 in income and Social Security taxes. An employer-provided paid-for life insurance policy with a face value of $50,000 might cost $600 if you had to buy it yourself.
Calculate the Future Value of the Benefit The best income is income
that is never taxed, called tax-exempt income. Chapter 1 examined this topic. Many employee benefits are of this type and that’s great from your personal finance per
that is never taxed, called tax-exempt income. Chapter 1 examined this topic. Many employee benefits are of this type and that’s great from your personal finance per
spective. Future value calculations come into play when you are trying to place a value on an employee benefit that is tax sheltered. Such income is exempt from income taxes in the current year but is subject to taxation in a later tax year. An employer that provides a 401(k) retirement plan offers a valuable benefit. If an employer provides a match of $1200 a year to the regular contributions of the employee, for example, those $1200 contributions will eventually be the worker’s money. And it will grow free of income taxes until the funds are withdrawn. Over 20 years, the annual employer contributions of $1200 grow to more than $44,000 (using Appendix A.3) at 6 percent annual return. That’s a good employee benefit!
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