Wage Expense

  

What it costs a corporation to pay its employees' wages. Duh.

Accountants track this number carefully, because it's such a misleading term. It costs a company some $65,000 to pay its employee $52,000 when you add in benefits, pension, health care, and other load factors. That employee then pays some 12 grand and change in taxes to net $40,000 from the initial cost to the company of $65,000.

As Pete Seeger sang, "Where have all the taxes gone? Long time passing..."

Related or Semi-related Video

Econ: What are Wage Rates?5 Views

00:00

And finance Allah shmoop What are wage rates Oh all

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right You probably think about wage rates as it relates

00:10

the compensation all the time When you pick a major

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you check out the wage rates for the potential jobs

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and then run screaming away as fast as you can

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from majoring in English and history and philosophy When you

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search for a job wage rates are among the first

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things you look for right Quite simply a wage rate

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represents the amount of money Ah worker gets paid per

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unit of time and usually that unit is an hour

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or well Maybe it's a yearly wage or a monthly

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wage Some like that So you make twenty bucks an

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hour Or maybe your deal with your employers is that

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you get paid forty grand a year Well your wages

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could also come in other varieties like some people make

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a monthly wage or a weekly wage or a daily

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wage right The point is that you earn a certain

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amount for a certain amount of work performed in economic

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terms The way Drake equates to the price of labor

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It's Aki cost for any business So economists look att

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the wage rate as Aki input to production Right Because

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high wages mean the producers have to raise prices keep

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the same profit margin So think about that From the

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company's perspective it's a direct relation and productivity or how

01:19

productive they are in producing profits for shareholders You look

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at it from the other side the cheaper the cost

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to produce something the higher the productivity of that company

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or at least the capital deployed in it Also the

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wage rate impacts the amount that consumers have to spend

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So the wage rate plays into consumer spending in the

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economy as well and kind of tickles inflation there every

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now and then right So they have tons of wages

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and they're willing to spend that extra dollar on conveniences

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like home delivered whoopee cushions Well yeah whoopee cushion delivery

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Alright well like the price for anything else The price

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for labor gets determined by market forces generally supply and

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demand So the wage rate for any profession and set

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by the supply of people willing and able to do

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that job and by the need for that job to

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be done all right in the subtext there is if

02:08

a job isn't really needed And like St Blowers and

02:13

it turns out the minimum wage is twenty eight dollars

02:15

an hour Well taxpayers probably happily live with leaves all

02:19

over their street rather than pay a fortune for people

02:21

to blow him off And I'll just wait for the

02:22

next windstorm right You don't really need that job but

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no fireman you know you need them and a surgeon

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in the hospital Yeah you need them Well the amount

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of people are number of people who can do the

02:34

job represent the supply supply of Labour The need for

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the job represent the demand for it That's why people

02:42

who design advanced algorithms for offshore tax optimized emerging market

02:46

bond trading make so much money It's a really hard

02:49

boring job You need to go to school for a

02:51

really long time probably speak a few languages and well

02:55

frankly not many people can get through all the rigorous

02:58

training to do that job Well extremely low supply and

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demand is massive Right sky's the limit Well Meanwhile the

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pay rate for side of the road windshield squeegee professionals

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is very low Pretty much anyone with arms Khun do

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it and no one is really looking to get it

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done Economists also look att wage levels on a broad

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scale looking at a national or societal level Think about

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the price for labor like the price for it Well

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pretty much anything else If there's a lot of labor

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available prices will be lower at least notionally low If

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labour is scarce prices will be higher Okay let's look

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at a few historical examples Europe Just after the black

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death people go months without taking a bath And well

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if you get out of line you might get burned

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as a witch Meanwhile somewhere between a third or half

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the entire population just died of a disease that caused

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the black bulb to grow throughout your groin Bottom line

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thanks to the plague Well there were not many workers

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around so wages skyrocketed changes so momentous that it basically

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undermines feudalism forever Okay now the opposite example America In

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the late eighteen hundreds immigrants are pouring in from Europe

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Meanwhile agricultural efficiencies air making farm workers way less necessary

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like machines do the work of ten workers So people

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are moving from countries side There he is like that

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into city side areas Well there's lots of labour available

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and as a result wage rates are very low so

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low that people can barely live on them They live

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in these crowded tenement things or company towns Ah whole

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political movement gets created Teo Try to make life better

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for those workers toiling away Lawmakers passed the minimum wage

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the eight hour work day child rights protection thing so

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kids don't have to work all day and not go

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to school And other protections happened to okay so let's

04:54

look at the demand side of the equation Fast forward

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about a hundred years or sell America in the second

04:59

decade of the twenty first century Automation computers and robots

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have taken over a lot of professions will Meanwhile cheap

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shipping costs and improve communications make it possible to outsource

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unskilled labor toe overseas locations like China There's not much

05:14

demand for certain kinds of workers in the U S

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Till wages don't increase Even though consumption goes up We

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don't need a CZ many American workers to produce more

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stuff It's also important Keep in mind that the way

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compensation takes place has changed over time In the robber

05:30

baron days of old Well Worker got his twenty five

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cents for a fourteen hour day and then had to

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fend for himself for pretty much everything else like socking

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away money for retirement health care benefits and other things

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like that Yeah well nowadays most companies offer a wide

05:45

range of benefits like cash salary But then it cost

05:48

the company more money to pay for health insurance and

05:51

awesome more money toe add for a one K contributions

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and they give other perks and other add ons These

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don't figure in tow wage rates but they do figure

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into company labor costs to remember the next time some

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government worker quotes you that they only make forty eight

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grand a year asked them how much they get in

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pension and health care and all that and it's likely

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something like another fifteen or twenty grand a year so

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they don't really make forty eight grand a year They

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make more like sixty eight or seventy grand a year

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and you can feel less sorry for Well the wage

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rate can also be influenced by regulatory factors The most

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obvious of these is the minimum wage Remember those slums

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from one hundred years ago Well in order to avoid

06:30

those situations governments will often set a minimum wage A

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business can't offer a wage legally below this level So

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as of two thousand eighteen federal minimum wage was seven

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and a quarter an hour But many areas have much

06:43

higher threshold For example Washington D C Has a minimum

06:46

wage of twelve fifty an hour while Washington State had

06:49

a floor on its hourly wage in eleven fifty Well

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the impact of minimum wages aren't always predictable They raise

06:55

some people's overall wages above a living level But they

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also encourage businesses Teo turn toward automation or just shrink

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the workforce like think about a restaurant is barely breaking

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even and now suddenly the minimum wage as fifteen percent

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of labor costs And so instead of having ten workers

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maybe they can get away with nine or eight And

07:15

they just put the ipads up at every table so

07:18

people can just order their dinner through clicking on their

07:20

iPad And they can fire a worker well Meanwhile changes

07:23

in wage rates impact other economic indicators as well Specifically

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higher wages can feed into inflation as workers get paid

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more cos look to make up the additional expense They

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raise prices for customers which feeds the overall increase in

07:38

inflation And as a result an overall increase in wage

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rates don't always equate to a one to one benefit

07:44

for workers if the higher wages lead to increased inflation

07:48

While the buying power of the increased income might not

07:51

be all it's cracked up to be another factor When

07:53

considering a wage while bonuses versus salary that's another thing

07:56

It's another structure Many jobs come with a base salary

07:59

which might be nominally pretty low but they come with

08:02

commissions or bonuses based on performance And those Khun B

08:05

Way more meaningful than the salary Well if you're looking

08:07

to become a gold two salesmen you might not get

08:10

a big guaranteed salary But wow the commissions can be

08:13

huge So as you think about your career in the

08:15

type of wage rates or wage structures you're looking for

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remember it's not the money It's all about what that 00:08:22.203 --> [endTime] money can buy

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