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Source link: http://archive.mises.org/13299/gross-wage-rates-and-net-wage-rates/

Gross Wage Rates and Net Wage Rates

July 16, 2010 by

In deciding to hire a worker, 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 to secure the services of this worker? FULL ARTICLE by Ludwig von Mises


billwald July 16, 2010 at 1:40 pm

> The question the employer faces is always the same: Does it or does it not pay for me to enter into such a contract?

Agree 100% Employers in “union shop” states who sign labor agreements do so because it pays them to enter such a contract. Employers in “right to work” states who have union contracts must also do so because it pays them.

Scab employers in “right to work” states must either (want to) pay lower gross wages or have a philosophical dislike of unions. Under conditions of high employment the scab employers would be at a hiring disadvantage. Therefore, Libertarian employers who have a philosophical dislike of unions must logically favor government policies that produce unemployment?

Dagnytg July 16, 2010 at 4:09 pm

What? You can’t be serious….


You’ve been posting on this site for sometime now and surely some of the rational and objective thinking you find here has rubbed off on you. I find it hard to believe you take your comment seriously.

If you were a newbie, I would take the time to explain the flaws in your thinking assuming that you had very little exposure to Austrian and Libertarian concepts.

If I am mistaken in my assumption then I do apologize… but really, why would any employer (Libertarian or not) favor unemployment? (high unemployment=business failure)

michael July 18, 2010 at 11:02 am

Dag: You ask a valid question: “..why would any employer (Libertarian or not) favor unemployment?”

In the thinking of most employers the laws of supply and demand are what dictate the jobs marketplace. And when there’s high unemployment employers get the pick of the litter. And can offer them dog biscuits for pay.

During periods of full employment they have to add all sorts of goodies to the package (day care, free donuts in the break rooms, extra-long paid vacations, insurance) to retain their best employees. Because these people are being courted by headhunters with generous offers from the competition. They don’t like having to do that.

Not one employer in a hundred ever says to himself “Maybe we should have fuller employment, so I can have a larger market for my goods”. They probably should… but they don’t.

Craig July 17, 2010 at 5:00 pm

Employers in “union shop” states who sign labor agreements do so because it pays them to enter such a contract.

Employers in “union shop” states sign labor agreements because they have to. They will fire or lay off employees later if necessary to make it pay.

Guard July 19, 2010 at 1:44 am

Every time I hear “the employer pays your unemployment and social security tax” as if it’s free, I feel like slamming my head in a door.

michael July 27, 2010 at 7:57 am

Mises makes a compelling argument. In order to pay a typical employee $20 an employer has to shell out $30.

“Employer costs for employee compensation averaged $29.71 per hour worked in March 2010, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $20.67 per hour worked and accounted for 69.6 percent of these costs, while benefits averaged $9.04 and accounted for the remaining 30.4 percent. Total employer compensation costs for private industry workers averaged $27.73 per hour worked in March 2010. Total employer compensation costs for State and local government workers averaged $39.81 per hour worked in March 2010.”


The same worker, ostensibly making $40K a year, has $5,400 deducted from his pay for federal income withholding (married, head of household) and an additional $3,060 deducted for FICA and Medicare. [Note: These are rough, shirt-cuff figures.]


That leaves him with $31,540 to spend on everything. Of course if he spends any of it at the store he has to shell out another 6-9% in sales taxes. And he still owes state income tax.

Suppose state and local sales taxes total $5,000, and property taxes are another $2,000. The employee gets to raise a family on $24,500 (net) a year. And for the privilege of hiring him, his employer shells out $54,500. That’s kind of a big bite.

What keeps both employer and employee in this country, then? Wouldn’t that be because here’s where the employee finds his best opportunities, and his employer finds his best market? Take away everything those taxes get spent on maintaining and you find yourself in a third world country, one with no retail market and no jobs.

mpolzkill July 27, 2010 at 9:07 am

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