Financial choices in a weird job market

I keep hearing how the job market is at full employment, yet I’ve written before how insecure most younger workers seem to feel in their jobs. But yet again a few days ago someone commented to me, “Oh yeah, in (XXX industry) they’re just begging for people”. Well, “they” may be begging but I can tell them why they can’t fill the positions:

  1. The location is horrible: oil rig, frozen tundra, windowless cubicle, crazy hours, or crime infested neighborhood with a perilous journey to get there. So, basically, they’re not paying enough to make the risk worthwhile (as with any other investment).
  2. There’s a completely unrealistic set of requirements. Either the employer is requesting more education and/or experience than the job could conceivably require, or their requirements are so specific and demanding that two people in the world have those qualifications, and they’re not paying enough to attract them, or to encourage anyone else to invest in such specific training.
  3. Employers are thinking of the old days, when you could work your way through college. Millennials have heavy debt burdens—they’ve financed their careers long term. Requiring a masters’ degree in an urban area and offering $50,000 a year is so unrealistic as to be almost breathtaking. Couple that with the gig economy of “staffing companies” who offer no retirement benefits, no health insurance, and minimal vacation and sick days (and no paid holidays or overtime for working those or weekends—it’s all coming out of your “personal days) and, well, they’re not paying enough. Interestingly, staffing companies and recruiters often think they’re offering a higher hourly rate and I’m sorry to say that some people are dumb enough to fall for that. But if you calculate the value of benefits, cost of health insurance, value of paid time off, etc. you are almost certainly being screwed—because when did an employer ever have your best interests at heart?

 

Under capitalism, the market should be responding to these shortages by raising wages, right? Right. Instead, they’re offloading all responsibility for workers and directing ever more in the CEO’s pocket. We need someone creating an equally strong pressure (such as unions, government regulation, and new legislation controlling egregious corporate behavior). Will this plunge the value of companies and non-profits to operate? No, I don’t think so—just cost the 1% their ability to take everything. And great, offload responsibilities for workers–but then let’s put corporate taxes in place that fund government provision of those services.

 

It’s particularly troubling in areas that are critical to health, well-being, and education. These fields are supposedly “desperate” for trained people, yet many trained people can’t readily find jobs. I know of one situation where someone was being interviewed for a position at a fragile-medical rehab center. Although the candidate had absolutely no experience in the field, they offered a job after a 20-minute interview, if said candidate would accept an outrageously low salary, no extra compensation for weekends or holidays, high cost employee paid health insurance, no training, no mentorship, yadda-yadda.   They were obviously desperate for a warm body to fill the slot. But if you landed in the place after being in ICU, would you want to be treated by that new hire? And why was that job going begging? Because they’re not paying enough.

 

I’ve been amused lately by the practice of employers not disclosing the salary range for a position, and I’ve actually seen millennials comment that it would be “impolite” to ask that when being interviewed (either by phone or being asked to take time to interview in person).  Seriously? Why would you not ask—because you might offend an employer by being interested in working for money? As Samuel Johnson said, Nobody but a blockhead ever wrote except for money.

 

And why would an employer be offended by an applicant asking about the salary range, especially so as not to waste anyone’s time? Because they know they’re not paying enough. And for them, your time is free.

So go ahead, tell me why I’m wrong (politely, please). I’m open to changing my perspective.

Calculating the worth of a job offer

We’ve all heard that we’re moving to a gig economy. I think this used to be known as being a freelancer, but there are some important new wrinkles. If you’re thinking of accepting or have been offered this type of job, you need to get out your calculator and run some numbers to see what you should actually charge, and what’s a fair offer. BTW, this has come to my attention based on an offer made to my job hunting child—hourly or salary, with the hourly rate being slightly more. The employer making the offer was genuinely surprised when dear daughter turned it down; she said most people prefer the hourly because the rate was higher. No it wasn’t—at least not enough.

Let’s set up a case study for Sally Onherown. Ms. Onherown would expect to make $70,000 in a salaried position. That position would also include health insurance, short term disability insurance, an opportunity to buy into a group policy for long term disability insurance, paid vacation time of 10 days, 7 paid federal holidays, 3 paid sick days, and a 401k to which the employer contributes 3% of salary (provided the employee also contributes 3%). In 2018 there are 261 working days, so Ms. Onherown is making $268.20/day or $33.53 per hour (I’m using 8 hours, though a 9-5 job with a lunch hour is only 7 hours).

Let’s see what Ms. Onherown’s benefits are worth:

Paid vacation

$2,682.00

Paid federal holidays

1,877.40

Paid sick days

804.60

Employer’s 401k contribution

2,100.00

Value of health insurance (based on $424.26/month through ACA for a 20 something)

5,091.12

Short term disability (usually 1-3% of income)

700.00

Long term disability (let’s say you’d pay half of 3%)

1,050.00

Total value of benefits                                                     

$14,305.12

So, in order for a freelance gig to pay as much as a salary, Ms. Onherown would need to be paid at least 20.4% more: $84,305.12, or $40.38 per hour.

But wait, that’s not all. If Ms. Onherown is working out of her own home or apartment, she could deduct some portion of the housing as a home office, and any time she uses her car to travel to a site, the mileage would be deductible. But if all that hourly work is performed at the employer’s site, she loses that. If she has to use her car, she may get a gas allowance, but often these don’t take into account the wear and tear on the car, the cost of purchasing (and financing) a vehicle, the increased cost for car insurance when used for a job, and the inevitably increased maintenance on a heavily used car. And, does Ms. Onherown need to provide any of her own supplies? Depending on the profession, this can really rack up some costs.

While Ms. Onherown could certainly contribute to an IRA, without a match, the amount she could contribute (and the potential reduction of her taxable income) is far lower than the amount she might contribute to an employer 401k. While a single making $70K probably doesn’t have enough to contribute the full $18,500, these jobs are often pitched to married people (as “flexible”)—and if spousal income is sufficient, the couple is losing an important tax saving opportunity.

We’re probably wading into the weeds here, but are those hours guaranteed? Because if the client isn’t available, or there’s not sufficient business, or some time might be taken up with non-billable activities like staff meetings, the hourly person working directly for an organization might end up with far less than 40 billable hours. In fact, many true freelancers are lucky to be able to bill 20 hours per week. If it’s the kind of freelance job where you also need to join professional organizations, pay for professional insurance, do marketing, and supply your own technology (and technology repair and replacement), the costs are much, much higher than my list above.

Many years ago, when I worked at writing grant applications, the Feds used to allow us to include a “reasonable” indirect rate of 31-33% on any proposal to cover just these sorts of costs for personnel. I think that’s a good starting point—add about 1/3 to any salary, and you’ll have a pretty good estimate of what a minimum freelance hourly rate should be.

NOTE: An earlier version of this post used 216 working days instead of 261–an inadvertent transposition. The calculations have been corrected. I regret the error.