Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
--C.S. Lewis--

Friday, September 11, 2009

Maybe Reporters Should Take Economics Classes

Can anyone tell me what is wrong with this story? Here's a hint. Compensation is a package. If you still don't understand, let me explain.

When an employer chooses to hire someone at a salary of $45,000 per year, they don't just treat it as an additional $45,000 to payroll. They look at the total cost of the hire, and subtract costs until they arrive at a salary. $3442.50 will need to be allocated for paying Social Security. Let's say there is a 401k matching program that could require the company to pay another $5,000 a year if fully utilized, and that there is also $10,000 a year allocated to medical and dental costs. So, what happens in reality is that the company decides they can pay an employee $63,442.50 per year, subtracts all of the other costs and arrives at a salary. If they increase what they'll pay towards health care, the salary is adjusted downward accordingly. Therefore, employers are not actually shifting additional health care costs to workers. Instead, they are deciding to allocate less of the total pot of compensation to health care and more to salaries. But no reporter would ever actually report a story that way.