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Fixed costs of working and the decision to work



Contents 2

Introduction 3

Expenditure for clothing (observation of the company’s dress-code) 4

Cost of transportation 4

Cost of baby-sitting 5

Additional minor expenditures 6

“Salary versus fixed costs of working” analysis. 7

Conclusion 8

Bibliography 8

Working has always had its fixed costs that have invariably fallen on the shoulders of an employee. Even in times when there was no such phenomena as dress-code or public transport, people were to decide, whether it was affordable for them to work. This question was of particularly vital importance for women, bringing up 5 to 10 children, overloaded with housework and maintaining personal vegetable garden. Men were also staying at the crossroads, as they had to estimate, whether it was economically possible for them, for example, to be employed as ploughmen and, thus, be obliged to buy a horse (that cost not less than 10 rubles in the XIX – the amount that a peasant could earn working hard for 2 months) .
Times have changed but the nature of fixed costs of working remained the same. Today we have to buy not a horse or a cart, but to pay for our monthly ticket, to follow the dress-code of the company we work for, to pay to a baby-sitter if we are parents, etc.
Fixed costs of working can be considered actually as an investment. We hope that our future salary will cover our initial expenses and also generate additional profit, so that there is an incentive to work, so that we are not indifferent between two options – to work or not to work.
Any literate person should always try to estimate the economic sense of his decision to be or not to be employed so as to avoid unexpected losses. This issue should be a subject of investigation for everyone.
Being a young mother and having a sufficient experience of work, I was particularly interested in this topic. I worked in multinational company for four months from May, 2008 till August, 2008 and in my essay I will try, first of all, to estimate my fixed costs of working, and then to find out whether it was a right decision for me to work or I have made a mistake and caused additional losses to our family budget.
Expenditure for clothing (observation of the company’s dress-code)
Casual dress code has been a trend in years past, but most businesses are shifting towards a more restrictive dress code in order to convey a more professional tone, what causes extraordinary expenditures on special clothing. Working for an international company assumes corresponding outward appearance and observation of the stated dress-code. However, employers do not usually compensate the costs of buying these pieces of wardrobe to employees. “We do not force our employees to buy world-brand clothes, but we pay sufficient salaries, so that people are able to buy good suits, shirts, etc…”, - said Tatyana Chernyshova, the HR manager of the Johnson&Johnson sales department . The problem is that “sufficient” is perceived by different people in different ways. Dress-code requirements are communicated to the applicants already at the interview so as to give a chance to people to estimate the affordability of following the corporate rules. Thus, these circumstances forced me to renew my wardrobe for the following amount of money:
o 3 suits (5,800 + 3,249 + 3,699 = RUR 12,748 );
o 2 blouse (750 + 690 = RUR 1,440 );
o 3 pairs of shoes ( 1,629 + 3,450 + 4,000 = RUR 9079 );
o 2 bags (3,750 + 4,700 = RUR 8,450 );
o 8 pairs of tights (for 4 months – bought in different places and at different prices. The total amount is approximately 200 * 8 = RUR 1,600).
Thus, summarizing, I spent RUR 31,717 for my new clothing. There wasn’t any compensation policy in my company. Of course, I should not expect that my 4-month-salary should cover this amount, because clothes depreciate linearly during a far greater period of time just like any equipment (except for tights). Subsequently, I can associate not more than 35% of these costs with my employment (0.35 * 31,717 = RUR 11100.95).
Cost of transportation
More and more employers tend to compensate the cost of transportation to their employees today. For example, in most companies employees of delivery department or couriers are granted with free public transport tickets. If they possess their own cars, then the monthly cost of petrol is compensated in accordance with the submitted receipts. Personal means of transportation are usually granted to sales representatives that they can also use to get from work to home and vice versa.
The only means of transportation I had to use was the underground. The cost of prolongation of our student’s monthly ticket is RUR 180 per month . My expenditure for 3 months amounted to 180 * 3 = RUR 540 (not for 4 months, as in May I worked and studied simultaneously and in this case the prolongation of ticket was due to the necessity to come to the academy, but not to work, e.g. I would have had to pay even if I hadn’t worked).
Cost of baby-sitting
The most crucial point for consideration for any woman is undoubtedly the cost of baby-sitting. In most cases the situation is as follows: a woman has a work opportunity right now where she can make $10/hr. but is much discouraged by the $7/hr. cost of baby-sitting which after taxes are taken out of her salary, will leave her with very little if anything at all to show for her efforts. She might as well stay home, take care of the baby and apply for welfare except, she wants to work. These are such discouraging choices. In Russia not every young mother is able to earn more than RUR 200 per hour in order to at least compensate her expenditures for baby-sitting. And of course it is absolutely impossible to rely on social benefits (RUR 2,500 per month per 1 child up to 3 years old ). If mothers manage to apply for the services of kindergartens, then they have to take into consideration the cost of getting your child to the kindergarten and then back home. The situation is worsened by the fact, that, being an employee, you can be obliged to come to work not later than at 8:00 a.m., while kindergartens usually start working at 8:30 a.m. And afterwards mothers also need time to get to job that is sometimes not close to the kindergarten. These circumstance forces mothers to hire somebody to accompany a child to a kindergarten what also results in additional expenses (not less than RUR 150 per hour ). Even if a mother is happy enough to place her child to a public (e.g. gratuitous) kindergarten, she should foresee, that she will have anyway to pay up to RUR 500-600 per month for “the needs of a child” as it is usually formulated.
My daughter was 1,5 years old, when I decided to apply for a job. It was impossible to use the services of kindergartens due to bribery and bureaucracy in this sphere and I had to prolong the contract with my baby-sitter for further 3 summer months. The expenditures connected with baby-sitting amount to RUR 35,000 per month. Thus, 35,000 * 3 = RUR 105,000 during the period of my employment. Again, I calculate it for 3 but not for 4 months due to the same reason specified above.
Additional minor expenditures
Most companies provide nowadays free lunches to their employees as a part of social benefits package, as they understand, that the productivity of ever-hungry people is extremely low. At the same time, this will let them to control the prolongation of the lunch break, employees will not have any good reason to explain why they are chewing at the workplace etc. But the company I worked for provided free lunches only after a person has been working for more than 6 months. Thus, I had to spend my own money on eating out. A typical business lunch costs now approximately 170-210 rubles in most cafes of Moscow . Thus, it cost me 170*21*4 = RUR 14,280 for 4 months.
Due to the fact that it was absolutely unaffordable for me to hire a house-maid, I still had to do the housework myself. My job was quite intense and exhausting, and coming home late in the evening, I was completely attenuated and unable to fulfill my housework duties. In order to cheer up somehow I had to consume 1 can of Red Bull per day. The cost of 1 can is RUR 65 . Thus I spent 65 * 120 = RUR 7,800 during May and summer months. In this case I do not deduct weekends, as the work was so difficult, that tiredness lasted out during Saturday and Sunday as well.
I also had to give up going to the “dairy kitchen”, because there were no fridges in our office to keep milk, kefir and curds all day long. A typical set of dairy products for a 1.5-year-old baby provided by the government is the following:
o 4 paper-bags of milk (market price is RUR 19.60);
o 2 paper-bags of kefir (market price is RUR 20.70);
o 2 packs of curds (market price is RUR 15.40) .
As a result, I had to buy these products at my own expense (in this case I divided the result by two, because dairy products are given out once per two days):
(4*19.60 + 2*20.70 + 2*15.40) * 30*4 / 2 = RUR 9,036
We should also take into consideration such minor costs of working as constant dues “to congratulate your chef or chief accountant on their birthday and grant him or her something as a token of respect”. This is quite widely spread, in Russian corporate culture in particular. Such dues amount to RUR 500 – RUR 700 per month. Totally, that makes more than RUR 2,400 for 4 months.
These are the major monetary fixed costs in my case. Unfortunately, it is impossible to measure more or less objectively other non-pecuniary costs such as time costs, nerves exhausting, distress caused by parting with your baby, spending less time with your husband (or wife), damage to health etc, that might have constituted a sufficient part to fixed costs of working analysis.
“Salary versus fixed costs of working” analysis.
As far as all pecuniary fixed costs of working have been mentioned, it is time to calculate the total amount spend during 4 months:
o costs of new clothes – RUR 11,100.95;
o costs of transportation – RUR 540;
o costs of baby-sitting – RUR 105,000;
o costs of eating out – RUR 14,280;
o costs of consuming energetic drinks – RUR 7,800;
o costs of consuming diary products – RUR 9,036;
o minor costs of signs of respect to the administration – RUR 2,400.
The final amount, calculated by adding all the preliminary sums, is RUR 150,156.95. In accordance with my labour contract, my salary was RUR 36,000. I also got a bonus on a weekly basis – RUR 3,000 with slight insignificant variations - thus, more than RUR 12,000 of additional income per month. Now it’s time to calculate the total salary I received during 4 months:
(36,000 + 12,000) * 0.87 * 4 = RUR 167,040.00. (0.87 in this case means the deduction of my salary by the amount of income tax (13% ).
167,040.00 / 150,156.95 = 1.1124
According to my calculations, every 1 RUR of fixed costs of working generated only 1.1124 RUR of my net income, e.g. an increase of only 11.24% occurred.
One can argue that I should have stayed at home with a child and try my best to avoid any potentially arising costs, because this positive balance of only 16,883.05 is not a sufficient incentive to trust your baby to another person, to deprive yourself of any free time and private life, to abandon your housework etc. We can enumerate these non-pecuniary aspects endlessly. But we should not forget about non-pecuniary benefits of working – work experience first of all. Your work is always a place of free-of-charge education to a certain extent. I wonder how much I would have spent if I had gone to some educational courses to obtain for money all those skills I acquired at my job for free. Actually, I was quite surprised by the outcome of my analysis and the fact that there is a positive balance at all, as I supposed I was causing only losses to my family budget. This, again, shows the necessity of fixed costs of working analysis and its real applicability.
Business world develops extremely over time. But this development sometimes affects employees adversely – new requirements of employers are implemented while the cost of petrol rises, social benefits for mothers increase less rapidly than inflation, kindergartens become less and less available to those who cannot afford to bribe or pay endless dues, etc. At the same time employers are not quite eager to compensate at least a part of employee’s fixed costs. The decision to work or not work basing on the fixed costs of working analysis becomes therefore more and more vital not only for those with economic education but also for the general public. Unfortunately, losses, caused to the family budget, are sometimes revealed untimely due to incorrect prediction or absence of one at all.
It is very difficult, if not to say impossible, to foresee all those significant and minor expenditures one may face while being employed. This constitutes to the value and importance of this essay topic, revealing the most typical potential fixed costs that one should bare in mind while deciding on the matter, whether he can afford to work at all.
1. Бородкин Л.И. Стохастические модели в изучении социальных перемещений русского крестьянства в XIX веке Барнаул, 1996;
2. http://www.klerk.ru/boss/?41224;
3. http://www.otto-online.ru/shop/women-clothing/suits.html;
4. http://www.odezhda.su/cat/p/catalog/18/;
5. http://www.otto-online.ru/shop/women-clothing/footwear.html;
6. http://www.glamourstyle.ru/;
7. www.mosmetro.ru;
8. www.papaimama.ru/arts.php?art=posobija;
9. www.priehali.ru/cgi-bin/yabb2/YaBB.pl?num=1158899428;
10. http://ru.restoran.ru/msk/catalog/restaurants/business;
11. http://www.probuem.ru/food/20621;
12. http://www.agusha.ru/catalog/milk-catalog/curd/;
13. Журнал «Главбух» - практический журнал для бухгалтера, №20 октябрь, 2008, С.14-15 «Рубрика НДФЛ».

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