Comparing Job Offers 1.1.3

1. Comparing Job Offers 1.1.3 Take Charge of Your Finances Family Economics and Financial Education

2. Supply and Demand • The availability of jobs and the rate of pay is dependent upon the economic concept of supply and demand. • Supply – the relationship of prices to the quantities of a good or service that sellers are willing to sell at any given point in time. • Demand – the relationship between prices and the corresponding quantities of a good or service individuals are willing to purchase at any given point in time.

3. Congratulations! • Sara just graduated from college with a teaching degree and received two job offers. Which is the best deal?

4. Which is the better deal? • Job Offer 1 • $35,000.00 in Reno, NV • Job Offer 2 • $40,000.00 in Anchorage, AK • Not enough information to decide Which option is best?

5. Cost of Living • Cost of living – includes housing, food, transportation, and other everyday expenses. • Rural communities often have a lower cost of living than urban communities. • Index form – rates communities on a scale of 100.0 and gives an average cost community a rating of 100.0. • A lower index means a lower cost of living. • A higher index means a higher cost of living.

6. Comparing Job Offers • In groups of 3-4 participants brainstorm examples for each of the following categories: Additional perks Relocation allowances Company car Repayment of education loans Stock options Gym membership Flexible hours Merchandise discounts Child care Telecommuting Base Salary Dollar amount a person will receive in his/her monthly paycheck before taxes. Based upon supply and demand • Fringe Benefits • Paid sick time • Holidays and vacation time • Bonuses • Health and life insurance • Workman’s compensation • Retirement contributions • Opportunity for Advancement & Other Work Incentives • Raised based on performance • Guaranteed pay raise based on longevity • Location and Environment • Commute time • Affordable housing • Low crime rate • Good schools • Desired climate

7. Cost of Living Index of City 2 Salary in city 1 x = Equivalent Salary in city 2 Cost of Living Index of City 1 Cost of Living Equation • Round dollar amounts to two decimal places

8. Cost of Living Equation • In order to compare the cost of living in two cities always follow these three steps: • Step 1: Assign each cities numbers. One city will be assigned the number one and the other the number two. • Step 2: Provide the corresponding salaries and index amounts. • Step 3: Complete the math and indicate which city is a better offer and why.

9. Sara’s Job Offers • Job Offer 1 – Reno, NV • $35,000.00 salary • 105.1 cost of living index • Job Offer 2 – Anchorage, AK • $40,000.00 salary • 123.1 cost of living index

10. Sara’s Cost of Living Equations 123.1 $35,000.00 in Reno x = Equivalent Salary in Anchorage 105.1 Option 1 or Option 2 105.1 $40,000.00 in Anchorage x = Equivalent Salary in Reno 123.1

11. Sara’s Cost of Living Equations $35,000.00 x 1.1712654 = $40,994.29 = Equivalent salary in Anchorage Option 1 or Option 2 $40,000.00 x .8537774 = $34,151.35 = Equivalent salary in Reno

12. Sara’s Job Outcome • A person earning $35,000.00 in Reno must earn $40,994.29 in Anchorage to have the same spending power. • Or • A person earning $40,000.00 in Anchorage must earn $34,151.35 in Reno to have the same spending power. • Therefore, the salary offer in Reno is better by $994.29 ($40,994.29 - $40,000.00).

13. Joe’s Offers • Job Offer 1- Denver, CO • $24,000.00 salary • 102.9 cost of living index • Job Offer 2 - Seattle, WA • $32,000.00 salary • 148.2 cost of living index

14. Cost of Living Index of City 2 Salary in city 1 x = Equivalent Salary in city 2 Cost of Living Index of City 1 Cost of Living Equation • Round dollar amounts to two decimal places

15. Joe’s Cost of Living Equations 148.2 $24,000.00 in Denver x = Equivalent salary in Seattle 102.9 Option 1 or Option 2 102.9 $32,000.00 in Seattle x = Equivalent salary in Denver 148.2

16. Option 1 or Option 2 Joe’s Cost of Living Equations $24,000.00 x 1.4402332 = $34,565.60 = Equivalent salary in Seattle $32,000.00 x .6943319 = $22,218.62 = Equivalent salary in Denver

17. Joe’s Job Outcome • A person earning $24,000.00 in Denver must earn $34,565.60 in Seattle to have the same spending power. • Or • A person earning $32,000.00 in Seattle must earn $22,218.62 in Denver to have the same spending power. • Therefore, the salary offer in Denver is better by $2,565.60 ($34,565.60 - $32,000.00).

18. Benefits Fringe benefits and employer provided services can make a difference: • For example, if a $35,000.00 job had 100% of medical insurance coverage valuing $400.00 per month, a person would not have to budget for $4,800.00 in medical insurance per year. This would increase the value of his or her salary to $39,800.00. • Benefits and services should be included within the salary before calculating the cost of living.

19. Cost of Living Index of City 2 Salary in city 1 x = Equivalent Salary in city 2 Cost of Living Index of City 1 Sara’s Job including benefit package • Round dollar amounts to two decimal places

20. Sara’s Job including benefit package • Job Offer 1 – Reno, NV • $35,000.00 salary + $4,800.00 benefits = $39,800.00 • 105.1 cost of living index • Job Offer 2 – Anchorage, AK • $40,000.00 salary + $5,200.00 benefits = $45,200.00 • 123.1 cost of living index

21. Option 1 or Option 2 Sara’s Job including benefit package 123.1 $39,800.00 in Reno x = Equivalent salary in Anchorage 105.1 105.1 $45,200.00 in Anchorage x = Equivalent salary in Reno 123.1

22. Option 1 or Option 2 Sara’s Job including benefit package $39,800.00 x 1.1712654 = $46,616.36 = Equivalent salary in Anchorage $45,200.00 x .8537774 = $38,590.74 = Equivalent salary in Reno

23. Sara’s Job Outcome including benefit package • A person earning $39,800.00 in Reno must earn $46,566.00 in Anchorage to have the same spending power. • -Or • A person earning $45,200.00 in Anchorage must earn $38,590.74 in Reno to have the same spending power. • Therefore, with the benefits package included, the job offer in Reno is higher.

24. Joe’s Job including benefit package • Job offer 1 - Denver, CO • $24,000.00 salary + $4,500.00 benefits =$28,500.00 • 102.9 cost of living index • Job offer 2 - Seattle, WA • $32,000.00 salary +$6,000.00 benefits = $38,000.00 • 148.2 cost of living index

25. Cost of Living Index of City 2 Salary in city 1 x = Equivalent Salary in city 2 Cost of Living Index of City 1 Cost of Living Equation • Round dollar amounts to two decimal places

26. Option 1 or Option 2 Joe’s Job including benefit package 148.2 $28,500.00 in Denver x = Equivalent salary in Seattle 102.9 102.9 $38,000.00 in Seattle x = Equivalent salary in Denver 148.2

27. Option 1 or Option 2 Joe’s Job including benefit package $28,500.00 x 1.4402332 = $41,046.65 = Equivalent salary in Seattle $38,000.00 x .6943319 = $26,384.61 = Equivalent salary in Denver

28. Joe’s Job Outcome including benefit package • A person earning $28,500.00 in Denver must earn $41,046.65 in Seattle to have the same spending power. • Or • A person earning $38,000.00 in Seattle must earn $26,384.61 in Denver to have the same spending power. • Therefore, with the benefits package included, the job offer in Denver is higher.

29. Additional Web sites • Web sites available to help calculate salaries and cost of living in various locations • www.homefair.com • www.bankrate.com/brm/movecalc.asp • www.accra.org • $12.95 fee

30. Questions?