Employee compensation in the United States
Employer compensation in the United States refers to the cash compensation and benefits that an employee receives in exchange for the service they perform for their employer. 93% of the working population in the United States are employees earning a salary or wage. Cash compensation consists of a wage or salary, may include commissions or bonuses. Benefits consist of retirement plans, health insurance, life insurance, disability insurance, employee stock ownership plans, etc. Compensation can be fixed and/or variable and is both. Variable pay is based on the performance of the employee. Commissions and bonuses are forms of variable pay. Benefits can be divided into as company-paid and employee-paid. Some, such as holiday pay, vacation pay, etc. are paid for by the firm. Others, are paid, at least in part, by employees—a notable example is medical insurance. Compensation in the US is shaped by law, tax policy, history. Health insurance is a common employee benefit because there is no government sponsored national health insurance in the United States, premiums are deductible on personal income tax.
401 accounts are a common employer organized program for retirement savings because of their tax benefits. Salary and non-equity incentives are called "Total Cash Compensation". Wage data for different occupations in the US can be found from the US Department of Labor Bureau of Labor Statistics, broken down into subgroups by state, metropolitan areas, gender. In the United States, wages for most workers are set by market forces, or else by collective bargaining, where a labor union negotiates on the workers' behalf; the Fair Labor Standards Act establishes a minimum wage at the federal level that all states must abide by, among other provisions. Fourteen states and a number of cities have set their own minimum wage rates that are higher than the federal level. For certain federal or state government contracts, employers must pay the so-called prevailing wage as determined according to the Davis-Bacon Act or its state equivalent. Activists have undertaken to promote the idea of a living wage rate which account for living expenses and other basic necessities, setting the living wage rate much higher than current minimum wage laws require.
"The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek." In the United States, the distinction between periodic salaries and hourly wages was first codified by the Fair Labor Standards Act of 1938. Five categories were identified as being "exempt" from minimum wage and overtime protections, therefore salariable—executive, professional and outside sales employees. Salary is set on a yearly basis. "Executive compensation" has its own set of regulations and lacks many of the tax benefits of other employee compensation because it exceeds their income limits. Employee stock options are call options on the common stock of a company, their value increases. Employee stock options are offered to management with restrictions on the option, in an attempt to align the holder's interest with those of the business shareholders. Options may be offered to non-executive level staff by businesses that are not yet profitable, insofar as they may have few other means of compensation.
They may be remuneration for non-employees: suppliers, consultants and promoters for services rendered. There is a period before the employee can "vest", i.e. sell or transfer the stock or options. Vesting may be granted all at once or over a period time, in which case it may be "uniform" or "non-uniform". In the U. S. stock options granted to employees are of two forms, that differ in their tax treatment. They may be either: Incentive stock options Non-qualified stock options Besides stock options, other forms of individual equity compensation include: restricted stock - Stock that cannot be sold by the owner until certain conditions are met They may be compared to stock options with a strike price of $0. Restricted stock units - Rights to own the employer’s stock, unlike restricted stock they are tracked as bookkeeping entries and lack voting rights, they may be paid in cash. The National Center of Employee Ownership describes them as being "like phantom stock settled in shares instead of cash" stock appreciation rights - These provide the right to the monetary equivalent of the increase in the value of a specified number of shares over a specified period of time.
As with phantom stock, it's paid out in cash, but may be paid in shares. Phantom stock - A promise to pay a bonus in the form of the equivalent of either the value of company shares or the increase in that value over a period of time. Employee stock purchase plan Because most employee stock options are non-transfera
A wage is monetary compensation paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed, or at an hourly or daily rate, or based on an measured quantity of work done. Wages are part of the expenses. Payment by wage contrasts with salaried work, in which the employer pays an arranged amount at steady intervals regardless of hours worked, with commission which conditions pay on individual performance, with compensation based on the performance of the company as a whole. Waged employees may receive tips or gratuity paid directly by clients and employee benefits which are non-monetary forms of compensation. Since wage labour is the predominant form of work, the term "wage" sometimes refers to all forms of employee compensation. Wage labour involves the exchange of money for time spent at work; as Moses I. Finley lays out the issue in The Ancient Economy: The idea of wage-labour requires two difficult conceptual steps. First it requires the abstraction of a man's labour from both his person and the product of his work.
When one purchases an object from an independent craftsman... one has not bought his labour but the object, which he had produced in his own time and under his own conditions of work. But when one hires labour, one purchases an abstraction, labour-power, which the purchaser uses at a time and under conditions which he, the purchaser, not the "owner" of the labour-power, determines. Second, the wage labour system requires the establishment of a method of measuring the labour one has purchased, for purposes of payment by introducing a second abstraction, namely labour-time; the wage is the monetary measure corresponding to the standard units of working time. The earliest such unit of time, still used, is the day of work; the invention of clocks coincided with the elaborating of subdivisions of time for work, of which the hour became the most common, underlying the concept of an hourly wage. Wages were paid in the Middle Kingdom of ancient Egypt, ancient Greece, ancient Rome. Depending on the structure and traditions of different economies around the world, wage rates will be influenced by market forces and tradition.
Market forces are more dominant in the United States, while tradition, social structure and seniority play a greater role in Japan. In countries where market forces set wage rates, studies show that there are still differences in remuneration for work based on sex and race. For example, according to the U. S. Bureau of Labor Statistics, in 2007 women of all races made 80% of the median wage of their male counterparts; this is due to the supply and demand for women in the market because of family obligations. White men made about 84% the wage of Asian men, black men 64%; these are overall averages and are not adjusted for the type and quality of work done. Seventy-five million workers earned hourly wages in the United States in 2012, making up 59% of employees. In the United States, wages for most workers are set by market forces, or else by collective bargaining, where a labor union negotiates on the workers' behalf; the Fair Labor Standards Act establishes a minimum wage at the federal level that all states must abide by, among other provisions.
Fourteen states and a number of cities have set their own minimum wage rates that are higher than the federal level. For certain federal or state government contacts, employers must pay the so-called prevailing wage as determined according to the Davis-Bacon Act or its state equivalent. Activists have undertaken to promote the idea of a living wage rate which account for living expenses and other basic necessities, setting the living wage rate much higher than current minimum wage laws require; the minimum wage rate is there to protect the well being of the working class. For purposes of federal income tax withholding, 26 U. S. C. § 3401 defines the term "wages" for chapter 24 of the Internal Revenue Code: "For purposes of this chapter, the term “wages” means all remuneration for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash. Political science: Labour power Proletarian Working class Wage slavery Galbraith, James Kenneth.
Created Unequal: the Crisis in American Pay, in series, Twentieth Century Fund Book. New York: Free Press, 1998. ISBN 0-684-84988-7 Lebergott, Stanley. "Wages and Working Conditions". In David R. Henderson. Concise Encyclopedia of Economics. Library of Economics and Liberty. OCLC 317650570, 50016270, 163149563 U. S. Bureau of Labor Statistics Wealth of Nations – click Chapter 8 Understanding Capitalism Part III: Wages and Labor Markets – Critical of capitalism U. S. Department of Labor: Minimum Wage Laws – Different laws by State Average U. S. farm and non-farm wage LaborFair Resources – Link to Fair Labor Practices The Truth Behind Wages in Mining – How Wages are measured and Current Standards for Mining Professionals Database Central Europe – Data on average wages in Central Europe and in Emerging Markets Salary and wages data collecti
The putting-out system is a means of subcontracting work. It was known as the workshop system and the domestic system. In putting-out, work is contracted by a central agent to subcontractors who complete the work in off-site facilities, either in their own homes or in workshops with multiple craftsmen, it was used in the English and American textile industries, in shoemaking, lock-making trades, making parts for small firearms from the Industrial Revolution until the mid-19th century. The domestic system was suited to pre-urban times because workers did not have to travel from home to work, quite impracticable due to the state of roads and footpaths, members of the household spent many hours in farm or household tasks. Early factory owners sometimes had to build dormitories to house workers girls and women. Putting-out workers had some flexibility to balance farm and household chores with the putting-out work, this being important in winter; the development of this trend is considered to be a form of proto-industrialization, remained prominent until the Industrial Revolution of the 19th century.
At that point, it underwent geographical changes. However, bar some technological advancements, the putting-out system has not changed in essential practice. Contemporary examples can be found in China and South America, are not limited to the textiles industry. Historian David A. Hounshell writes: In 1854, the British obtained their military small arms through a system of contracting with private manufacturers located principally in the Birmingham and London areas... Although significant variation occurred all of the contractors manufactured parts or fitted them through a decentralized, putting-out process using small workshops and skilled labor. In small arms making as in lock production, the "workshop system" rather than the "factory system" was the rule. All of the processes were carried out under different cottage roofs, it was replaced by the factory system. The domestic system was a popular system of cloth production in Europe, it was used in various other industries, including the manufacture of wrought iron ironware such as pins and pans for ironmongers.
It was most prominent in the 17th and 18th centuries. It served as a way for capitalists and workers to bypass the guild system, thought to be cumbersome and inflexible, to access a rural labour force. Having the workers work in their homes was convenient for both parties. Workers would work from home, manufacturing individual articles from raw materials bring them to a central place of business, such as a marketplace or a larger town, to be assembled and sold. In other cases travelling agents or traders would tour the villages, supplying the raw materials and collecting the finished goods; the raw materials were provided by the merchant, who received the finished product, hence the synonymous term putting-out system. The advantages of this system were that workers involved could work at their own speed while at home, children working in the system were better treated than they would have been in the factory system, although the homes might be polluted by the toxins from the raw materials; as the woman of a family worked at home, someone was there to look after any children.
The domestic system is cited as one of the causes of the rise of the nuclear family in Europe, as the large amount of profits gained by common people made them less dependent on their extended family. These considerable sums of money led to a much wealthier peasantry with more furniture, higher-quality food, better clothing than they had had before, it was centralized in Western Europe and did not take a strong hold in Eastern Europe. Of course, profit depended on which part of the putting-out system one was associated with. If one was a worker in the London textiles industry, for example, the cost of hiring sewing equipment and purchasing thread precluded the worker from eating on a regular basis; the fourteen-hour days led to many untimely deaths. Thomas Hood's poem The Song of the Shirt describes the wretched life of a woman in Lambeth labouring under such a system, it was written in honour of a Mrs. Biddell, a Lambeth widow and seamstress living in wretched conditions. In what was, at that time, common practice, Mrs. Biddell sewed trousers and shirts in her home using materials given to her by her employer, for which she was forced to give a £2 deposit.
In a desperate attempt to feed her starving infants, Mrs. Biddell pawned the clothing she had made, thus accruing a debt she could not pay. Mrs. Biddell, whose first name has not been recorded, was sent to a workhouse, her ultimate fate is unknown. Anders Jonsson was a famous Swedish entrepreneur, he contracted up to 200 domestic workers, who came to his house to get the raw material and returned after a couple of weeks with textiles, that local pedlars from the city of Borås bought and went out to sell among other things around Sweden and Norway. A cottage industry is a small-scale industry, where the creation of products and services is home-based, rather than factory-based. While products and services made by cottage industries are unique and distinctive, given that they are most
Productivity describes various measures of the efficiency of production. A productivity measure is expressed as the ratio of output to inputs used in a production process, i.e. output per unit of input. Productivity is a crucial factor in production performance of nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth can help businesses to be more profitable. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and/or data availability. Productivity measures that use one class of inputs or factors, but not multiple factors, are called partial productivities. In practice, measurement in production means measures of partial productivity. Interpreted these components are indicative of productivity development, approximate the efficiency with which inputs are used in an economy to produce goods and services.
However, productivity is only measured – or approximately. In a way, the measurements are defective because they do not measure everything, but it is possible to interpret the results of partial productivity and to benefit from them in practical situations. At the company level, typical partial productivity measures are such things as worker hours, materials or energy used per unit of production. Before widespread use of computer networks, partial productivity was tracked in tabular form and with hand-drawn graphs. Tabulating machines for data processing began being used in the 1920s and 1930s and remained in use until mainframe computers became widespread in the late 1960s through the 1970s. By the late 1970s inexpensive computers allowed industrial operations to perform process control and track productivity. Today data collection is computerized and any variable can be viewed graphically in real time or retrieved for selected time periods. In macroeconomics, a common partial productivity measure is labour productivity.
Labour productivity is a revealing indicator of several economic indicators as it offers a dynamic measure of economic growth and living standards within an economy. It is the measure of labour productivity which helps explain the principal economic foundations that are necessary for both economic growth and social development. In general labour productivity is equal to the ratio between a measure of output volume and a measure of input use. Labour productivity = output volume labor input use The output measure is net output, more the value added by the process under consideration, i.e. the value of outputs minus the value of intermediate inputs. This is done in order to avoid double-counting when an output of one firm is used as an input by another in the same measurement. In macroeconomics the most well-known and used measure of value-added is the Gross Domestic Product or GDP. Increases in it are used as a measure of the economic growth of nations and industries. GDP is the income available for paying capital costs, labor compensation and profits.
Some economists instead use. The measure of input use reflects the time and skills of the workforce. Denominator of the ratio of labour productivity, the input measure is the most important factor that influences the measure of labour productivity. Labour input is measured either by the total number of hours worked of all persons employed or total employment. There are both advantages and disadvantages associated with the different input measures that are used in the calculation of labour productivity, it is accepted that the total number of hours worked is the most appropriate measure of labour input because a simple headcount of employed persons can hide changes in average hours worked and has difficulties accounting for variations in work such as a part-time contract, leave of absence, overtime, or shifts in normal hours. However, the quality of hours-worked estimates is not always clear. In particular, statistical establishment and household surveys are difficult to use because of their varying quality of hours-worked estimates and their varying degree of international comparability.
GDP per capita is a rough measure of average living standards or economic well-being and is one of the core indicators of economic performance. GDP is, for this purpose, only a rough measure. Maximizing GDP, in principle allows maximizing capital usage. For this reason GDP is systematically biased in favour of capital intensive production at the expense of knowledge and labour-intensive production; the use of capital in the GDP-measure is considered to be as valuable as the production’s ability to pay taxes and labor compensation. The bias of the GDP is the difference between the GDP and the producer income. Another labour productivity measure, output per worker, is seen as a proper measure of labour productivity, as here: “Productivity isn't everything, but in the long run it is everything. A country's ability to improve its standard of living over time depends entirely on its ability to raise its output per worker.“ This measure is, more problematic than the
Balance of payments
The balance of payments known as balance of international payments and abbreviated B. O. P. or BoP, of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period of time. The balance of payments is a summary of all monetary transactions between a country and rest of the world; these transactions are made by individuals and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country, it is an important issue to be studied in international financial management field, for a few reasons. First, the balance of payments provides detailed information concerning the demand and supply of a country's currency. For example, if Sudan imports more than it exports this means that the quantity supplied of Sudanese pounds by the domestic market is to exceed the quantity demanded in the foreign exchanging market, ceteris paribus. One can thus infer that the Sudanese pound would be under pressure to depreciate against other currencies.
On the other hand, if Sudan exports more than it imports the Sudanese pound would be to appreciate. Second, a country's balance of payments data may signal its potential as a business partner for the rest of the world. If a country is grappling with a major balance of payments difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to impose measures to restrict imports and discourage capital outflows in order to improve the balance of payments situation. On the other hand, a country with a significant balance of payments surplus would be more to expand imports, offering marketing opportunities for foreign enterprises, less to impose foreign exchange restrictions. Third, balance of payments data can be used to evaluate the performance of the country in international economic competition. Suppose a country is experiencing trade deficits year after year; this trade data may signal that the country's domestic industries lack international competitiveness.
To interpret balance of payments data properly, it is necessary to understand how the balance of payments account is constructed. These transactions include payments for the country's exports and imports of goods, financial capital, financial transfers, it is prepared in a single currency the domestic currency for the country concerned. The balance of payments accounts keep systematic records of all the economic transactions of a country with all other countries in the given time period. In the BoP accounts, all the receipts from abroad are recorded as credit and all the payments to abroad are debits. Since the accounts are maintained by double entry bookkeeping, they show the balance of payments accounts are always balanced. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items; when all components of the BoP accounts are included they must sum to zero with no overall surplus or deficit.
For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down currency reserves or by receiving loans from other countries. While the overall BoP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BoP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become indebted; the term "balance of payments" refers to this sum: a country's balance of payments is said to be in surplus by a specific amount if sources of funds exceed uses of funds by that amount. There is said to be a balance of payments deficit. A BoP surplus is accompanied by an accumulation of foreign exchange reserves by the central bank.
Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign exchange market to match any international outflow of funds, thus preventing the funds flows from affecting the exchange rate between the country's currency and other currencies. The net change per year in the central bank's foreign exchange reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate system include a managed float where some changes of exchange rates are allowed, or at the other extreme a purely floating exchange rate. With a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, the central bank's foreign exchange reserves do not change, the balance of payments is always zero; the current account shows the net amount of a country's income if it is in surplus, or spending if it is in deficit.
It is the sum of the balance of factor income and unilateral transfers. The
Factors of production
In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship called the production function. There are three basic resources or factors of production: land and capital; the factors are frequently labeled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are labeled "consumer goods". There are two types of factors: secondary; the mentioned primary factors are land and capital goods. Materials and energy are considered secondary factors in classical economics because they are obtained from land and capital; the primary factors facilitate production but neither becomes part of the product nor becomes transformed by the production process. Land includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital from labor.
Entrepreneurship is sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production; the number and definition of factors vary, depending on theoretical purpose, empirical emphasis, or school of economics. In the interpretation of the dominant view of classical economic theory developed by neoclassical economists, the term "factors" did not exist until after the classical period and is not to be found in any of the literature of that time. Differences are most stark. Physiocracy is an economic theory developed by a group of 18th century Enlightenment French economists who believed that the wealth of nations was derived from the value of "land agriculture" or "land development" and that agricultural products should be priced The classical economics of Adam Smith, David Ricardo, their followers focus on physical resources in defining its factors of production and discuss the distribution of cost and value among these factors. Adam Smith and David Ricardo referred to the "component parts of price" as the costs of using: Land or natural resource — occurring goods like water, soil, flora and climate that are used in the creation of products.
The payment given to a landowner is rent, loyalties and goodwill. Labor — human effort used in production which includes technical and marketing expertise; the payment for someone else's labor and all income received from one's own labor is wages. Labor can be classified as the physical and mental contribution of an employee to the production of the good; the capital stock — human-made goods which are used in the production of other goods. These include machinery and buildings, they are of two types and working. Fixed are one time investments like machines and working consists of liquid cash or money in hand and raw materialThe classical economists employed the word "capital" in reference to money. Money, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good; the return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock was styled as profit. See returns. Marx considered the "elementary factors of the labor-process" or "productive forces" to be: Labor The subject of labor The instruments of labor.
The "subject of labor" refers including land. The "instruments of labor" are tools, in the broadest sense, they include factory buildings and other human-made objects that facilitate labor's production of goods and services. This view seems similar to the classical perspective described above, but unlike the classical school and many economists today, Marx made a clear distinction between labor done and an individual's "labor power" or ability to work. Labor done is referred to nowadays as "effort" or "labor services." Labor-power might be seen as a stock. Labor, not labor power, is the key factor of production for Marx and the basis for Marx's labor theory of value; the hiring of labor power only results in the production of goods or services when organized and regulated. How much labor is done depends on the importance of conflict or tensions within the labor process. Neoclassical economics, one of the branches of mainstream economics, started with the classical factors of production of land and capital.
However, it developed an alternative theory of distribution. Many of its practitioners have added various further factors of production. Further distinctions from classical and neoclassical microeconomics include the following: Capital — This has many meanings, including the financial capital raised to operate and expand a business. In much of economics, however, "capital" means goods that can help produce other goods in the future, the result of investment, it refers to machines, factories, schools and office buildings which humans have produced to create goods and services. Fixed capital — This includes machinery, equipment, new technology, buildings and other goods that are designed to increase the productive potential of the economy for future years. Nowadays, many consider computer softwa