Does showing up for work cost more than you earn?

The Sunday (July 13, 2008) Baltimore Sun this week had a front-page article about mothers: “Back to Work, Like it or Not” with the subtitle that “Women who left jobs for children find economy reverses the trade.” Reporter Jill Rosen writes “The soured economy—with its ever-increasing gas, food and utility prices, its sinking home values and its corporate downsizing—is forcing mothers who have traded careers for families to think about trading back.”

I can relate to the article because my wife will change from part-time to full-time work this fall. Energy and food prices have increased so much in the past year our budget no longer works as it once did. But our three children are teenagers and our current financial goal is getting them all through college. The Baltimore Sun article profiled women in much more difficult circumstances—mothers of toddlers and infants who planned on being stay-at-home moms. But, the article left me wondering if working for a paycheck outside the home is a financially viable option for many these women.

Women who can work professional salaried jobs will come out ahead financially by working outside the home. But women who work part-time or for lower wages might find that the same financial pressures forcing them outside the home might also make it impossible to realize any financial benefit.

How much money will these women have left after paying for commuting costs, daycare, work expenses, Social Security, and state and federal taxes? I’ve already seen television news reports about men with commutes so long it no longer pays to drive to work. I can imagine many common circumstances where stay-at-home moms would be hard pressed to increase the family income by working outside the home.

To assist families in figuring out how much additional income can be generated by working outside the home, I’ve teamed with my publisher to create a new calculator for the Compute Gas Savings Website. The calculator, at http://www.computegassavings.com/earningscalc.html, computes daily take home pay after subtracting all of the costs associated with showing up for work.

Consider a married mom in the suburbs with one child who finds a job in a city that pays $12 per hour. She must commute 25 miles each way in a family SUV that gets 20 miles per gallon. She manages to find daycare for $25 per day and finds herself spending an additional $5 per day on average for other work-related costs—coffee, snacks, clothes, car maintenance etc. Because she is married her additional income is not completely sheltered by deductions and exemptions. For this example we will assume a net federal tax rate of 10% and state tax rate of 3%. After entering all these numbers in the calculator it shows that she will take home just $36.17 per day out of her $96 per day net earnings or about $4.50 per hour.

Where did the money go? The combined cost of Social Security, federal, and state taxes takes one-quarter and the combined cost of daycare and gas takes one-third. That means it costs more than one half of her pay just to show up for work. This assumes she has only one child. Add the cost of daycare for a second child and daily earnings come to $11.17.

In fact it is easy to construct plausible scenarios where real earnings per day become negative. Keep the same tax rates, lower her hourly pay to $10, or $80 per day, give her two children so that daycare becomes $50 per day, make the distance to work 30 miles and the gas mileage 15 miles per gallon, and the real earnings per day becomes a negative $7.52. Going to work will cost her more than she makes.

I urge women looking to increase family income by working outside the home to test out different scenarios before deciding on a job. The hourly pay offered might not be the relevant number to compare when making a decision.

Joseph Ganem is a physicist and author of the award-winning The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy