5 ms·

I think GP meant more taxes to cover for country infrastructure (roads, power, etc) , schools, universities, health insurance, pensions, ie the 'all inclusive

I think GP meant more taxes to cover for country infrastructure (roads, power, etc) , schools, universities, health insurance, pensions, ie the 'all inclusive for everyone' package which is more common in Europe than in the US. Some of these taxes are paid for by employers. Edit:and they cover costs for everyone, including non employees (they're generic taxes, not employer-funded health insurance). So you have 'not the whole population' funding the whole population. Basically, it's more expensive for the company to hire you, so you get less. I remember talking to a company which could hire me either in the US or in the EU. US paid better because cost of employment was lower, but at the expense of an overall less complete package for me and my family which I would have had to complete with my own money . In the end, you can't really compare raw salaries - you need to look at what's included, and what kind of cost of living you will incur.

dan-robertson 5y ago
The GP suggested that wages are lower in Europe because of higher taxes. So to be clear, I am only arguing about the former thing and what the taxes are used for is basically irrelevant to me. My complaint is that the argument about tax just isn’t good at explaining the difference. Eg, choosing basically at random from a quick search[1], one might pay $100k in employee taxes on $265k gross (37%) in the Bay Area. I don’t have a good idea of the employer payroll taxes but if I guess about 8% that’s another $20k the employer needs to pay. Then they pay health insurance (rough guess at $20k per year, but not sure about this average numbers were like this including employee contributions so I’m assuming that plans are good but maybe employees are healthier than average and have smaller families bringing down the costs). So that comes out to $305k from the employer and $165k to the employee. Suppose a company spends the same amount in Berlin. That’s €260k. Let’s say there’s 20% or so of employer payroll taxes[2], and we’ll bump it up to 25% for extra private health insurance (no idea if that is reasonable; the 20% includes some compulsory insurance) giving a salary of €208k. And then at 50% effective tax rate[3] that comes to €104k = $120k net, which isn’t really so different from the Sam Francisco example. But you don’t (I think) see many salaries like that in Germany. They would look more like €100k gross[4], so where is all that other money going? I don’t believe there are 160% employer payroll taxes, and businesses generally pay taxes on profits not revenue. So there must be some increase in other costs for the business but I don’t understand what could explain such a big difference I think the actual argument must be about competition and demand for labour. But I don’t really have a strong argument. Salaries are higher not far away in Switzerland. There is some theory that salaries are high (at some companies) in the US outside of coastal cities because one could believably threaten to move to one, but Europeans can’t typically make such a threat. But many Germans could surely threaten to move to Switzerland, and many do commute across the border. So I don’t see how it works. Edit: I realise I picked Germany instead of the Netherlands. But I think tax rates are higher in Germany? [1] https://www.quora.com/How-much-tax-does-an-average-software-engineer-working-at-the-big-4-companies-in-the-SF-Bay-Area-pay https://www.quora.com/How-much-tax-does-an-average-software-... [2] https://en.m.wikipedia.org/wiki/Payroll_tax https://en.m.wikipedia.org/wiki/Payroll_tax [3] made this number up. I suspect it is actually hard even with a relatively high income to pay such a high effective tax rate. I tried pulling out an online tax calculator but there are a lot of options and I didn’t know what was reasonable. 50% feels like a reasonable overestimate to me. [4] this is mostly coming from HN. Maybe the Germans earning €200k don’t write comments complaining about salary differences between the US and Europe.
- Agingcoder 5y ago
  Ok, I see your point. In the US, the rule of thumb seems to be that employer cost is about 1.3 what the employee gets. So using your quora example, if the employee got 265k (165k after all taxes) , it cost the employer 345kusd. In France, the same 345kusd will turn into 172kusd for the employee, and after income tax, assuming single, no children, will become 120kusd. Basically, for the employee to land the extra 45k (and match the us salary) , the employer will have to pay an extra 140kusd. Now, this is a factor, but maybe not enough. I'll speculate that it's a combination of : - lower cost of living in some parts of Europe (housing in the bay area vs German cities say) means less demand for for higher salaries. It's worth noting that gafas wanting to lower wages for remote workers seem to imply exactly this. - some things are already paid for by your taxes (university, unemployment insurance, health, retirement, public transportation, etc), which will tend to keep wages lower as well because you don't need to take the money from your post income tax salary. This is why where your tax money goes matters. If tax money went entirely, say, to a pelican conservancy associations or waging war instead of all of the above , I would definitely want to be paid better. - productivity questions aside, more vacation time so employer wants to pay less - people commute, but very few people leave their country (language, culture, etc). Germany is a rich country, it's not obvious that your life will be spectacularly better in Switzerland (it might be though!). Sure, Switzerland has very high wages, but cost of life is very high, hence the commute. I will also venture a cultural aspect, which is purely speculative and based on my observations : Americans tend to move a lot more than Europeans.

dan-robertson 5y ago

The GP suggested that wages are lower in Europe because of higher taxes. So to be clear, I am only arguing about the former thing and what the taxes are used for is basically irrelevant to me. My complaint is that the argument about tax just isn’t good at explaining the difference. Eg, choosing basically at random from a quick search[1], one might pay $100k in employee taxes on $265k gross (37%) in the Bay Area. I don’t have a good idea of the employer payroll taxes but if I guess about 8% that’s another $20k the employer needs to pay. Then they pay health insurance (rough guess at $20k per year, but not sure about this average numbers were like this including employee contributions so I’m assuming that plans are good but maybe employees are healthier than average and have smaller families bringing down the costs). So that comes out to $305k from the employer and $165k to the employee. Suppose a company spends the same amount in Berlin. That’s €260k. Let’s say there’s 20% or so of employer payroll taxes[2], and we’ll bump it up to 25% for extra private health insurance (no idea if that is reasonable; the 20% includes some compulsory insurance) giving a salary of €208k. And then at 50% effective tax rate[3] that comes to €104k = $120k net, which isn’t really so different from the Sam Francisco example. But you don’t (I think) see many salaries like that in Germany. They would look more like €100k gross[4], so where is all that other money going? I don’t believe there are 160% employer payroll taxes, and businesses generally pay taxes on profits not revenue. So there must be some increase in other costs for the business but I don’t understand what could explain such a big difference I think the actual argument must be about competition and demand for labour. But I don’t really have a strong argument. Salaries are higher not far away in Switzerland. There is some theory that salaries are high (at some companies) in the US outside of coastal cities because one could believably threaten to move to one, but Europeans can’t typically make such a threat. But many Germans could surely threaten to move to Switzerland, and many do commute across the border. So I don’t see how it works. Edit: I realise I picked Germany instead of the Netherlands. But I think tax rates are higher in Germany? [1] https://www.quora.com/How-much-tax-does-an-average-software-engineer-working-at-the-big-4-companies-in-the-SF-Bay-Area-pay https://www.quora.com/How-much-tax-does-an-average-software-... [2] https://en.m.wikipedia.org/wiki/Payroll_tax https://en.m.wikipedia.org/wiki/Payroll_tax [3] made this number up. I suspect it is actually hard even with a relatively high income to pay such a high effective tax rate. I tried pulling out an online tax calculator but there are a lot of options and I didn’t know what was reasonable. 50% feels like a reasonable overestimate to me. [4] this is mostly coming from HN. Maybe the Germans earning €200k don’t write comments complaining about salary differences between the US and Europe.

Agingcoder 5y ago
Ok, I see your point. In the US, the rule of thumb seems to be that employer cost is about 1.3 what the employee gets. So using your quora example, if the employee got 265k (165k after all taxes) , it cost the employer 345kusd. In France, the same 345kusd will turn into 172kusd for the employee, and after income tax, assuming single, no children, will become 120kusd. Basically, for the employee to land the extra 45k (and match the us salary) , the employer will have to pay an extra 140kusd. Now, this is a factor, but maybe not enough. I'll speculate that it's a combination of : - lower cost of living in some parts of Europe (housing in the bay area vs German cities say) means less demand for for higher salaries. It's worth noting that gafas wanting to lower wages for remote workers seem to imply exactly this. - some things are already paid for by your taxes (university, unemployment insurance, health, retirement, public transportation, etc), which will tend to keep wages lower as well because you don't need to take the money from your post income tax salary. This is why where your tax money goes matters. If tax money went entirely, say, to a pelican conservancy associations or waging war instead of all of the above , I would definitely want to be paid better. - productivity questions aside, more vacation time so employer wants to pay less - people commute, but very few people leave their country (language, culture, etc). Germany is a rich country, it's not obvious that your life will be spectacularly better in Switzerland (it might be though!). Sure, Switzerland has very high wages, but cost of life is very high, hence the commute. I will also venture a cultural aspect, which is purely speculative and based on my observations : Americans tend to move a lot more than Europeans.