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There's a number of reasons for that; although I'm not based in the US so it vary. The business/self employed earn significantly more than someone working under
by throw234234234 2y ago
There's a number of reasons for that; although I'm not based in the US so it vary. The business/self employed earn significantly more than someone working under someone else where I live. There are also a number of benefits particularly tax wise which means you normally need to discount a white-collar wage significantly to compare blue-collar wages like for like (somewhat like 30-40% at least). Official statistics you quote are usually employment and/or tax statistics - none which are reflective of the actual money available to spend for the trade worker.
Talking to them the common threads are:
- Cash based jobs. e.g. I charge my materials to the business (tax expense) and give the customer a small discount (say 10%) if they pay in cash. Assuming a 30% tax rate it means I can make for tax purposes my income less and my expenses more. In the end however I'm significantly ahead - any savings I've given to the customer are more than offset by tax savings.
- Income splitting: Wife "does the books" after hours, I split the income two ways. This way I don't pay as much tax in a regressive tax system as I can push myself to a lower tax band. If you want a single income family, better to own a trade business than be a professional. NOTE: Some countries/places support this more than others, if a country has good income splitting laws this diminishes this advantage.
- Favors: A lot of money is earned by mutual favors rather than monetary transfers especially in renovations/etc. e.g. I will do the plumbing for your house, and mine, you can do the concrete slab for both houses and we will call it square. Trades people typically know other trades people and a lot of the property can be built that way. No money exchanged, no tax paid. But the capital gains from renovations can be substantial - and tax of them can be deferred till sale. I've seen people earn millions this way, completely dwarfing their business income. Capital gains in most countries is also taxed at a lower rate and there's a lot of exemptions (i.e. if you live in it, etc). The benefits of this over many renovations can add to millions in extra wealth, none of it reported as income and under taxed.
- Asset Depreciation/Write Off: Want that big pick up truck? But want to pay the same after tax price as a small hatch? Claim it on your business, write it off, and expense it. May not apply as strongly in the US, but I've seen workers with very expensive cars here for the same after tax price as I could buy a simple sedan for. This applies to other things like tools for the house, etc.
All of the above reduces the official statistics substantially as under reporting, and makes blue collar a lot more appealing than it may seem on the surface. I would argue a self employed blue collar worker on say $120k would be as good as a white collar worker on $200k where I live, maybe even more. If you have a family and are a single income earner in some countries it makes sense to jump straight into blue collar.
- sokoloff 2y ago> I charge my materials to the business (tax expense) and give the customer a small discount (say 10%) if they pay in cash. Assuming a 30% tax rate it means I can make for tax purposes my income less and my expenses more. > A lot of money is earned by mutual favors rather than monetary transfers especially in renovations/etc. e.g. I will do the plumbing for your house, and mine, you can do the concrete slab for both houses and we will call it square. Trades people typically know other trades people and a lot of the property can be built that way. No money exchanged, no tax paid. Indeed, cheating on your taxes can leave you with extra after- (instead-of-?) tax cash in your pocket.
- deleted 2y ago[deleted]
- ryandrake 2y agoI left a snarky comment about OP providing evidence for the IRS, but realized he mentioned he's not in the USA, so maybe those things are not taxable income in his country. If these were done in the USA, you're right--those are taxable and he'd be risking fines and jail time.
- throw234234234 2y agoTo be clear I'm not suggesting I approve/condone this behavior. I'm just observing what people do/say they do. There's other things (e.g. phoenix companies, etc) that can boost this further. To be clear I'm not a blue collar worker myself and enjoy none of these advantages which makes it more stark when most workers around you are. With AI around the corner, at least for tech workers, they have more job security as well. Some of the above is either not really taxable (friends doing favors), actually encouraged/legal (e.g business writeoffs), or really hard to prove especially if it is the odd job (cash). While I'm not based in the US, I imagine some/all of the above points equally apply to many countries. The point is not one of approval/disapproval. It is one of saying that the "official statistics" are not really that useful often when it comes to blue collar work as anecdotally most blue collar workers do at least some of the above.
- deleted 2y ago