How Much More Do You Need to Make Up for Being Unemployed?

by Kevin on April 16, 2009

One of the 7 reasons you are still unemployed is your salary expectations are too high. Today we’re going to dig into this a bit further. I’ll show you why waiting for that high paying job may end up costing you a ton of money in the long run.

Let’s assume you make $20 per hour. If you worked (or were paid) 40 hours per week for every week of the year you would end up working 2,080 hours (52 weeks x 40 hours). Your gross income would be $41,600.

Unfortunately your company has to trim 10% of its workforce. You started seven months ago and are the low-man on the totem pole. You get the pink slip.

The job market in your area is fairly tight. There are many applicants for every position. You do what you’re supposed to do — reaching out to your network, updating and posting your resume, and applying to jobs that you are highly qualified for.

One of those companies, XYZ Corporation, has a need for someone just like you. They would need you to start two weeks after your last day at your current job. The company gives you a call and does a brief phone screening. You think it goes fairly well and ask at the end of the interview how much the position is paying.

“We’re looking at $18 per hour for this role, starting out,” the company representative says.

“Oh, I definitely can’t do that,” you reply, “I need at least $20 per hour.”

“I’m sorry, but we cannot pay more than $18 per hour to start out. Let me know if you change your mind.”

Click.

Did you make the right choice? How much money did you just cost yourself?

The Cost of Waiting for the Right Job

I want to run some numbers to illustrate how much the decision above could possibly cost you.

You make $20/hour currently. If you worked a full forty hours each week that comes to $800 gross (before taxes and other deductions). If the above situation you would be unemployed for two weeks before starting your new job with XYZ Corporation. You’ll miss out on $1,600 worth of earnings.

That sounds bad, but let’s consider the alternative. By turning down XYZ Corporation’s lower pay rate you are entering an unknown period of unemployment. It could be two weeks. It could be two months. It could be six months. You just never know.

Let’s say your unemployment extends to 1 month. Just two more weeks. You’ll miss out on an additional $1,600.

To make up for that additional $1,600 loss of income you would now need to make $20.80 per hour. (That’s $1,600 divided by the remaining 2,000 hours in the year.)

Essentially the longer you wait the higher your eventual pay rate at your new job must be. Go unemployed two months past the initial two weeks total and your rate jumps from $20 per hour to $23.81 per hour. (You miss out on $6,400 in earnings and lose 320 work hours, leaving you 1,680 hours to make up that $6,400 loss.)

You will quickly run into the problem of the pay rate that is needed to make up for the lost income will be too high for you to find a job with.

Immediate Employment May Be Better

Suddenly that $18/hour job doesn’t sound so bad. It’s the conflict of a known loss of income versus an unknown loss or potential gain of income.

With the lower paying job you are guaranteed to make less this year. Dropping from $20 to $18 is $2 per hour lost. Multiply that by 2,080 hours and you end up losing $4,160.

You might be able to find a job back at $20/hour or potentially higher. Then again you might not especially considering the econony.

There are other considerations as well, of course. You may land a job with a lower pay rate that gives you more overtime. That could make up for the original loss of pay rate. Your new job may have better benefits than the old job — essentially giving yourself a bump in pay for the better benefits.

A lot of considerations to think about.

Just remember: the longer you wait, the higher the rate.

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{ 5 comments }

MLR April 16, 2009 at 8:19 am

You didn’t seem to factor in unemployment benefits. That should help alleviate some of the damages caused by rejecting a job offer.

That, of course, is dependent on state… so your results may vary!

MK April 16, 2009 at 1:24 pm

A lot of people seem to always say that unemployment should be factored into any time that one goes in between jobs, but the fact of the matter is, your previous employer can deny unemployment benefits. So it is best not to depend on something you may not even receive! (of all the people I know that have been let go, only one has been denied the benefits)

Kevin April 19, 2009 at 11:50 am

@MLR and @MK: I didn’t factor them in because you shouldn’t count on them. They can be denied or refuted… essentially slowing down the process. I wouldn’t count on it — I’d rather see unemployment income as a nice little bonus that ends up stretching my emergency fund out, rather than absolutely counting on it and then being surprised by not getting it.

Roger April 21, 2009 at 11:23 pm

Hum, interesting just how much money you can lose just by sticking to your guns on your salary requirements. Although, being unemployed myself, I have a hard time imagining anyone being so stuck on making their same salary that they’d give up a job that only requires a 10% decrease in pay. I’m at the point where I’d take about half of my previous income (just enough to make work more worthwhile than continuing to receive unemployment).

Kevin April 22, 2009 at 8:40 pm

@Roger: I suppose there are certain situations where holding out makes sense… it’s all in the math. The problem is you never know how long it will be until the next job offer. Personally I’d rather be employed. Period. Having a big gap on a resume is not good… not good at all.

Best of luck in your job search. :\

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