Why are personal costs irrelevant?

Personal costs are often considered irrelevant in certain analyses because they may not fully capture the true compensation and well-being of individuals. For example, Russ Roberts and Mark Warshawsky discuss how worker compensation is typically reported in dollar terms, excluding significant factors like healthcare costs covered by employers. This can distort understanding of inequality and well-being over time.

The relevance of who bears the cost—whether the employer or employee—is crucial to understanding the real impact on workers' incomes and standards of living. When healthcare costs for employers triple, this can mean reduced salaries for employees, or the employer absorbing some costs depending on labor market conditions. Therefore, not considering these costs in compensation analyses can lead to outdated or incomplete views of worker well-being 1 .

Overall, personal costs get sidelined to focus on broader economic impacts and actual compensation measures that include non-wage benefits.