[Dido]

One factor that no one has brought up is the effect of taxes. The appropriate comparison is not really, is it easier to make $2000 or to save $2000, but is it easier to earn $2970* or to save $2000?

The $2970 includes much (but not necessarily all) of the effects of taxes. I've assumed a 25% marginal federal income tax rate (which will apply to you if your taxable income is between $30,650 and $74, 200 (2006 tax rates); if your taxable income is lower but not poverty level, then use 15% and if it's higher but not more than $154.8K, use 28%). Marginal rather than average income tax would be the appropriate rate to use since you are looking at additional income. In addition to federal income taxes, earned income will be subject to Social Security and Medicare taxes (6.2% and 1.45%, respectively). That's a total of 32.65% tax on that additional income that you need to compensate for if you really want to have $2000 more in your pocket. If you are subject to state and local income taxes, you'll want to add those in as well (those would add an additional 4.07% for me). To figure out how much you'd have to earn to have $2000 more actually in your pocket, divide $2000 by (1-tax rate expressed in decimals), ie. 2000/(1-.3625) = $2970 for just the federal and social security/medicare taxes (it'd be $3161 for me adding in the state and local taxes as well). Using the "round" figure of $3000, that's 60 extra hours of work if you earn $50/hour, and 100 hours work if you earn $30/hour.

For someone who makes minimum wage, the tax calculation probably won't be relevant as in all likelihood they'll be getting money back, especially if they remember to file for the Earned Income Tax Credit. But at our current national travesty of a minimum wage of $5.15/hour, that poor person would have to work 388 extra hours--nearly 10 full-time weeks extra--to have the extra $2000 in his/her pocket.

And if you want to have that $2000 to buy something rather than to invest, you should add in the effects of sales tax as well! Using my own information based on my state (PA) with its income and sales taxes, I find that I'd have to earn $3350 additional in order to be able to afford something that cost $2000, in order to compensate for the effects of both sales and income taxes.