CASE STUDIES FROM THE WALL STREET JOURNAL
Chapter Eight
How Much Is That Dream Job Going To Cost You?
The theory of compensating wage differentials has a long history in economics. Adam Smith wrote about it in the 18th century, John Stuart Mill in the 19th, and the authors of Modern Labor Economics, among many others, in the 20th. The theoretical concept is pretty straightforward: if workers can choose among varying job opportunities, the least attractive jobs will have to pay more in order to attract workers. By the same reasoning, the most attractive jobs will not have to pay as much.
OK, straightforward in theory, but rather messy in terms of real-world data (not to mention casual observation). It typically seems as though the really great jobs often pay some of the highest wages/salaries, while the worst jobs often don’t pay very well at all. So, is the theory wrong? No, it’s just a bit more complicated.
The supply of workers able and willing to fill jobs, and the number of jobs to be filled will play a huge role in determining a job’s compensation. For example, the vast majority of working age adults could conceivably meet the skill needs of, say, a counter clerk at a fast food restaurant. Many wouldn’t like that job, and might not be very good at it because of a bad attitude, but most are capable of filling such a job. Although there are lots of fast food jobs to be filled, there are nowhere near as many jobs as there are potential jobholders, so their wages tend to be relatively low. Compare that with the skills necessary to be a brain surgeon. It takes many years of education, and additional years of intense training to acquire the necessary skills to meet the needs of the job, so even though there aren’t very many brain surgeon jobs out there (low demand), the supply is also very low, and consequently, the salary tends to be very high.
The potential supply of workers to a particular job will depend on a variety of factors in addition to skills. Among the more important will be the tastes and preferences of workers. This point was nicely illustrated in a recent article in The Wall Street Journal, which looked at an occupation for which there is a low supply, but also a low demand, resulting in a compensating differential in which a worker must essentially pay for set of working conditions they find desirable, even though most others do not.
The article, written by Perri Capell, profiles Rick Link, who estimates he earns no more than $12,000 per year and loves his job as a cowboy. Says Mr Link: “I can’t believe I get paid for this, actually.” Stemming from a broader study by CareerJournal.com, which like The Wall Street Journal is published by Dow Jones & Co., the article suggested a way of ranking jobs, and compiled a list of the 10 best and 10 worst jobs. Their rankings were based primarily on six factors: income, stress level, physical demands, potential for job opportunities, job security and work environment. Cowboy made the list of 10 worst jobs, but apparently, those doing the ranking didn’t give much weight to the preferences of Mr. Link.
One of the key assumptions made in the rankings was that working inside in heated or air conditioned comfort would be better than working outside. All of the 10 worst jobs typically involve extensive time outside, while all of the 10 best jobs are performed predominantly indoors. If the vast majority of workers agreed with the assumption, outdoor jobs would need to pay higher wages to attract sufficient workers away from more comfortable indoor jobs. But if there are lots of workers like Mr. Link who prefer to be outdoors and will even accept lower pay to be outdoors, the need for employers to offer a compensating differential disappears. Cowboy is on the low end of the pay scale among those on the 10 worst list, though some, such as ironworker, construction worker, and welder, pay quite well.
For what they are worth, the rankings as listed on CareerJournal.com were as follows:
Best jobs Worst jobs
Accountant Construction Worker
Actuary Cowboy
Bank Officer Dancer
Biologist Fisherman
Computer-Systems Analyst Garbage Collector
Financial Planner Ironworker
Parole Officer Lumberjack
Software Engineer Roofer
Statistician Seaman
Web-site Manager Welder
Lest anyone wish to quibble with the editors at CareerJournal.com, they offered the following qualifications with their rankings:
“Are these the best and worst jobs for everyone? Of course not. Was there as much art as science at play in coming up with these jobs? Of course. But they made us rethink just what it means to have a good job. We hope they do the same for job seekers.”
Sources: “Cowboy As Career? It Ranks Low Among Jobs, With Bad Pay, Few Benefits—For Mr. Link, It’s A Great Gig,” by Perri Capell, The Wall Street Journal, June 14, 2005 (pp. B1, B6); and “We Ask: What Are Some Of The Best And Worst Jobs?” by CareerJournal.com editors, www.CareerJournal.com.
8a. Name some non-wage dimensions of a job for which you would either demand $1,000 or more or accept $1,000 or more less than a competing salary offer.
8b. If part-time jobs paid higher hourly wages than full-time jobs, which would you prefer? Do you think your choice would be the same choice most people would make? Do most part-time jobs pay higher hourly wages than full-time jobs? Why or why not?
8c. Name some reasons for compensating differentials commonly observed in the labor market. Could supply and demand conditions make these unnecessary in the future?