Wages of Virtue? Job Choice and the Money Motive

Occupational choice suggests the strength of pecuniary self-interest varies.

Posted Sep 04, 2012

In standard economic theory, markets bring about efficient uses of society’s scarce resources when each resource owner steers the resources she controls towards the activities in which they earn their highest return.  A plot of land located a short trucking distance from a city, for example, may get a better return from growing flowers or vegetables than from growing grain, because its location reduces transport costs to the urban market.  If so, growing flowers and vegetables there and letting grain (with its lower perishability and shipping costs) be grown further from the city saves the economy resources.  Product and transportation prices will lead the farmer to grow the right crop simply because the farmer wants maximum profits, without the farmer needing to care about society’s well-being.

Allocating labor in response to monetary incentives is supposed to accomplish the same thing, according to stripped down versions of the theory.  For instance, if people place a high value on medical care and if the supply of doctors is limited, there’ll be a high monetary return to the practice of medicine, and potentially talented individuals will decide to become doctors rather than, say, classical musicians, for which demand is less and pay accordingly lower.  Since people have different potential talents, they’ll respond to market incentives in individually appropriate ways, with some deciding to become brain surgeons, others pediatricians, and a few concert violinists, each according to his or her aptitude and responding to the signals of anticipated market return.

But such a stripped-down model might overlook the importance of preferences for specific job attributes.  A potential lawyer or doctor might decide to become a violinist even for much lower pay because he feels his calling or true love to be music.  Such a decision isn’t any less rational or less consistent with economic theory than is a decision to spend a large amount of money on a painting you’ll hang in your living room even though a less expensive wall-covering would do just as well from a utilitarian standpoint.  There’s no rational basis for judging matters of taste, so no decision on what to buy with one’s earnings—including foregoing money earnings in favor of work satisfaction—can be judged irrational.

Just how much do career choices respond to preferences, rather than financial goals?  A question in the World Values Survey, which conducted interviews with 92,000 respondents in sixty-two countries around the world in 2005, asked respondents to report “the things which would seem to you, personally, most important if you were looking for a job.” The main alternatives offered were (a) a good income, (b) a safe job with no risk, (c) working with people you like, and (d) doing important work.  Among U.S. and Canadian respondents, 44% of women and 41% of men listed doing important work as the factor most important to them.  Though these responses are highly subjective and tell us nothing about how much money the respondents would forego to do important work, the fact that responses vary systematically with education and income level, as well as among countries, suggests that they’re not entirely arbitrary.  For instance, in a group of Latin American countries, the corresponding shares choosing “doing important work” were 23% and 24%, and in a set of African countries, 10% and 11%.  It seems that as more of a country’s people live safely above the threshold of economic survival, a larger proportion of them can think of indulging tastes for work they find satisfying or meaningful, not simply remunerative and secure.   

A 1998 study conducted at Harvard’s Graduate School of Education found a large earnings gap between teachers and those with the same level of education working in non-teaching jobs.  22 to 28 year old teachers in their sample were earning an average of 27% less than peers in non-teaching fields.  Asked to explain why they chose teaching over other professions, none of the teachers interviewed for the study mentioned salary or financial rewards.  They talked, instead “about the value of meaningful work, the appeal of working with children, and the enjoyment of pedagogy and subject matter.”

The economic theory of compensating wage differentials says that jobs that are more onerous or dangerous should pay more and that jobs with more desirable features should pay less, since in the latter case those features partly compensate for money earnings.  The theory finds support from a number of observations.  An economist named Alan Matthios studied data on 652 less educated and 785 more educated Americans who were asked to state whether any of eighteen nonmonetary factors helped to explain why they took their current job, and which of these factors were the most important.  The factors included “represented a challenge,” “liked that kind of work,” “status,” “chance to help others,” and “convenient hours.” Matthios found that pay was better explained by considering both standard factors like education and gender and non-pecuniary factors like “challenge” and “chance to help others.” 

Although many of the students attending top U.S. universities in recent decades have been attracted to lucrative careers in the financial sector, career offices at Harvard, Penn, Cornell, Darmouth, Brown, and other schools, have staffers specializing in public interest and social change work, or “careers for the common good.”  Data reported by Penn’s career services office reported that 12% of graduates had gone into non-profit, social service, and health work and 12% into teaching, where average salaries were about 36% below those of graduates in the financial services and consulting sectors.  A willingness to sacrifice pay for work considered more meaningful, or for the chance to help others, is certainly suggested by such statistics.  Of course, a still larger number of students opted for more lucrative careers, reminding us that people differ in the weights they place on social vs. pecuniary goals, in line with the heterogeneity on which I’ve commented in other postings. 

Is an economy that imposes a monetary penalty on those most determined to help others “messed up”?  Maybe so.  An argument can certainly be made that our society is short-changing itself by not attracting more of its most able members into the teaching profession—a matter that could be dealt with by public policy if there were sufficient political will.  It nonetheless strikes me as an encouraging finding about human nature that so many are willing to sacrifice monetary returns for work they view as more socially beneficial or more rewarding in terms of personal interactions.  Still more people would make financial sacrifices to take on such jobs if their economic situations allowed.  Enlightened economic policies might take this reservoir of desire to do meaningful and socially useful work into account, tweaking rewards and costs here and there (as do some law school loan forgiveness programs aimed at students going into public service) to allow work to be both more fulfilling to those doing it and more beneficial to others.

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