How much is your job worth to you?

A rational decision-maker weighs up the cost and benefits of the alternatives available to them before they decide which alternative is the best option for them. When faced with a 'yes or no' decision, 'yes' is the best alternative when the benefits outweigh the costs (and 'no' is the best alternative when the costs outweigh the benefits). When choosing between mutually exclusive alternatives, the best alternative is the one that provides the greatest net benefit (the difference between benefits and costs).

The costs and benefits might be monetary, but not necessarily. And even if the costs and benefits are not directly monetary, they may still be measurable in dollars. For example, how much is your job worth to you? It seems like an odd question to ask. You didn't 'buy' your job, after all (I hope!). But, as we will come to a bit later, this question has some important policy implications.

How can we work out how much a job is worth to the worker? Since the worker has their job already, we can't use how much they are willing to pay to get a job. However, we can try to find out how much the worker would be willing to accept in order to quit their job. So, how much would you have to be paid to quit your job?

That is the question that Soumaya Keynes asks in this recent article in the Financial Times (paywalled):

A new working paper by researchers at the Centre for Economic Policy Research and Stanford University, deploys this approach, asking Europeans what they would do if they received sums ranging from €5,000 to €100,000.

Below around €25,000, people say they would plough on with work. But for sums between that threshold and €100,000, their likelihood of working falls by 3 percentage points on average. Women, as well as people who are older, who have less debt or who are close to retirement are more likely to drop out.

What does that imply about the value of a job? If paying someone €100,000 reduces their likelihood of working by three percentage points on average, then reducing their likelihood of working by 100 percentage points would cost €3.33 million (about NZ$5.85 million). [*]

Why does this matter? Keynes notes that:

The question of how one might respond to a financial windfall of this sort is a fun thought experiment. But for policymakers it carries more weight. They have to consider whether a stimulus cheque or a tax break could encourage people to quit their job, or make them deaf to pleas from desperate employers. They have to ask how much money it takes to turn someone idle.

It seems like it would take a substantial windfall to cause most people to quit their jobs, beyond the scope of what a stimulus cheque, or even a universal basic income, would provide. That doesn't mean that no one will quit after receiving even a modest windfall, but policymakers can probably rest easy about the labour market disincentive effects of windfalls.

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[*] Now, my ECONS102 students should recognise that this amount is probably an overestimate of the 'true value' of a job to a worker. Like all decision-makers, on average workers are loss averse - they value losses much more than otherwise-equivalent gains. One consequence of loss aversion is the endowment effect - decision-makers require more in compensation to give something up than what they would have been willing to pay to obtain it in the first place. This applies to jobs, as it does to other things. So, we might expect people to need to be paid more to give up a job, than what they would have been willing to pay to get the job in the first place. So, the estimate of €3.33 million is probably an overestimate of the 'value' of a job to a worker.