Earlier this month, Dave Heatley wrote a great post on the NZAE's Asymmetric Information Substack about people working in jobs they are passionate about:
“Follow your passion”. That’s pretty much the universal career advice nowadays. But it comes with a rarely voiced kicker — if you choose a career in which passion-fueled supply exceeds demand, then don’t expect to be well paid.
I’ve seen this play out for my friends and family members who’ve chosen a career in conservation management. Job openings are scarce, highly contested, and get filled by passionate people who, on paper, are overqualified for the role.
This works to the advantage of employers — their employees are better qualified and their wages bill is lower than it would be otherwise. And lower wages have a further benefit from the employer’s perspective — they tend to screen out people without passion for the cause. That can benefit employees too, as they are pretty much guaranteed to work alongside other passionate people. It’s a win-win all round, at least until some employees decide they really would like to own a house, raise kids, or pursue other goals that require a more “normal” income.
Why do people get paid less in jobs that they are passionate about? I put this down to compensating differentials. Jobs have both monetary and non-monetary characteristics. Monetary characteristics include the pay and other monetary benefits. Non-monetary characteristics include the whole range of other things associated with the job. Perhaps it is dirty, dangerous, or boring. Or perhaps it is clean, safe, or fun. When a job has attractive non-monetary characteristics, then more people will be willing to do that job. This leads to a higher supply of labour for that job, which leads to lower equilibrium wages. In contrast, when a job has negative non-monetary characteristics, then fewer people will be willing to do that job. This leads to a lower supply of labour for that job, which leads to higher equilibrium wages. It is the difference in wages between jobs with attractive non-monetary characteristics and jobs with negative non-monetary characteristics that we refer to as a compensating differential (essentially, workers are being compensated for taking on jobs with negative non-monetary characteristics, through higher wages).
The passion that a worker can express through their job is a non-monetary characteristic. If a job is one that people are passionate about, then more people will want to do the job (holding other job characteristics constant), and wages will consequently be lower. Another way of thinking about it is that employers of workers who offer jobs to people who are passionate about them don't have to compete hard to attract workers, and so they don't have to offer as high a wage to fill the job. Either way, jobs that attract people with passion pay less because of compensating differentials.
Interestingly, one aspect that Heatley doesn't explore in his post is the types of people who do tend to choose jobs that they are passionate about. That's what Alice Evans did in this post the same week. She mostly writes about this article published recently in the journal American Economic Review (ungated earlier version here). After summarising the article, Evans notes that:
Burbano, Padilla, and Meier's careful study offers valuable insights into women's career preferences, revealing that income maximisation isn’t always the primary goal...
Women seem drawn to meaningful, socially responsible roles, but these often come with a financial penalty.
If women are more drawn to jobs that are meaningful, and more drawn to jobs that they are passionate about (and I'm going to use those two descriptors interchangeably), then this will drive a gender wage gap due to the compensating differential between jobs that attract people with passion and those that don't. On average the types of jobs that women prefer are more meaningful and therefore they are also jobs that pay less.
This seems like it would be a difficult problem to fix. If the government tries to legislate that meaningful jobs must pay the same as jobs that don't attract people with passion, then the meaningful jobs will become even more attractive, meaning even more workers try to get into those jobs, and the supply of workers in those jobs is even higher, and that has an even larger negative impact on wages. And because there are fewer workers wanting the jobs that don't attract people with passion, the supply of labour for those jobs will decrease and the wages for those jobs will increase even further. Or, because the number of meaningful jobs is finite, it would simply result in a larger number of unemployed and disappointed workers who can't get the meaningful job.
Evans' solution instead is to change the 'vibes' associated with working in different industries - her post is looking at industries rather than particular jobs, but the principle is essentially the same. That would involve making people (young women, especially) passionate about the jobs that they are currently not passionate about. That doesn't sound easy either, but is certain to be a more sustainable solution in the long term.
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Great post!
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