The Tradeoff Between Fun and Wages

If you had to choose, would you rather be a sewer inspector spending your days underground or a lifeguard on the beach? Most would say that being a lifeguard is a more fun job, but a sewer inspector has higher wages to compensate for the less-fun aspects of the job. In this video, we discuss the tradeoff between fun and wages and show how this illustrates that “There ain’t no such thing as a free lunch!"

Microeconomics Course:http://mruniversity.com/courses/principles-economics-microeconomic

Ask a question about the video: http://mruniversity.com/courses/principles-economics-microeconomics/tradeoff-wages-no-such-thing-as-free-lunch#QandA

Next video: http://mruniversity.com/courses/principles-economics-microeconomics/compensating-differentials-wages

Suppose there are two jobs. Would you
rather have a job where you crawl around

in underground tunnels with rats,
roaches, and sewage, or would you rather

sit on a beach and watch the sunset and
every now and then pull somebody out of

the water? Sewer inspector versus
lifeguard. It seems easy, right? Well, the

principle of "there ain't no such thing as
a free lunch" or TANSTAAFL is a useful

thing here. Suppose that
two kinds of jobs

require equal amounts
of skill, education and

so forth, but one of the jobs is a lot
more fun than the other. Let's also

suppose that the fun job has higher wages,
so the situation looks a bit like this.

So higher wages and more fun sounds like
a free lunch, but TANSTAAFL, there ain't no

such thing as a free lunch.
So what will happen?

If two kinds of jobs require
equal skills and education, then

the workers will exit the industry with
the low wage, low fun jobs, and enter the

industry with the high wage, high fun jobs.
But, as the supply of workers in the low

wage, low fun job decreases, the wages in
that industry will increase. And as the

supply of workers in the high wage, high
fun increases, the wages in that industry

will decrease. Workers will continue
to move from one industry to the other

until jobs that require equal skills,
education, and so forth

have equal compensation packages.
Not equal wages, but a combination

of wages and fun, so that workers
are equally happy

in either job and no longer have an
incentive to move. Notice that this means

that the fun job has to have lower wages
or, to put it differently, the job

that isn't fun has to have higher wages
to compensate for all the not fun stuff.

So, for jobs requiring equal skills and so
forth, more fun means lower wages, and

higher wages means less fun. A trade-off.
TANSTAAFL - there ain't no such thing as a

free lunch. The same idea applies to any
other job characteristic. If a job is

risky, for example, wages in that job will
tend to be higher to compensate for the

risk. Workers are willing to work in
dangerous jobs like Alaskan crab fishing,

for example, only because the wages in
that job are higher than in other jobs

requiring similar work. If riskier jobs
have higher wages, then safer jobs

have lower wages. And that gives firms
one incentive to increase job safety.

We explore the relationship
between job safety

and compensating variations
more in the next video.

[Announcer] If you want to test yourself, click
"Practice Questions." Or, if you're ready to

move on, just click "Next Video."