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

♪ [music] ♪

- [Narrator] 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 industry 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.

If you want to test yourself,
click "Practice Questions."

Or, if you're ready to move on,
just click "Next Video."

♪ [music] ♪