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Is More Income Always Better?

In Economics, Income, Work on March 6, 2011 at 4:57 pm

All things being equal, YES, more income is always better. The problem is that all things are definitely not equal. Most people, in fact, most jobs and job postings list only the raw number of dollars offered. You would think that a job making $250,000 per year would be intrinsically better than a job making $50,000 per year, but there are other questions to ask other than How Much?

Absolute Income

Absolute income is the raw dollar amount, the number of dollars, and nothing else. This is a poor way of judging an opportunity as the total dollar amount is only one of many factors that play into lifestyle. This is why we have a shortage of doctors. There are plenty of ways to make $200,000 per year without 4 years of extra school and 4 years of post doctoral training at 80-90 hours/week.

Relative Income

If you have two options, to make $200,000 per year or to make $50,000 per year, what would you pick? I would pick neither, I would ask a few more questions. How many hours are required. Okay, $200,000 per year at 100 hours/week or $50,000 per year at 20 hours/week. If you picked the $200,000, you will be making $40/hour, but if you picked the $50,000, you’ll be making $50/hour. The relative income of the second option is 25% better! And then you have an extra 80 hours/week to do with as you please. You could spend it working on a new project or skateboarding…I don’t care.

Income’s Implicit Costs

This here is question people routinely forget to ask when making decisions about how much to work, what projects to take on, and which opportunities to decline. You must give something up in order to get income. There are no two ways about it. As Brendan Behan said, “The difference between sex for money and sex for free is that sex for money usually costs a lot less.” Think about the value of your time as it relates to the money you are willing to give it up for. Would you work for $200/hour?

Hell yes, right?

Ok, would you work for $200/hour 24 hours/day for a full year? Absolutely not. And why not, other than it’s physical impossibility? Because there come a point when you have enough “two hundred dollarses” and you want to eat, take a shower, play xBox, or spend time with your family. The implicit costs of producing an income increase with each unit. We need to be making decisions about our work and opportunities with the right questions being asked.