This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 7. Costs and deductions from nominal labor-incomes. (a) The difficulties of preparation for the pursuit of various occupations are very unequal (in themselves, quite apart from the differences in natural fitness as among individuals). Partly the inequality lies in the strenuousness of application required of the learner, partly in the length of time before the preparation is finished, partly in the cost incurred for support, for tools and materials, and for instruction. The greater these difficulties the greater the beginner's discouragement from choosing this as compared with other occupations. Hence, unless there are enough other offsetting advantages, the occupation with the high cost of preparation must be more highly rewarded, or nobody would choose these occupations; in other words, the expected labor-incomes3 (in material form or as money-wages) must have a value enough higher to offset at the moment of choice the higher cost of preparation.
3 But this does not mean that, other things being equal, the difference between the labor-incomes of two occupations must exactly equal the difference in costs of preparation for the two occupations; for the costs are present or in the near future, and the larger labor-incomes are in the more or less distant future, till the end of the probable working life. Hence the problem of time-value enters. The future incomes have a smaller (discounted) value at the present. In many working-men's families the difficulty of meeting present costs of preparation is so great that a large increase of wages or salary is insufficient to induce the beginner to make the sacrifice. (See above ch. 17, secs. 4, 12, on the importance of preparation.) The rate of time-preference in such families is extremely high. The problem here is in nature that of the active investment of capital (see Part V) and involves a large element of uncertainty. Often the expenses of industrial education are returned many fold in the form of larger labor-incomes to the individual, but in some cases the expense is "thrown away" because of the incapacity or of the moral weakness of the learner.
(b) The clearly apparent rewards of various occupations are often quite different from the real rewards, judged even in material terms (the amounts of goods received). Partly this is due to special costs required in some cases, such as providing tools (carpenters), wearing better clothes (salesmen and saleswomen), which costs are not entirely offset by social esteem; partly it is due to living in a more expensive neighborhood in one case than in another, as a condition of getting the higher income. For example, the higher wages in the Northern States as compared with the Southern, are in part offset by the need of more clothing and fuel, and by higher costs of house rents and food. In general the cost-of-living in the country districts is less than in cities, varying roughly with the size, and real wages in all these cases are much nearer equality than they appear to be. If this were not so, migration would quickly bring about a closer agreement.
§ 8. The long-time and ultimate rewards of labor, (a) Occupations differ on the average in danger to life and limb, and to health, as do also particular establishments in the same occupations, because of differences in lighting, ventilation, dust, fumes, machinery, and methods of safeguarding the workers. Quite apart from the question of agreeableness (treated above, section 6) there are differences in the expectation of income because of medical and other expenses and loss of time from accidents and sickness. This expectation of loss should be, and doubtless is to some degree, offset by a higher wage in a more hazardous occupation, to induce any individual (within the range of his possible choice) to choose it rather than a safe occupation. But it is questionable whether this difference in money-rewards comes anywhere near equaling the chance of loss and danger expressed in money-terms. The reward is definite and present, whereas the danger is distant and vaguely felt. The more needy and improvident the worker the less he can or will estimate the danger and the more relatively (because of his high rate of time-preference) will he value a slight increase in present reward.
(b) Occupations differ in regularity of employment. The short-time rewards in the seasonal trades, such as bricklaying, mason-work, etc., are usually noticeably higher than in the steady occupations that call for the same kind of ability and preparation. But the more irregular the employment the greater the loss from being out of work, and the smaller is the total annual income as compared with the income earned by the hour, day, week, or month. Much of the difference in labor-incomes in such cases is nominal rather than real.
(c) The chance of success or failure in an occupation enters into the calculations of a beginner. The greater certainty of success in one case must be to some extent offset by higher rewards in the other. This element is of course supplemented or neutralized by other considerations; for example, the small chance of success in law is to some extent offset by opportunities in politics, business, and often in social affairs. In salaried positions the greater chance of success appears in the form of opportunities of promotion. Some less provident or less able to wait take the positions that give a living income from the first, but which lead nowhere, and others take the larger, but more distant income.
In all these cases there is an adjustment of rewards through the choice of occupations. If within the range of choice open to a group of individuals there is one occupation that is less attractive than others in all excepting the material reward (or the money wage) fewer will choose that, and more will choose the more attractive occupation; the result must be a rise of the value of services in the one and a fall in the other, until an equilibrium of net advantages is attained, to those entering or free to choose between the various occupations.