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The Cost Of Twisting Opportunity Costs

While reading http://financefreelancelife.com’s post on Opportunity Costs, I decided to write about a concern I have on Opportunity Costs.

In economics class in college, students learn of the concept of “Opportunity Costs”.  Opportunity Costs questions where it’s worth the time and money to do an activity, and if there isn’t a better way to spend your time and money.  It’s about weighing and choosing the best option given the chance to do two activies but time to do one. 

Most students grasp the concept of working on Wall Street instead of a fast food restaurant.  But once they are employeed, some students twist the “Opportunity Cost” concept into something else.  Once they have a dollar amount per hour pegged to what they earn in their primary job, from their perspective, all work that they do has to be worth at least an equivalent amount of money.  So if they make, let’s say $40/hr, then if they look for a side job they feel that then need to at least make that $40/hr rate. 

So, is that true?

No, it’s not.  Often time the same student will watch a movie or go out to the bars.  So instead of earning a rate of pay, they’ll actually pay for the “Opportunity” to not earn money…  Eventually, even watching TV is a better opportunity than trying to work a side job to make additional money.  The funny thing is, that they don’t understand the real concept of opportunity costs.  Their leisure is costing them additional security and social interactions that could enhance  their life above the rate of pay.  If you work an additional job, you can choose something that you are passionate about.

Why am I bring this up?

One of my friends, use to make a decent amount of money for the city that he lives in.  Well, he got laid off and is now on unemployment benefits.  The funny thing is he had a few opportunities to be employeed, but decided not to because they were less than the rate of pay as what he use to make.  Now he’s in the situation where his unemployment is about to expire, and he still doesn’t have a job.  You can say that he was holding out for a better opportunity, but the hidden opportunity cost of deciding to hold out will cost him.  His resume now has a huge hole, that he can’t honestly fill.  He’ll be making a $0/hr rate of pay after his unemployment benefits run out.

I guess what I’m trying to say is, don’t twist a concept like “Opportunity Costs” into something that it’s not.  My buddy twisted it to justify him blowing off great jobs that while not perfect, were great opportunities.  Actually one of the jobs was for the same rate of pay, but the commute would have been a little over an hour for him…  Unbelievable!

-D

2 Responses to The Cost Of Twisting Opportunity Costs

  1. This post really hit home for me. I am trying really hard not to be like your buddy mentioned here. I can easily (and I mean very easily) sit back not got after what are solidy/great/good positions because I feel they aren’t going to pay what I expect or what I will be doing will not be 100% legal but if I do that I will miss the boat to a really good opportunity later on down the line. Thus, the decision to go with internship #2 that I talked about in one of my post’s. I think your buddy and I both need to keep in mind the importance of being humble.

  2. @Jane

    My buddy was lucky! When he initially got laid off, he collected unemployment. The lucky part was that it kept on getting extended by the government…

    After 2 years of unemployment, I was afraid that he would have troubles getting another job, especially with such a large hole in his resume. But just lately, he put his nose to the grindstone and got 2 interviews (both in final stages too). He’s a very smart guy with a certain charisma that make people naturally like and believe in him. He’s got the skills to backup the presentation too.

    You’re a smart women, as displayed by your blog content. If you were in my world trying to get a career, it’s mostly a matter of getting your foot in, then after gaining a year’s worth of experience, start looking for a better opportunity.

    That said, the legal world is something I’m totally unfamilar with. I have heard that the firt few years require working many hours. So the typicall path in my profession, might not be the best route in your profession. It sounds like you got some good connections (based off of your last blog about the sitting in the president’s box), and I think the dinner party was a good idea. I’m sure networking helps you in your profession quite a bit as well!!!

    I think you believe in yourself, and know that you’re bright… so even thought I don’t know anything about the legal profession, I’m sure you’ll do great and earn what you expect to earn eventually!

    I have learned this, some people won’t see or understand you or your gifts. Sometimes it takes a certain business culture for a person to really flourish.

    I’m looking forward to the day that I read on your blog that you found the perfect legal firm to work for! :)