Academic journal article American Economist

The Price of Morals: An Empirical Investigation of Industry Sectors and Perceptions of Moral Satisfaction-Do Business Economists Pay for Morally Satisfying Employment?

Academic journal article American Economist

The Price of Morals: An Empirical Investigation of Industry Sectors and Perceptions of Moral Satisfaction-Do Business Economists Pay for Morally Satisfying Employment?

Article excerpt

I. Introduction

In every first economics course, students are exposed to a simple optimization model to explain and predict economic behavior. The model assumes that rational, self-interested actors with access to perfect information maximize utility, in the case of consumers, or profits, in the case of firms. In more advanced models, economists include desires for social goals in the utility function in order to explain actions that, on the surface, appear contrary to the assumption of rational self-interest. Therefore, the individual who gives dollars to charity, donates time to a soup kitchen, or provides aid to someone in distress, does so because these actions are part of a utility set to be maximized.

In the labor economics field, the study of unselfish behavior has been examined in the context of a tradeoff between pecuniary benefits and a sense of moral satisfaction. Economists tell a compensating wage differential story and examine the tradeoff in choosing nonprofit employment (Weisbrod 1983; Handy and Katz 1998) or employment deemed morally satisfying (Frank 1996). The present study extends the current literature by testing whether a compensating differential exists for business economists. Using data from the 1998 salary survey of the National Association for Business Economics (NABE), a professional trade association consisting of economists employed in academic, governmental, and private sector positions, we use regression analysis to test whether business economists experience a compensating differential for employment perceived as morally satisfying.

The examination of a wage-moral satisfaction tradeoff is not easy for several reasons. First, it may be that individuals who choose employment that provides a sense of moral satisfaction may base their selection on a limited set of career opportunities. That is, some individuals choose employment we identify as "morally satisfying" either because of preferences toward morally satisfying work or because they have limited employment opportunities. This problem results in self-selection bias, which has been studied by John H. Goddeeris (1988) in the context of public sector lawyers. Second, the term "moral satisfaction" is ambiguous and is often arbitrarily defined by the researcher. Despite these problems, our study brings to light new information on the wage-moral satisfaction tradeoff. We examine the self-selection issues empirically and vary the definition of moral satisfaction to find both are important elements in consideration of the wage-moral satisfaction tradeoff.

II. Hedonic Wage Theory and Moral Satisfaction

A. Hedonic Wage Theory and Moral Satisfaction

Economists explain wage differentials as a result of productivity differences, market power, discrimination, market factors, and preferences for particular employment characteristics. Economic theory uses utility maximizing outcomes as a means of revealing preferences. Thus, for example, when an individual is willing to accept a lower salary for a benefit such as low risk, the resulting combination of pecuniary and nonpecuniary benefits reveals the individual's preference for safety. In other words, the actual selection of an occupation and an employer will be influenced by individual tastes and preferences for various employment characteristics.

Hedonic wage theory examines how the tradeoff between wages and other benefits leads to matches between employees, who maximize utility, and employers, who maximize profits. In the context of our study, we assume that wages and moral satisfaction are goods to be traded: if one desires morally satisfying employment, then that individual would be willing to trade wages for the benefit. As depicted in Figure 1, Individual 1 is just such a person (Indifference Curve I,). Individuals 2 & 3 prefer higher wages and relatively less moral satisfaction. Individuals are matched to the sectors with the combination of wages and moral satisfaction that allow the individuals the highest level of utility. …

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