Sunday, November 02, 2008

Why Incentives Matter

The Instapundit posted a link yesterday to an article in the Wall Street Journal about younger Japanese workers refusing promotions. It's a good article but the second update to Glenn's original post is what I find most interesting. A reader wrote:

"It's not just Japan. I work for one of the big 3 aerospace/defense companies at a Los Angeles area location, and though I wouldn't say it's nearly as evident as in Japan, young workers in our industry are asking the same questions. We have no hope of achieving the same standard of living as the droves of retiring Boomers and Silents, and the 2% raise differential afforded by a promotion simply isn't enough of an incentive to work 20-30% more hours a week.

If the industry paid overtime, or offered significant bonuses to rank and file employees (bonuses are only available to upper management), a lot of young engineers would respond enthusiastically. In fact, we've asked the company to do these things in recent employee forums. We'd all like to buy homes in the area and raise families here, but the older workers own all the real estate, and most of us assume that we'll give things a few years, but get out of the area once we need to settle down. It's simply too expensive to live in a metro area like L.A. Since the incentive structure doesn't offer us hope of achieving the same lifestyle as the older employees, we don't see much reason to devote our lives to these companies. As I said, the 2% differential doesn't make a whole lot of difference, so why bother with the extra stress?"

Having once lived in LA and later the San Francisco Bay area, I know exactly what he means. I could never have hoped to buy property in either of those areas for pretty much the same reason and when the time came to leave the area, I did so with mixed feelings. I was sad about leaving behind the friends my wife and I had made but also enormously relieved by the significant decrease in the cost of living, tax burden and all the other ways California has of nickel-and-diming one to death (and don't get me started on the rampant nanny-statist tendencies).

The other point the reader/commenter made was about the reasons for lack of loyalty to the company. I have only made significant improvements to my income by being willing to change employers (and to move where the jobs are). It's not that I disliked working for some of them but a matter of pragmatism. They were looking out primarily for their own self interest. I had to be responsible for looking out for mine.
That's the way it should be. Waiting for the company, or the government to notice your income isn't keeping up with the cost of living, and then actually be willing to do something about it, is a recipe for a stagnant standard of living. You make your own "luck."
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