Optimal Employment


60


Related to: Best career models for doing research?, (Virtual) Employment Open Thread

In the spirit of offering some practical real world advice, let's talk about employment rationality. Let’s talk about optimal employment.1

You're young, smart, and hoping to have a positive impact on the world. Maybe you finished college, maybe you didn't. You want to pay your bills but also have time to pursue your intellectual goals. You want a low-stress job that doesn't leave you drained at the end of the day. And it would be nice to earn lots of extra money, because whatever you value, money tends to be a good way to get it.

And it is possible to find easily obtained, low-stress jobs with flexible hours that allow you to save as much money as someone in the USA making $100,000/yr... if you leave the USA to look for them.

Your instinctive reaction is probably that there’s no free lunch, so I must be mistaken or dishonest. And while you may have the right prior, I hope to persuade you that these jobs exist and tell you how to get one if you're interested.

This, I think, is a special opportunity for rationalists, an illustration that we can get better life outcomes from our investment in rationality - better outcomes such as low-stress jobs that leave us with ample discretionary income and enough free time to pursue whatever else we're interested in, obtained by being willing to break habits and think in numbers.

Employment Biases

First, consider some cognitive biases that may be leading people away from optimal employment.

  1. Status Quo Bias - As a rule, we work the same jobs we worked the day before regardless of whether it's still the best option for us. Almost everyone you know is doing the same thing. So you shouldn't expect to be able to just copy others' behavior and end up with optimal employment. Most people stop searching too soon.
  2. Money Illusion - We reason in terms of nominal salaries rather than in actual buying power. This causes us to chase high nominal salaries ($100,000/yr!) even when those salaries are coupled with an exceptionally high cost of living that decreases our overall buying power.
  3. Ostrich Effect - Regardless of income, the average American ends up paying close to 40% in taxes yet consistently self-reports as paying only 3%. In other words, we tend to ignore or deny obviously negative situations when we feel we can't change them.
  4. Conformity Bias, Herd Instinct, "Keeping Up with the Joneses" - Our mimicking behavior is so hard-wired that maintaining autonomy requires actively guarding against the usual practice of mindlessly working the same sorts of jobs and buying the same sorts of products as other people around us. At Less Wrong, we are not conformists, which is probably a good thing in this case. Americans' revealed preferences indicate that they mostly care about boring things like paying lots of taxes, having fat mortgages, driving 2 cars, and owning 3 televisions.
  5. Commuting Paradox - A recently uncovered bias finds that people will consistently endure unpleasant commutes even when the increased earnings don't compensate for the increased costs. A person with a one-hour commute has to earn 40 percent more money just to be as satisfied with life as someone who walks to work. And no amount of money can erase the cognitive fatigue caused by commute related stress. Koslowsky found that even a short commute or using public transportation is associated with increased blood pressure, musculoskeletal disorders, increased hostility, lateness, absenteeism, and adverse effects on cognitive performance.

So the literature on biases is telling us that the ideal job would be something that few Americans are doing, has high purchasing power at the expense of a high nominal salary, will be taxed less than a US-based job, avoids a commute, and minimizes the costs that eat up a typical American's salary.


Welcome to Australia

The USA is not the best place to earn money.2 My own experience suggests that at least Japan, New Zealand, and Australia can all be better. This may be shocking, but young professionals with advanced degrees can earn more discretionary income as a receptionist or a bartender in the Australian outback than as, say, a software engineer in the USA.

Now I’ll detail how to work abroad in Australia because (1) I did it myself (here's my first paycheck), and because (2) I've met hundreds of people working less desirable jobs in several other countries so I have some basis for recommending Australia in particular.

Quick facts:

  1. Australian dollars are currently worth slightly more than US dollars.
  2. The minimum wage in Australia is $15/hr, with $18.75/hr being a more typical starting salary for someone with a Work and Holiday Visa with no previous work experience.
  3. Employers are required to pay 9% extra beyond your regular wage into a personal retirement account, called superannuation, which you can fully cash out after leaving Australia, even if you aren’t retirement age.
  4. Tax withholdings are fully refundable to foreigners after leaving the country (0% effective tax rate) if you earn less than $6000 and report as a "resident" for tax purposes. If you earn between $6000 and $37,000 and file as a resident, your tax rate is 15% (for every dollar earned over $6000). See the full tax structure here.
  5. Hospitality employers such as resorts and hotels in remote areas like the Australian outback are required to provide heavily subsidized room & board ($75/week) and pay supplemental wages in the form of "district allowances" to all workers.
  6. For reference, I was hired as a bartender in Australia on the spot with no resume, no application, and no interview after openly admitting I had no service experience and couldn't operate a cash register.

So let’s compare and contrast Australia with the US:

  US Australia
Minimum wage $7.25/hr $15.00/hr3
High paying jobs Require advanced degree, hard to get, stressful Require no qualifications, easy to get, little responsibility
Income taxes 21.25% of income4 13% of income5
Housing costs 37.1% of income6 5% of income7
Food costs 13.3% of income6 5% of income7
Transportation costs 16.5% of income (need a car)6 4% of income (airplane tickets, visas)8
Compulsory retirement savings

-7.65% of your income into Social Security
good luck getting that back

+9% extra income paid by employer on top of wages
refundable when you leave the country!


Optimal Employment and Less Wrong

This may be of special interest to Less Wrong because most non-rationalists simply can’t reliably take advantage of this opportunity. They will see it as "too good to be true" or "some sketchy advice from the internet" and move on with their lives. You, on the other hand, can evaluate the evidence and make a decision. This kind of problem, where you must assess probabilities and come to a sound conclusion because immediate feedback is unavailable, is exactly the kind of problem that rationality is good for.

Let's compare the discretionary income you're likely to earn with a stressful $100,000/yr salaried job in the USA to the discretionary income you're likely to earn with a laid-back $39,000/yr job in Australia. Our time frame will be one year.

USA: In a $100,000/yr position, your top end tax braket is 28%, but after taking the "standard deduction" and accounting for the tiered tax structure, your effective income tax rate is only 21.25%. In our target age range of 25-34, you're likely to spend 37.1% of your income on housing (breakdown: 23.3% on rent, 7% on utilities, 6.8% on misc housing expenses), 13.3% on food, 16.5% on transportation, and 7.65% on social security payroll taxes. For convenience sake, we'll call the remaining portion of your income - 4.2% - your discretionary income. 4.2% of $100,000 is $4,200.

Australia: In a $39,000/yr position as a bartender or receptionist in the Australian outback, you'll pay 13% in taxes but immediately gain back 9% by cashing in your employer-provided retirement benefits upon leaving the country. Because room and board is heavily subsidized in the outback, you'll pay only 5% for housing and 5% for three excellent meals a day. You'll be commuting on foot because you'll live by the hotel or resort that you work at so the only transportation you'll need is a couple airplane tickets and legal documents, which will cost about 4% of the $39,000 yearly salary. That leaves you with a stagering 83% of your income as true discretionary income, or $32,370!

So working in Australia at a laid-back job with no responsibilities will likely earn you significantly more discretionary income than working at a hard-to-get, stressful, "high-paying" US job. In addition to the personal enjoyment of traveling to Australia, working at a resort in the outback will provide you with a comfortable living situation where all your bills are paid for, all your housing and meals are provided for you, you have no commute and you can enjoy 83% of your $39k salary as discretionary income.

On the other hand, a typical year working a stressful $100k/yr job in the US, if you’re highly-qualified and fortunate enough to land one, will mostly create value for the US government, real estate owners via your rent payments, oil producing nations whenever you fill up your car to commute to work, and retailers such as WalMart who provide household necessities from overseas suppliers. You definitely "create value" by earning that $100k and then immediately blowing it all back out into these giant economic sectors, but are you really executing your own values, or just the values of those around you? Assuming you're not a tax, rent, and car payment enthusiast, this arrangement is probably sub-optimal. That's why you need to learn...


How to Work in Australia

In six steps:

  1. Find an Australian hospitality job (or wait until you arrive; see below).
  2. Make sure you have a passport.
  3. Apply for a Work and Holiday visa.9
  4. Fly to Australia to start working and saving.
  5. Apply for an Australian tax file number.
  6. Open a bank account.

Though you may want to "play it safe," most of the jobs available in the Australian outback will not be listed online. My own recommendation is to skip step 1 and don't get a job lined up ahead of time. Fly to Alice Springs in May when the high season for hospitality jobs is starting to pick up, check into a hostel for a few nights, and look through the physical job boards. The person at the front desk of any hostel will be able to tell you where they are. That's what everyone I met working in Australia actually did to land jobs.

Or, if this sounds too overwhelming, have someone else do the planning for you. The site Oz Work Visa was founded by a fellow LWer (who went to Australia after reading this post) to help other optimal philanthropists and rationalists have a smoother time planning their working holiday abroad in Australia. I definitely recommend the services.

 

Conclusion

Of course, each person must assess the expected utility of this opportunity for themselves. Maybe you have a child or significant other you can't leave behind. Maybe you live with your parents, so you aren't spending much on housing or food in the US, and therefore staying in the US is the quickest way to build up discretionary income. Maybe the math above doesn't work for your particular situation. The USA's financial incentive system is extremely complex and, in the words of Kotlikoff & Rapson, "bizarre."

I don't mean to say that this opportunity will be best for the average Less Wrong reader who is single and in his or her 20s. But I do want to present one particular opportunity that may offer more optimal employment than whatever you're currently doing for a paycheck. I'd also like to suggest that in general, optimal employment might not be found in your home country.

 

Here's me enjoying some optimal employment in Australia:

Me, working at an Australian bar

 

Common Concerns

Q: This sounds too good to be true. How could there be this wage and cost of living imbalance? Shouldn’t the efficient market conspire to eliminate this huge pile of "free profit"?

A: The efficient market hypothesis assumes that humans collectively converge on rational beliefs. But most humans aren’t strategic enough to take advantage of an opportunity like this. They’re on a treadmill from high school to college to a nominally "high-paying" USA-based job + spouse + 1.5 children + dog. The thought of working outside their own country or outside of the field they got a degree in never seriously occurs to them, no matter how smart they are. Also, many people currently believe that working abroad is a bad idea simply because the best opportunities that existed 5 years ago (teaching English, peace corps) actually were bad economic opportunities.

 

Q: So how come all my smart friends aren't doing this?

A: Americans couldn't get these work visas until 2007. Since then, less than 8,000 Americans have taken advantage of the program. Your odds of knowing an American aged 18-30 who went to Australia and did this are very low. By comparison, over 170,000 British citizens aged 18-30 went to Australia just in the last 5 years via a nearly identical visa program. Basically, if you're living in the UK, or lots of other countries in Europe or Asia, the evidence is already beating you upside the head that working in Australia is a great way to save money. You already know several people in real life who can stand in front of you and tell you how great it was for them. I predict that working in Australia after college will be a trendy option for Americans in a few more years, but until it's completely obvious to everyone, you'll actually have to look at the evidence and be rational enough to process it without immediately rejecting the idea just because it sounds amazing.

 

Q: Won’t working in Australia prevent me from gaining experience in my narrow professional sub-field, thus reducing my total lifetime earning power?

A: This is almost certainly not the case for anyone under 30. Companies pay professionals more based on their abilities and their age as opposed to their actual years of experience. And, they pay more for older professionals than young ones just starting out cause they know these people really do have higher expenses and are less likely to quit. So taking a year off in your 20s to work abroad is only exchanging a year in which you would have earned the lowest salary you’ll ever have during your career for a year of higher earning power in Australia. You can always come back to your career in a year and pick up where you left off. Besides; who follows a straight-up-the-ladder career path anymore? Almost nobody.

 

Q: What about Australian culture? Will I like it over there?

A: Australia is a highly educated, robustly secular, extremely developed country. If you have any questions about the desirability of Australia, just ask Less Wrong! A disproportionate number of Less Wrongers are Australian.10

 

Q: I'm really bad at following instructions. What are the biggest mistakes I could make?

A: Don't make the mistake of settling down to work in Sydney, Melbourne or any other major Australian city. Those places all have exceptionally high costs of living, fewer job opportunities, no housing and meal benefits, and predictably lower pay. Make sure you travel to a remote area of Australia like I suggest. Go to the outback near Alice Springs or at least outside Darwin or Perth if you read up on it yourself and know what you're doing. Also, I recommend going to Australia in May when hiring is strongest. April can work too. June and July will work also.  Just don't go in February or March when people aren't hiring yet. One last tip: it's very expensive to be a tourist in Australia (how do you think you're being paid so much?) so I recommend that if you want to combine this opportunity with a vacation for yourself, fly to Bali or somewhere else in Southeast Asia where your money will go 10x further.

 

Q: It says the $295 Visa application fee is non-refundable. What if I apply for the Work and Holiday Visa and then I don't get it?

A: Did you read through the eligibility requirements to make sure you qualify? If you meet their requirements, you'll get it. Australia rubber-stamps American Visa applications. They're working hard to admit as many of us as possible since so few Americans apply to vacation or work in Australia and they want us to be better represented. The application is painless and I was issued my visa in less than 24 hours.

 

Notes

1 Many thanks to lukeprog for his help in writing this article.

2 Note to international readers living outside the US: Although I write much of this from the perspective of an American considering the possibility of working abroad, you can easily substitute “the UK” or any other first-world nation wherever I say “America” or “the US”.

3 Australian minimum wage is $15/hr AUD. Right now, the exchange rate between AUD and USD is basically equal.

4 Approximate, based on the third tax bracket in the year 2011. See the USA rates here, but note that these are nominal tax rates. The actual tax rate is lower due to the standard deductions.

5 An estimate, assuming you file as a resident for tax purposes and earn between $6,000 and $37,000. You are taxed at 0% for the first $6,000 earned, and at 15% for your earnings between $6,000 and $37,000. See here for the details.

6 See the 25-34 year-old age bracket from the latest Consumer Expenditure Survey.

7 Of course, this depends on how much you make, and is assuming you use the highly subsidized room and board offered to you in the Australian outback.

8 My real world costs of going to/from Australia:

$1166 round-trip ticket SFO - MEL (skyscanner.com)

$196 MEL - ASP (tigerairways.com)

$235 Work and Holiday visa

This might look like a lot of money if you’re not currently working or if you’re a broke college grad, but it only takes about 2 weeks on the job in Australia to earn back the cost of emigration, repatriation, and valid work papers.

9 Australian “Work and Holiday” visas are only available to those 18-30. If you’re almost 31, you can still apply for the visa now, have it issued before you turn 31, and then travel to Australia after you turn 31.

10 Based on traffic data for Less Wrong.