Managing Income Risk

Managing future income risk-- this is something I have been seriously mulling over for the last few months with graduation just around the corner in December. 

I am currently considering two job offers. One is in my field of study (engineering) and comes with a higher salary in Chicago. The second is for a data scientist position in Indianapolis and while the salary offer is lower absolutely, the cost of living is much lower in Indie and Chicago, so it should allow for a relatively higher standard of living. My major concern is that the science of "big data" is an emerging field with potential for growth across many industries, while engineering is comparatively stable. Would I be better off pursuing a career in this new area, or sticking closer to what I have studied? I am tentatively leaning toward the second offer because I prefer Indie and the relocation package and signing bonus are generous. Since my experience with data science is limited to one internship, the risk in going with the second offer is that I may find I dislike that line of work later on or may underperform because of lack of formal training (hopefully not!). 

Another factor I've been considering is the impact of taking the lower salary to start with right out of school. Should I decide to seek out other opportunities a few years down the road in California for example, will companies offer me less without taking cost of living into account? 

Prior to all this consideration of job offers, I suppose that in many of the decisions I made with respect to my education, future income was the primary motivation. All throughout middle and high school I wanted nothing more than to be a musician. I played trumpet, trombone, euphonium, and tuba in various ensembles from orchestras and drum corps to jazz bands. Not to toot my own horn (pun intended), but I had a natural talent and worked hard at it. I was lucky to have loving parents who schlepped me around to rehearsals and performances across the country. They were always supportive of my passions growing up, until college admissions that is. Music will always be there to enjoy, but will not necessarily put food on the table. 

After a few long discussions with my parents, I decided to pursue an education in engineering. There's much better earning potential in engineering and I love math and problem solving, so it has been a good fit so far.  Fortunately, I've received scholarships, grants, and fellowships throughout my education and have not needed to take on a ton of debt. 

As I reflect back on my decisions and look forward to the next few months, I wonder if always prioritizing income over personal fulfillment and happiness is a good strategy. I recently read an article demonstrating that, in general, happiness increases with increased income up to about $85,000 and after that point there is diminishing returns. I should hear back about the salary negotiations from both offers soon. The deadline for making a decision is in two weeks. *Gulp* Time to become an adult. 

Opportunism

Sometimes it is uncertainty that prevents us from taking advantage of our circumstances. Being unable to quantify the risk underlying a seemingly golden opportunity can give us pause. For this post on hold up and opportunism, I will share my husband's experiences leaving the corporate world to work for a start up, and going back again. 

Several years ago, my husband left his position as a software engineer at Wolfram Research to work for a friend at a small Chicago-based start up. He went from working in a 9-to-6, brick-and-mortar environment for decent pay and benefits to working as a contractor remotely from home, being on call 24/7, and traveling frequently. This dramatic change to our lifestyle was rather stressful, but at the time he felt as though the substantial bump in pay more than compensated. 

Software start up ventures tend to either fizzle out or get acquired by a larger company within a few years of forming. Very rarely do giants like Google or Facebook emerge. This particular start up had been limping along for almost a decade when my husband joined. The company specialized in cryptography and provided customers with a zero-knowledge secure data backup service. Because of some infrastructure decisions made early on in the development of their platform, it was difficult, if not impossible, to scale up product. So, the organization's growth potential was limited. Over the years, they had received and a few acquisition offers but declined them all, the CEO holding out in hopes of a better offer. 

After working at the company for around a year, business started to pick up and my husband helped secure contracts with some larger clients including the US Navy and the Belgian government. Around that time, the company received some unexpected publicity from Edward Snowden in an interview where he railed against Dropbox, their major competitor, and gave them a glowing review. This generated a lot of interest and several discussions on buying out the company. 

My husband flew out to San Francisco with the company executives to meet with Sales Force to supposedly accept their acquisition offer. In addition to buying out the company and its service (for significantly more than they were probably worth), Sales Force offered to absorb the engineering team and hire them at competitive Bay Area wages with generous signing bonuses. Much to the dismay of everyone else, the CEO declined once again. It's possible he had an inflated sense of the value of the product, leading him to pass up on the opportunity, but more likely I think his decision may have been motivated by greed. Later it was revealed the CEO had been doing some creative accounting and had helped himself to a much larger salary than agreed upon by the board (and as a result the company was worse off than most of the employees were led to believe).

This was when my husband began to regret working for the startup. He put in his two week notice and was met with resistance, as he had become a prominent member of the company and had solved some substantial challenges on the engineering side. The CTO offered him a 35% increase in pay to stay with the promise that the company was on the brink of becoming acquired. Though offer was extremely tempting, my husband passed and returned to his former position at Wolfram. The stress of working from home and lack of healthcare benefits were a consideration, but I believe the uncertainty surrounding the future of the company and the quality of the leadership ultimately motivated the decision. It is impossible to know how things might have panned out if he stayed at the startup, however, as of today they have yet to either make it big or get acquired.

Laura D'Andrea Tyson Bio Sketch

Laura D'Andrea Tyson is an American economist and professor at the University of California, Berkeley in the Haas School of Business. Professor Tyson received her BA in Economics from Smith College and PhD in Economics from the Massachusetts Institute of Technology. She served as dean of the Haas School from 1998-2001and as dean of the London Business School from 2002-2006.   Her current research interests include US trade policy, doing business in emerging market economies, and the changing global economy (specifically focused on high-technology competition). 

Professor Tyson has held many influential positions throughout her career. Notably, she served in the Clinton administration as Chair of Council of Economic Advisers from 1993-95 and as the president's national economic adviser from 1995-96. She is currently a member of the US State Department Foreign Affairs Policy Board and has served on President Obama's Council of Jobs Competitiveness and the Economic Recovery Advisory Board. 

Professor Tyson has authored many books and articles on competitiveness in trade. She also regularly contributes to the Economix blog and Project Syndicate and has also written for publications including Business Week, the New York Times, and the Financial Times. 

Prior to taking this course, I believe had seen the name "Laura D'Andrea Tyson" written in a news article here and there, but was unaware of the extent of Professor Tyson's contributions to the field of economics. In particular, I find her work with the World Economic Forum Global Agenda Council on Women’s Empowerment and writing on the effect of the changing global economy on women and families very interesting. In terms of this course, I think her work will be especially relevant in our discussions on coherence. 

References

http://facultybio.haas.berkeley.edu/faculty-list/tyson-laura

http://www.nytimes.com/ref/business/economy/laura-dandrea-tyson-bio.html

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