Sunk Costs and Utility

As the school year begins to wind down, I have begun to hear seniors discuss their future beyond OSU. A friend of mine, a computer science and mathematics double major shared with me an experience he had applying for a job. The firm he applied to was in Portland, and works frequently on billion ¬† dollar government contracts. Their work requires a great deal of linear algebra, which was this friend’s specialty, so he applied. The recruiter for the firm wrote him an email back, that they would be interested in him after he had acquired some more education. He posted a link to an article where the company’s president stated that even the firm’s secretaries had PhDs. That seemed like an incredible waste to me, having secretaries who have incredibly specialized training in an academic field answering phones and scheduling appointments. After thinking about it though I came to the conclusion that through the lens of economic theory, it wasn’t as odd as I thought. If these individuals adhered to microeconomic theory, then they would disregard any sunk costs into their ¬†specialized education and pursue a course that brought them the most utility. Even though they might not be working in their fields, they were probably receiving a good deal of utility from the six figure paycheck that the firm offers to even their secretaries.

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4 Responses to Sunk Costs and Utility

  1. machacea says:

    I think that paying their secretaries six figures is a major sunk cost and not beneficial for the company at all. It’s obviously good for the individual in terms of economic gains, but the firm is definitely receiving economic losses by paying a secretary about 300% more than what even a good paid secretary is receiving. Working higher up in the company, an individual obviously needs to possess developed skills, talents, and knowledge. Being a secretary, a person only needs a few talents and to be an effective secretary a PhD is definitely not necessary. A prominent company can have great secretaries that exceed at what they do by just paying them 15% or 20% more than the average secretary, not 300%. Plus, if a person really went to college for 6+ years, you think they are going to be fully satisfied with themselves and work to their fullest potential being a secretary and filing papers?

    • hornechr says:

      However on the other side of the spectrum, I think that it would be awesome to make six figures as a secretary. A lot of people seek the most compensation for the least amount of work and to me this seems like it. Why would you want to work in a stressful engineering, or computer science job when you can make almost as much money sitting behind a desk answering phones all day. I would love to take calls and solve scheduling issues for six figures, however I am unwilling to get my PhD to do so.

  2. mcneiljo says:

    It does seem like a waste to have those intelligent and skilled people answer phones. However, it is a huge draw for the company. If everyone in their office has PhD’s they seem more trustworthy because the people working there have high educations. I also agree though that it would be awesome to get a six figure paycheck for answering phones. People always say that getting your undergraduate degree is like graduating high school and getting your masters is like graduating from college. With more people acquiring an education one must go beyond a simple degree just to stand out a little.

  3. morrisje says:

    I can’t say I blame a person for taking the opportunity to get as much compensation as possible relative to their job duties. If the work is purely secretarial though, I’d be surprised if the PhD holders didn’t eventually come to the realization that their utility could be maximized in another job. Somewhere where they could be stimulated and challenged more intellectually. I suppose it would vary from individual to individual. What strikes me as odd is such a high wage for this type of labor (assuming duties are strictly secretarial). To me this may signal something about the larger economy as a whole. I worked for Microsoft in 99-00 during the .com stock bubble. Employees were leaving to work for start-ups that were offering outrageous salaries even to workers in low skilled positions. Nationally there existed an inflated view of tech companies and the value of their production which drove stock prices up until the bubble popped. I’m not convinced we’re not experiencing another bubble right now (Facebook purchased Whatsapp for 19 Billion!??). If the market corrects I wonder if this company will be able to maintain this type of salary level.

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