What is the risk in self-employment, changing careers, going back to college, a dead end job or a lateral move?
There is not much to fear from self-employment that doesn’t work out. Your career will suffer nothing more than a delay and employers will not hold your entrepreneurial effort against you when considering you for a job. Of course, going back to your former career becomes more difficult with the passage of time as your career skills and knowledge of developments in the field become rusty.
Going back to college is not a risk if you acquire technical knowledge usable on the job–electrical engineering, for example–or general business knowledge, as with an MBA. Otherwise the value gained may be less than what is lost by taking the time off from work.
The one exception is when one becomes qualified in an unrelated, but intersecting area. An engineer, for example, who earns a degree in law can move to their employer’s legal department and likely secure a substantial increase in compensation.
Changing careers is clearly a risk vs. reward proposition with outcomes ranging from completely unknown to relatively foreseeable. If the field in which you work is in decline (say, film-based photography), the lowest risk option is to leverage your existing skills to enter another field that has long-term growth potential, even if you must take a short term cut in pay.
When changing careers, the least risky move is one that leverages your most valuable knowledge and skills. An accountant who wishes to move into the nonprofit field would be well-advised to seek employment as an accountant or financial officer with a nonprofit, but seeking a position, say, in fundraising, public relations, or management would carry a much higher risk for failure and loss of income. Career risk is mitigated by having a fallback option whereby you seek re-employment in the field where your skills and experience are most highly valued.
Staying in a dead end job is like keeping your money in a safe deposit box–there is little risk of theft, but relative to funds deposited in an interest-bearing account, your asset looses value every day. Ideally, one avoids becoming employed in a dead end job in the first place, but for younger workers, a dead end job may be the best job available at the time a choice must be made. Most people solve the dead end job problem by moving on after several years when advancement in income and responsibility become less likely.
Making a lateral move is sometimes a better option than staying put. A job change which brings no immediate gain in pay or responsibilities is worthwhile if the new employer has significantly better growth potential and opportunity for advancement than the former employer.
Are employees at nonprofits paid less?
A recent article in the Wall Street Journal argues that those who work for nonprofits, particularly libertarian advocacy organizations, earn less than those who “sell out” and work for “corporate America.” In “The Tragic Irony of Beltway Libertarianism” (May 21, 2008) Thomas Frank maintains that individuals can either work for an ideologically compatible, but low-paying, nonprofit, or “forsake, say, the Cato Institute and instead help ExxonMobil pile up the pelf”.
Frank appears to be making the claim that what might (or might not) be true of a sector of the economy (e.g. the nonprofit sector pay less than the corporate sector) is true for each employee within it. As evidence, he points out that, from time to time, individuals leave the nonprofit sector to earn a larger paycheck in the private sector. While true, this implies nothing about the relative pay in either sector, especially considering counter-examples where a private sector job is left for a higher-paying position at a nonprofit.
In fact, Frank’s evidence can be countered simply by noting the fact that an increase in salary accompanies nearly every job change, regardless of whether the employee has been hired away from one nonprofit to another, a nonprofit to a business, or a business to a nonprofit. Moreover, it is the experience gained in the employee’s current position which makes the employee attractive to the new employer. So when a business recruits an employee from a nonprofit by offering higher compensation, we should not conclude that the individual is paid more in the for-profit sector, but that the nonprofit experience has increased the value of the employee.
Workforce by employment sector
All employees have preferences about the type of employer they will work for, where they wish to live, length of commute, willingness to travel, and openness to relocation. Exercising any of these preferences potentially impacts income by reducing the number of acceptable employers.
An engineer, for example, who prefers to design automobiles, will likely earn less than an engineer who has no preference and is free to take whatever job pays the most. Does this imply that automobile engineers earn less than non-automotive engineers? No. It implies only that those who have few, or no, work preferences have more positions to choose from and sacrifice nothing by taking the most lucrative job.
Generalizations about what “someone” might make at a nonprofit compared to what they might make in the private sector are meaningless. Nonprofits, like any employer, require workers with certain skills and abilities; they pay whatever it takes to get them (or get by without employees). Characteristics such as leadership ability, self-motivation, and critical thinking skills are sought by these organizations, while corporations often seek just the opposite in their employees. A self-motivated leader with critical thinking skills might very well earn much more working for a nonprofit than working in the private sector.
Over time, the likely result of sorting employees in the marketplace according to the skills required by employers is that each worker ends up in the field that most highly values that particular worker’s innate skills, and each worker has maximized income, within the confines of their personal preferences.
Another consideration is that, for the most part, nonprofits of the libertarian type Mr. Frank discusses, are tiny compared with the average business. The Cato Institute(with annual revenue of less than $25 million)is the “ExxonMobil” of the libertarian movement; by comparison, ExxonMobil’s annual revenue exceeds $400 Billion.
There are many types of skills and employee characteristics that may be more highly compensated in one sector of the economy or another, but the private sector, since it is so much larger and complex than the nonprofit sector, simply has more different types of jobs and, therefore, more opportunities for high income. But it is a mistake to average out the incomes from each sector, compare the average, and then conclude that each individual employee earns less in one sector than another. It’s entirely possible for the nonprofit sector to have lower average wages than the private sector, yet each employee in the nonprofit sector is earning more than if they worked for “corporate America.”
Negotiating salary: overstating your current income or desired salary can cost you
Job candidates sometimes outsmart themselves when discussing compensation with a prospective employer. Forget what you may have learned about negotiating tactics or you may sabotage the job offer.
Here’s what can happen: if you stretch the truth about how much you currently earn, or provide an inflated “minimum” amount of compensation you are willing to accept, the employer may offer the job to another candidate who has asked for less.
Say, for example, you tell a prospective employer that you wish to earn $100,000, figuring you can then “negotiate” down to $90,000, an amount with which you would be pleased. The other candidate, however, may ask for $90,000, 
which is the number he or she really wants. Naturally, the employer takes both candidates at their word and proceeds to offer the job to the employee who will cost less (assuming, of course, both candidates have roughly equal skills).
Suppose you give the employer an honest, minimum compensation number and they then make an offer that is lower? This is not a problem; it doesn’t make a bit of difference what amount you ask for, or what amount they offer, since you alone control whether you accept the offer or not. If the offer is too low, turn it down and reiterate that the number you provided earlier–your minimum compensation amount–is truly the minimum offer you will accept.
If the employer is unwilling to come back with an offer at, or above your minimum, then either the employer has another candidate that is not quite as desirable as you, but somewhat less expensive, or the amount the employer offered is simply the most they are able to spend.
In my experience, employers do not typically reduce the amount of compensation they plan to offer when they learn the candidate is willing to accept less. Surprised? Think about it; if the employer decides that, for a variety of reasons, salary “X” is the right amount to pay for a certain quality of employee doing a particular job, then why pay a different amount? If money had been the most important consideration, then the employer could easily have sought out a less expensive employee.
I have also found that it is much better for the employer to find out before the offer is made that the compensation amount is not acceptable to the candidate. It is usually easier for the hiring manager to secure approval for higher compensation during the process of preparing the offer, especially if the request is based on specific information provided by the candidate. Once the offer is made and rejected, though, the manager’s harried effort to secure more money will likely be seen as an attempt to salvage a bungled hire.
