Tyler Cowen and Robin Hanson recently blog-debated the reasons “so many young people go into finance, law, and consulting.” (Tyler’s post, Robin’s post.) I do find this topic interesting for some reasons that are more and less personal. My own explanations are below, with credit due to the friends with whom I talked through these … thank you guys.
1. I agree with the three general reasons Tyler lays out: “You are productive fairly quickly, you make good contacts with other smart people, and you can demonstrate that you are smart, for future employment prospects.”
1a. The productivity point may be controversial, but it shouldn’t be. If nothing else — and there is much else — it’s rendered true by salary in the medium- to long-run. Most corporations don’t (and arguably can’t) pay a $60-120k starting salary for 22 year olds. Maybe it’s because they have trouble identifying which 22 year-olds will be sufficiently productive to justify that salary, but maybe it’s because 22 year-olds just can’t be that productive in larger firms.
1b. These jobs pay well in part because the higher-ups in each field actually work with the recent graduates and get utility out of working with smart people. It’s often worth an extra $x,000 from the partners’ pool to get the recent grad whose market rate is $75,000 rather than the $(75-x),000 recent grad.
2. These fields are considered impressive and prestigious. Talented students who guide themselves toward increasingly prestigious problems were and probably still are likely to spend time in consulting, finance, or law. These fields are the output of “the Ivy League hill-climbing algorithm,” as one friend put it. (I do believe software engineering is gaining ground here.)
3. Consulting and finance firms have figured out how to allow smart young people to live in New York/Boston/San Francisco but work in Dayton/Piscataway/Bentonville where they are most needed. This is non-trivial.
4. Adjusting for quality of life, I don’t think consulting, finance, law (or even operations at Google) pay differently. There’s time at work and workplace culture and people’s utility functions — and then if that fails, there’s expense accounts. Consulting firms often have the best ones and pay less than banks and law firms at similar experience levels. But take-home pay matters less if you charge expenses 4.5/7 days of the week to your employer.
5. Coming out of school, declaring you “don’t know what you want to do,” and devoting time to “figuring it out” is hard for many high-achieving students. Those that pull it off still face awkward questions from friends and family members. Consulting and finance (and to a lesser extent law) seem like “places where one can go and be productive and figure out what one should really do.” In these fields, career swaps are the norm.
6. That these jobs are not the most exciting things one could be doing is often the worst that can be said. They are very rarely “bad options.”
Another way to phrase this question is “why can’t [some specific field] attract more smart young people?”