The Efficient Career Hypothesis: Almost All Jobs Are Priced In

From various conversations with my peers and insights on this site, I've developed a belief that almost every single career path is "priced in" where the upsides are essentially neutralized with downsides (except for entrepreneurial roles where you aren't working for someone else). Because every employer is tasked with making a profit (or breaking even), they will only compensate you enough for you to stay, all else equal.

This means that in a neutral world where you have no passions for a field, you'd be completely indifferent for which career to choose since there is a strong trade off between compensation and work satisfaction/balance.

We often talk about the lucrative career paths of lawyers, doctors, and bankers yet we don't account for their own distinct trade offs that reduce their overall attraction/value. Obviously, different people will value elements of the job to different degrees but let's assume you are an average person who likes to earn the highest pay for the most flexibility over your schedule. Allow me to explain the trade offs for many of the most sought-after careers:

Doctors

Arguably the hardest career path to start due to the ridiculous competition for med school and heavy costs needed to finance schooling. This career may be the most rewarding on a personal/humanity level but it's far from the most lucrative or best for work life balance. Assuming you crush your MCAT and get a 3.8+ GPA in bio, your success is far from coming into fruition since you will be taking on hundreds of thousands of dollars in loans and will not see a solid paycheck until 30.

As we finance people know, the time value of money is not kind to those who forego a DECADE of cash flows. You not only will miss out on investing for a decade but you'll find that many doctors are still paying back their student debt up into their early 40s. Also after you finally manage to pay off your loans, your comp isn't anything that's life-changing for the most part. Your IB MDs and Big Law Partners (who have spent a similar amount of career grind overall) will handsomely out-earn you for your entire life. This is an entirely different story however if you don't have to pay for med school.

Lawyers

Other than finance, law is hands down the most oversaturated profession. Way too many people are chasing way too few spots. Getting into a top law school (which is a MUST to get well comped) as a non-diversity is becoming more and more of a challenge. Then, once you get through a reputable law school, the true disappointment begins. Lawyers have been reported to be the most unhappiest of people because of the mind-numbing work they are required to do in return for less-than-sexy pay.

As a corporate lawyer, you will be reading hundreds of pages each day every day. This work is even less desirable than IB and guess what? Just like a doctor, you took out hundreds of thousands of dollars to break into the industry, which you will be paying back at least until your mid 30s). For the remainder of your career, you will be chasing the partner level (which has a 1% success rate of happening).

Investment Banking

Clearly offers the highest pay coming out of undergrad and is highly competitive. Must be the dream job right? Wrong. 95% leave in 2 years despite the sky-high salaries. You will be worked to the bone 80 hours each week which will deteriorate both your mental and physical health (as you can witness on this forum as well as the Goldman survey). Not to mention, the work you do is completely uninteresting at the junior level (PowerPoint and excel updating) as it is only slightly more meaningful than big law work.

Don't care about the lack of balance and want to go AN2MD for the sake of high comp? Good luck dealing with the revenue quotas to bring in new deals at the senior level. Your main goal becomes selling and you are competing with the most cutthroat people in the industry who are all trying to out do each other. Also you're WLB will still be poor since you'll be constantly on-call 24/7 to report to your clients. This adds a different kind of stress that you experience in addition to long hours and your job security is also weak.

Private Equity

They call it "Banking 2.0" for a reason. The junior level is literally the same with minimal improvements to WLB. Not only is it more competitive than IB, the career path is also less guaranteed. Jeff Hooke study shows that 75% of PE firms don't actually add value for their risk profile and liquidity premiums. Nobody talks about this but majority of PE Associates exit in 2 years just like they did with their IB stint (many go to CD or leave the industry). And if you decide to sacrifice your personal life to climb the latter which so few can land (since partners and founders will stay forever), you role will be more of a salesperson than an investor.

PE is far less intellectual and cerebral than it is made out to be. Instead of using your acumen to craft investment ideas, the majority of your purpose will be to compete for capital raises and win bids at auctions. After all, there are only so many private companies with stable cash flows to take on an LBO. That said, the more senior you get the more you will have to sell (sounds like IB right?). At that point, why not just be in IB where you don't have to assume the risk of losing your job if your investment blows up? Comp is similar.

Hedge Funds

You live and die by your annual performance.

Offers the highest comp ceiling outside of being an entrepreneur but your job stability is questionable. Long-term risks of shrinking wallets for many HFs due to underperformance are not going away. Important to choose the right fund or you risk blowing up. If you're in a public fund, expect long hours and the constant stress of knowing where you stand exactly. Work can be much more cerebral than it's PE counterparts however.

Sales & Trading

Better work life balance than other sell-side roles but also less direct exit opps. Main problem with S&T is two fold: (1) it's very hard to know if you'll perform well and like the job before you start; (2) the longer you stay the harder it is to leave the industry since your skill set is very niche. Also, just like HFs, you either perform well or you don't (and you will find out soon). Additionally, post 2008 now, most of S&T that still exists is just trade execution (rather than prop trading).

You will just be fulfilling orders for institutional clients and not be responsible for making investing decisions. This industry is under severe pressure from automation as many know so any equities, commodities, or FX desks could disappear. The less liquid the asset safer you are. Comp is still high but not so much when you adjust for the riskiness of the role and limited ability to exit (worse than HFs)

Equity Research

Moderate work life balance with moderate exit opps. Job is known to be the most intellectually stimulating finance role and offers solid comp (at a small discount to IB). Out of all the career paths, it has the potential to be the least "priced in". Only problem is that jobs in ER are few and far between (industry is very tiny and low turnover). Also your experience is highly contingent upon the sector you are in.

Do you like energy? What about industrials? Who is your MD? Are they a workaholic? How long until they leave so you can get more coverage/exposure? Sell-side ER requires good sales skills at the senior level as well but less pressure than IB since you aren't exactly forced to pull in deals (ER is rewarded based on votes from buyside clitents). ER industry also experiences headwinds of declining expense fees with HF industry but to a lesser extent since it also provides internal value to its IB arm.

Asset Management

Very similar dynamic to ER, except pay can vary a lot depending on firm and role. The work is known to be cerebral and interesting just like ER but there is no clear-cut pay since positions vary widely (e.g. fundamental analyst vs etf sales). PMs at MFs can earn comparable pay to ER MDs but obtaining this role is challenging because of low turnover. Additionally, AM faces pressure with more capital flowing to passive investing. Fee compression will lead to lower compensation and fewer seats.

Wealth Management/Private Banking

Relatively low comp at junior levels compared to other finance roles. Less competitive to break in than the other sell-side roles (IB, ST, ER) and offers exceptional WLB. However, it is essentially a sales job where you need to cold call clients to get their money. Many are not cut out for this or find this work meaningful and it requires an exceptional personality. Can be highly lucrative if you build a good client book overtime but you need to be older (no high net worth individual is going to trust a kid with their money). Also, having a solid client book with IB-level comp is the same odds as making partner as a top PE firm (< 1%).

Corporate Development/Strategy

The ultimate destination for the majority of IB analysts and PE associates after they realize no amount of money in the world could make them give up their personal life and balance. Some believe it offers great pay for hours worked while others believe the pay is too low (after all you probably just came from IB, PE, or ER so you're probably taking a healthy discount in comp). However, many agree that the work is still not very meaningful (slightly better than IB and PE).

Essentially you are doing internal M&A or consulting work for a firm but many have stated that Management does not give you insightful roles. Instead they will hire the sell side to conduct the transaction logistics and give you some low-intelligence tasks for finalizing the deal. Most of your work tends to gravitate around accommodating for Management's strategies rather than being the one to provide Management with strategies. Also, there is a lot of office politics in corporate roles where career progression can be murky and unfair at times.

Consulting

Pay is at a notable discount to banking with slightly fewer exit opps (less finance more corporate). Although working hours are usually capped at 60-70 per week, the major downside is the requirement to travel 4 days a week. This offers just as poor WLB for many compared with IB at the end of the day, except you get less pay in consulting. Travel is a polarizing topic so this trade off is contingent upon your preference but the consensus will say that it gets very old after a few months having to constantly fly out each week.

This is the main reason most leave the gig in a few years to chase corporate roles with more balance. Hard to start a family or maintain relationships when you're never home. The more senior you become in consulting the more of a sales role it becomes. Chances of making partner are more difficult than making MD at IB but less so than PE or Big Law if you decided to stay the route as well.

Venture Capital

Perhaps the most entrepreneurial role without being an entrepreneur. Offers better WLB than IB, ER, PE, and HFs but pay is also at a discount, especially at the junior level. The turnover is probably the lowest in any industry because of the attractive type of work you do so advancing to the senior level is extremely difficult. There is an element of sales for the work since you will be competing for access to capital and financing startups. Kind of like you see in shark tank when the sharks compete with each other to be the one to invest in the startup. However, breaking into VC requires a lot of luck.

The biggest firms hire Ivy's with various background experience. Product management or previous entrepreneurship experience strongly preferred over IB/PE. Almost impossible to break in right from undergrad and career path varies by firm. Also might have to move to SF long-term for VC.

Corporate Banking

Aka investment banking lite. Decent pay with less exits but better WLB. Work has a strong element of sales and it is not as cerebral as senior level IB, AM, ST, or ER. The work is also very credit-focused and it becomes a niche background the longer you stay; hence the reduced amount of exit opportunities if you decide you don't like it. It does offer good job stability as long as you meet your sales targets since the industry is less competitive than IB.

Accounting

Very standard job with lower competition to enter compared with other fields listed. Experiences the best WLB but also the lowest pay. Many will argue you are paid too low for the time you work (keep in mind, you need to study for the CPA and take an extra year of college classes most times). Many also cite that the work is very dry and repetitive. There is career structure for Big 4 firms but the pay will continue to be very low to other fields the entire time until you reach partner (which is just as hard as making partner in PE or Big Law). Many will exit accounting to pursue corporate roles for similar pay to their Big 4 roles in hopes of hitting a home run and becoming a CFO which is more difficult than making partner in all of the roles combined.

Engineers

Overall will likely offer the most preferred WLB for pay for majority of people. But the pay will be far lower than lawyer, doctor, banking, hedge funds, equity research etc. since you will be considered an expense at most companies (outside of big tech). Engineering pay can be most similar with corporate banking (perhaps at a slight discount) The undergrad experience for engineering is typical considered to be more challenging than finance/business and the material can be less interesting in general.

Even at Google, SWE complain about being too myopic on a certain project where their whole responsibility is managing the "Find and Replace" function on Google Docs. Therefore, most of the engineering jobs will be very boring to you if you are not interested in the specifics of engineering (whether that be mechanical, coding, oil, etc.). Software engineering appears to offer the best comp for hours worked but many look past the fact that majority exit too soon before realizing the big pay day in stock comp.

------------------------- If you are a FAAMG software engineer (which is less than 1% of the workforce in this field), you can make the argument that this is a clear inefficiency. However, it still doesn't explain why 90% of SWE leave their FAAMG jobs after 3 years. If this was as beloved as Wall Street people make it seem out to be, surely you wouldn't have such high turnover. I've heard that this comes down to the fact that you are not really making good use of your talents at these firms. Since they have you working on such granular tasks, you never get to work on creative projects that you've been developing to get the job in the first place. Therefore you can argue that many would see this role as uninteresting just like IB. Sure the pay per hour is better but it must be difficult to clip your wings for so long on the job when you possess a highly valuable skill set that isn't being used.

Actuary

Probably the least popular path out of all of the ones listed because of the prominent barriers to enter/lack of direct interest. You don't have to take out any loans for additional schooling but you must pass 10 exams before coming a true actuary which takes you likely a decade. The exams have been known to be extremity difficult and the work is very math-heavy but comp and lifestyle are like enhanced engineering. You would still make more money in finance or law than being an actuary and you'd likely need half the IQ to make it work.

Conclusion 

I hope this post encourages you to realize that the grass is NEVER truly greener in any field. There is a near-direct trade off for happiness (lifestyle + quality of work) and compensation. I understand that some of you could provide some inefficiencies where people are making a killing only working 35 hours a week but these stories are the extremely rare exception to the rule; so uncommon that you'd be better off making the assumption that this will never happen to you when you're thinking of your career - thus pretending that the job market is efficient.

However, the good news about all of this is that you can generate your own alpha (and break this efficiency theory) by choosing a field you have the most interest in. Finding your passion may be difficult early on but it will become the ONLY differentiating factor that makes your job better than someone else's. If you can value how much more you like the work in S&T compared to Corporate Banking for example, then you can definitely make the best career choice for yourself that encapsulates all factors (Comp, Balance, Interest).

 
Most Helpful

Note: the OP edited his original post... see my response below for context

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So jobs have trade offs... whats the "thesis" here? Or is your thesis just the definition of labor market?

The way I see it, your argument is contradictory - you mention the time value of money on the supply side of labor but what about demand? Companies are willing to pay more for talent (with in demand skills) that they can get earlier. Sure in the long term salaries will level out but as long as there is a shortage of a certain skill, people who have that skill will be generating "alpha" by definition since they are being overcompensated for their input (example: software engineering).

Your assumptions don't make sense either. Whats the point of dismissing factors like personal interest when at an individual level these factors are almost always more important than minute differences in compensation? Not to mention you use factors like career trajectory as a trade off when ambition is very much a personal interest. Not everyone is interested in endlessly climbing the corporate ladder.

I am really struggling to see the point of this post. Its really just sounds like you projecting your own career goals on a series of generalizations that don't add up to anything substantive (unless you are saying all this to argue that labor markets are perfectly efficient, which is pretty obviously not true).

 

Just a philosophical thought on how nobody is going to pay you more than they have to.

If there was demand for a job that exceeded supply, that would soon be corrected as everyone would flock to it for the incentives (whether that’s balance or pay)

But this isn’t really focused on supply and demand as much as it is with the quality of work and balance you get from the most popular undergrad jobs. This is especially true for out of college than it is when you’re at a senior level since post-grad jobs are the most efficient.

My goal for this was to provide more color to each job and show that you can’t get the upside without experiencing the downsides of the job. That’s why you should just go for your interests and the rest will follow. I’m also assuming you enjoy less hours and want the best pay but no job is going to give you both if it’s efficient

Twisting your mind and smashing your dreams
 

To provide context for anyone who didnt read the original post before OP edited it, the wording is completely different now so some of what I said may not make sense. OP started the original by saying he "developed a thesis" about career choices and his thesis was literally pretty much just that jobs have pros and cons and only very briefly mentioned the "follow your passion" message at the very end.

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This would be true if people "signed up" for whatever job they want after graduating, but skills take time to learn so as a result you will always have an imbalance between jobs in demand vs talent available. For entry level jobs, this delay is the 2-4 years students spend investing time and effort developing skills. For higher level roles it will be much longer and is the reason why we still have a shortage of software engineers even though the entry level market is oversaturated. This is one of many inefficiencies in the labor market that goes against your original thesis.

I do understand your general point though. I dont see why you chose to frame it like some kind of revelation but I agree that way too many people in finance are driven by the wrong goals.

 

Agree with your point about the luck required in Venture Capital. Seen first hand how a lot of the success that comes from Venture Capital is based on being at the right place at the right time and knowing the right people.

 

Anomalies in every industry. I know a surgeon whose been making $1.5+ million annually for at least 10 years. Came from a humble background and from what I understand nearly went to med school free (w/ scholarships).

You'd imagine his kids would follow him into medicine but they went into finance. He loves his job but knew it wasn't worth it for his kids unless they loved the concept of medicine.

Btw OP, really enjoyed reading this post. It was well thought out.

 

Yeah to echo the above comment, this analysis completely ignores the company-side demand for skills and talent, which is a gapping hole in what you are arguing here.

I think software engineering is the best job to illustrate why this matters. There’s a post every other week on this forum about how software engineering or data science is a better career than banking or consulting - you don’t see those kinds of posts about banking and consulting on tech forums. Why? Because SWE at elite firms is ~broadly speaking~ a sweeter deal in terms of hours and pay. Sure the work is ‘myopic’ as you point out, but you think an overworked 1st year analyst putting in 80+ hour weeks wouldn’t take similar pay and less than half the hours at Google because of ‘myopic’ work? The fact that everyone has some aspect of their career that they complain about does not at all mean that these trade offs are in equilibrium

SWE hasn’t seen a decrease in pay or WLB quality even as worker demand for those jobs increases because the talent and technical skill required is high enough that the supply for those roles is effectively constrained. Having hard to replicate skills increases your ability to get a ‘better deal’ career-wise.

Don’t like SWE as an example? By your argument, being a janitor would be in equal in regards to trade offs with white collar professions

The idea that all careers are in some sort of equilibrium in respect to trade offs is pretty silly

 

This concept wasn't supposed to be tested at janitorial levels. Just thinking about the top prospects out of college.

You are right that many bring up SWE on this forum but are neglecting to mention that most well-formed arguments about SWE make the case that the grass isn't greener in SWE.

First, there is a HUGE difference between FAAMG software engineering and the rest. This is materially different than most other careers like IB or CO where MM and boutique firms still offer similar comp to the largest firms.

If you're not at FAAMG, you will be treated the same as a back office role at an IB. Comp will be low and WLB will be high.In regards to the FAANG SWE, you can make the argument that this is a clear inefficiency. However, it still doesn't explain why 90% of SWE leave their FAAMG jobs after 3 years. If this was as beloved as Wall Street people make it seem out to be, surely you wouldn't have such high turnover. I've heard that this comes down to the fact that you are not really making good use of your talents at these firms. Since they have you working on such granular tasks, you never get to work on creative projects that you've been developing to get the job in the first place. Therefore you can argue that many would see this role as uninteresting just like IB. Sure the pay per hour is better but it must be difficult to clip your wings for so long on the job when you possess a highly valuable skill set that isn't being used.

 

Huh? FAANG not making good use of your talent? You're comparing this to moving logos around on a slide, or changing growth from 2% to 3%. There are pros and cons of not working in FAANG. Many choose not to work in FAANG because of a combination of WLB, learning the start-up side of the business and real upside from stock options if the company takes off. Why is turnover so high in tech? Multiple reasons - desire to actually add value to companies / start-ups that can use you earlier in their company lifecycle and for stock option value. Options vest evenly over ~5 years. If 1 company out of 100 will 100x, then you increase your expect pay off by getting 40% vesting in 5 different companies over 10 years rather than 100% vesting in 2 companies over 10 years. Wall Street is still better for the risk-averse, wannabe upper middle / lower upper class (you have 2 years in banking and 3 decent years in a MM+ PE firm, you can hopefully maintain a job earning 500k+  for a while), but tech likely wins from a WLB, job satisfaction (culture), upside, changing projects, etc. dynamic

 

In a libertarian, purely capitalistic society your argument would be correct. However, government interference in the markets provides plenty of inefficiency. There are people at government bureaus making good money for 10 hours of work a week. Its possible to be an employee at a big bank lost in the slow-moving bureaucracy of compliance and HR rules making it a pain to fire you. There are diversity and other concerns, connections, etc. We are FAR from an efficient labor market. Hell as the current macroeconomic state shows, there are people sitting at home eating donuts and gaming while collecting fat unemployment checks, not motivated to rejoin the labor force.

 
[Comment removed by mod team]
 

How much adderall did you take? A lot of garbage takes. How do you know the in and outs of all these career paths outside of IB and financial services? There are so many things that are off that I don't even know where to start. 

He got law medicine and engineering spot on. So please start on what he got wrong with his “garbage takes”

 

I see everyone arguing withan example or sentence they don't like but not the general idea of your post. I completely agree with you that basically supply and demand will always determine the overall compensation/wlb/satisfaction package **at an equal level of skill**. 

I've been thinking about this for some time and the only way to increase your overal utility is to either increase your skill level or to profit from your your personal preferences. (And the rarer these preferences the highest the benefit)

One person commented that it assumes that the market is efficient when in reality there is rent-seeking from some groups and intervention from governments, but I don't think it's breaking anything. For example, college professors are one of the luckiest workers in the world because they get to work on fulfilling(to them at least) research, they have good wlb and they have a good salary. This would break such a model that there is no free lunch, right? Except that's not the case, because out of the thousands that try to become college professors, only a tiny fraction of them manage to land the role. (that also reminds me of IB) 

 

Thanks for the write-up, made me feel a lot better. Been having a tough time with recruiting and it's nice to see the struggle seems to be shared across the board, with all of us just trying to vie for that top 1% spot in our respective field.

 
Funniest

OP you made every job sound like absolute garbage.

"Navy Seals, great prestige but you might get your leg blown off"

"Senator, fantastic prestige and job security but you will have all your skeletons uncovered"

lmao, after reading this post of yours I think the only job that's actually decent is being a Crypto god or onlyfans sloot

 

Only jobs that aren't garbage are the ones where you're doing what you love. This all comes down to your innate interests.

Reason why Tom Brady still in the league. Not for money or prestige, just the joy of the game.

Hope you guys can all find this same energy in your own careers. -OP

Twisting your mind and smashing your dreams
 

The central claim behind EMH is that prices reflect all available information. Labor markets can take a really long time to price in new information, and are thus often obviously mispriced.

For example, every year the BLS publishes that there is a shortage of software development talent, citing faster job growth than the amount of university graduates. Employers respond by raising wages, and sure enough, software development is consistently one of the top fields ranked by wage growth. This means there must now be disproportionate compensation for the effort of acquiring a software development skillset, the same skill set that would have fetched a lower wage prior to this growth. So how does the market resolve itself and price this in? Well, people on the margin who would normally go into other fields choose software development instead, because they are now getting a higher wage for an equally difficult to acquire skillset; this happens until the shortage is closed and employers normalize wages. Changing the composition of the workforce like this (changing what college students choose to study, where people move to work, what society socially accepts, etc.) can take decades to accomplish, and until that fully happens, everyone in the field enjoys disproportionate compensation.  

So which careers are "priced in"? Ones where there has been little new information to price.

When should you care about whether the career you are choosing is fairly priced? When you are one of the people on the margin, whose decision will ultimately help push markets towards efficiency. 

 

Interesting write up and there are trade offs, but unfortunately I don’t think it’s very accurate for high finance. The job market is not very liquid (w/ exception of maybe ibanking) and is opaque. There is asymmetric information and powerful club effects (Ivy League alumni, GS/MS alumni, etc). Putting it together, I would argue the market is pretty inefficient. There are “golden” seats, but they’re extremely difficult to come by and are often not marketed publicly (read: inefficient). Sure, investment banking is atrocious and Apollo is banking 2.0, but those are very public jobs and large programs. 

There are roles in finance where the pay to work ratio is very skewed. Think some HFs (Baupost, Sachem Head, etc) and LO AMs (Cap Group, Fidelity, etc). Only issue is a lot of these places have next to zero turnover, small investment headcount, and landing a role is near impossible. 
There is a lot of luck involved in investing, including finding a job. 

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