Which professions are paid too much given their value to society?

Many jobs have spillover effects on the rest of society. For instance, the value of new treatments discovered by biomedical researchers is far greater than what they or their employers get paid, so they have positive spillovers. Other jobs have negative spillovers, such as those that generate pollution.

A forthcoming paper, by economists at UPenn and Yale, reports a survey of the economic literature on these spillover benefits for the 11 highest-earning professions.

There’s very little literature, so all these estimates are very, very uncertain, and should be not be taken literally. But it’s interesting reading – it represents a survey of what economists think they know about this topic, and it’s surprisingly little.

Here are the bottom lines – see more detail on the estimates below. (Note that we already discussed an older version of this paper, but the estimates have been updated since then.)

We calculated mean income for 2005 in an earlier article. We increased income by 30% to account for nominal wage growth since then.

The paper uses the expressions spillover and ‘externality’. An ‘externality’ is a technical term for a ‘cost or benefit that affects a party who did not choose to incur that cost or benefit.’ The authors of the paper call it an ‘externality’ when someone who buys a service does (or does not) benefit after taking account of the cost of purchasing it. This is a nonstandard usage,

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What the literature says about the earnings of entrepreneurs

This piece is part of our series on high impact entrepreneurship. Sign up to our newsletter and we’ll email you with the rest of the series.

Summary

  • Until recently, academics lumped ‘entrepreneurs’ together with all the ‘self-employed’. A new paper, however, split the self-employed into those who owned incorporated businesses and those who don’t. (Though note that the incorporated self-employed are still very different from startup founders.)
  • Self-employed people who own incorporated businesses earn about 50% more than people with regular jobs.
  • Most of this is due to them being more educated and working harder. However, even if you correct for these factors, it seems like shifting into owning an incorporated business boosts income by about 18%.
  • The unincorporated self-employed (mostly running things like hairdressers, restaurants, corner shops etc.) earn less than salaried workers on average.
  • Once you try to compare like-for-like workers, you find that when people switch into unincorporated self-employment, 50% earn less than they would as a salaried worker (but gain more freedom), and 30% earn more. The overall average is about the same.

Introduction

It’s widely believed that entrepreneurs earn more than salaried workers. However, until recently the research did not seem to back this up. In fact, the findings of several studies in 1989 presented a puzzle: entrepreneurs appeared to earn less than their salaried counterparts.

In his 2013 book The Founder’s Dilemmas,

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Doing good through for-profits: Wave and financial tech

M-PESA ATM Withdrawal

Get the rest of our series on doing good through start-ups by signing up to our newsletter.

Wave is one of the most high potential social impact for-profit startups we’re aware of, and it was co-founded by someone in our effective altruism community – Lincoln Quirk. Wave allows immigrants to send money from North America to relatives in Kenya, Uganda, Tanzania and Ethiopia with much lower fees than if they used Western Union or MoneyGram. (Though Wave existing is nothing to do with 80,000 Hours, someone we recently coached chose to work for Wave and help them expand into the UK.)

Why is Wave such an important company? Previously, if immigrants wanted to send remittances, they had to use Western Union or MoneyGram. Both the sender and receiver would have to go to a physical outlet to make the transfer, and worst of all, the sender would have to pay 10% in transfer costs! Lincoln Quirk and his cofounder Drew Durbin have built software that allows instant transfers from a mobile phone in the US or Canada to a mobile phone in Eastern Africa or Ethiopia – and they only charge 3%, a saving of 7%.

For each dollar of revenue that they make, they are saving $2.33 for someone in the world’s poorest countries. Assuming a 20% profit margin, the figure is $12 in savings for each $1 of profit.

The potential positive impact of this idea is huge.

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Podcast with Ben West, who expects to donate tens of millions for charity through tech entrepreneurship

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I recently interviewed Ben West (second to left), the founder of Health eFilings. After reading 80,000 Hours’ website, Ben entered tech entrepreneurship – from software engineering – in order to ‘earn to give’. Amazingly, Ben pledged to donate any money he made above the minimum wage. His company helps American physicians file paperwork with the US government, and collect ‘performance based pay’, much more easily. Several other 80,000 Hours alumni have ended up working in his company. You can read a summary of the key points from the interview below.

Summary of the interview

  • Ben West was influenced by Peter Singer’s work when he was young to start donating his income. Four years ago he was a software engineer donating to New Harvest, a meat substitute organisation.
  • He spent almost a decade at a large healthcare IT company, which helped to prepare him for what he’s doing now. He doesn’t think he could have successfully started this company without having experience in the health IT sector first.
  • He learned about 80,000 Hours through a link on the blog Overcoming Bias. Reading our work on entrepreneurship made him willing to consider starting his own business despite the fact that he’s risk averse by nature. He then spoke with some other well-informed people, including Carl Shulman (who volunteered for 80,000 Hours in the early days), who gave him more information about what the path involved.

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One of the most exciting new effective altruist organisations: An interview with David Goldberg of the Founders Pledge

It’s my pleasure to introduce David Goldberg to those who in the effective altruism community who don’t yet know him. He’s behind the Founders Pledge, which in just 8 months has raised $64 million in legally binding pledges of equity, is growing fast, and has got some very exciting (but currently confidential) plans in the works. I met him when I was representing 80,000 Hours at the Founders Forum conference earlier this year and introduced him in more depth to the idea of effective altruism, which he’s now built into the core of the Founders Pledge’s mission.

Tell us about your background

I did my undergraduate work at UCLA in Political Science and Public Policy and then continued with postgraduate study at the University of Cambridge focusing on International Relations. My plan was to get a PhD and then stay in academics and shape International Security policy. However a year in, I realised that the practical impact of my work would be marginal at best, so I finished with a Master’s degree and began to look for opportunities that would actually have a discernible effect on the world. I got involved with Founders Forum For Good — the precursor to what I do now with the Founders Pledge — where I focused on helping social entrepreneurs build and scale businesses. Before all that, I spent a couple years in finance in the US, started and sold a business in Europe, and ran a chain of Segway dealerships in California.

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Take the growth approach to evaluating startup non-profits, not the marginal approach

Screen Shot 2015-11-26 at 1.31.35 AM

In its first 2 years, Google made no revenue. Did this indicate it was a bad idea to invest or work there?

We spent the summer in Y Combinator, and one of the main things we learned about is how Y Combinator identifies the best startups. What we learned made me worry that many in the effective altruism community are taking the wrong approach to evaluating startup non-profits.

In summary, I’ll argue:

  1. There’s two broad approaches to assessing projects – the marginal cost-effectiveness approach and the growth approach.
  2. The community today often wrongly applies the marginal approach to fast growing startups.
  3. This means we’re supporting the wrong projects and not investing enough in growth.

At the end I’ll give some guidelines on how to use the growth approach to evaluate non-profits.

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Startup employees don’t earn more

Image by Sebastiaan ter Burg. License: CC-BY-SA 2.0

Since the average startup founder who makes it to Series A earns more than a large company employee, many believe that early-stage startup employees also earn more (albeit less than founders). Dustin Moskovitz has even claimed that startup early employees have better earnings prospects than founders.

We’ve looked at the data, and this does not seem to be true on average. There are strong reasons why people might want to work at a startup (e.g. career capital), and it’s true the employees of the most successful startups will earn more; but someone deciding between working at a startup vs. a bigger company should rarely be making the decision based on income. On average, startup early employees earn at most only a little more than developers at larger companies.

Three estimates of how much startup early employees earn, including both equity and salary

According to AngelList, early-stage backend developers, for example, generally get about $110,000 in salary and .7% equity (salary data from Riviera is similar).

While the startup salary data is fairly clear, it’s hard to know how to value the equity portion of their compensation. Below are three different methods for doing so, which all show that developers at early-stage startups at most earn only a little more than they would at a large tech company.

1) Using average exit values

Let’s assume the 0.7% equity stake will eventually get diluted down to .35% at time of exit (a typical amount of dilution from Series A to exit).

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How to start a career in technology (even if you studied art)

80,000 Hours: Oxford recently hosted a panel on tech careers, co-hosted with Codelaborate, featuring four people who did arts degrees but ended up working in tech and loving their jobs.

The panel included:

  • Matt Clifford – studied Ancient History at Cambridge before doing a degree at MIT, worked in strategy consulting but quit to start Entrepreneur First
  • Jackson Gabbard – studied English at a small college in the US but was one of the first engineers at Facebook London
  • Nabeel Qureshi – studied PPE at Oxford, worked in consultancy but now works at startup GoCardless
  • Steven Shingler – studied double bass at the Royal College of Music in London, but now works at Google as an engineer.

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Learn to code in 16 weeks for free in the UK at Founders and Coders

Introduction

Ben Clifford

Are you interested in doing something like App Academy to learn to program, but in the UK? Makers Academy is often thought to be the best option, and we’ve had good reports from one of our members. But it costs £8,000. What about doing something similar for free?

In this interview, Ben Clifford – another member who changed his career due to 80,000 Hours – tells us about a free alternative called Founders and Coders. Ben recently went through the course, and is currently working at a startup in London.

If interested, you can apply here. the deadline for the next round is on Friday.

Summary of main points:

  • Founders and Coders is a free coding program based in London.
  • The course aims to make people full stack javascript developers in 16 weeks.
  • The biggest benefits of doing a coding course are providing structure and tackling motivation problems.
  • The weakest point of Founders and Coders is links to employers but Ben thinks this would not stop determined students can get jobs.
  • The most important thing for getting a place is commitment to becoming a software developer. Being motivated to do good in your career also improves your chances.
  • Applications for January close on Friday 12th December. You can attend taster days by supporting their Indiegogo campaign.

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Interested in working in international development? Consider 2Seeds.

Many people have told us that if you want to work in international development, it’s very useful to spend time working in a developing country (e.g. see our interview with Owen Barder), and living abroad is probably useful for exploration value too. It’s also very useful to get project management experience early on in this space, because it opens up jobs in non-profits and foundations. But management positions in the developing world are rare early in your career.

This made me interested to hear about 2Seeds, which gives graduates the opportunity to volunteer as a project manager in rural Tanazania for a year.

I met the co-founder of 2Seeds, Sam Bonsey, at a conference, and then followed up by doing the following interview with their Outreach Manager, Abby Love. Based on what I’ve seen, it looks well worth considering as an early career step, especially if you’re interested in working within international development.

Read on to see the full interview, which was conducted by email.

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Serial social entrepreneur, Michael Norton OBE, speaks in Oxford

The serial social entrepreneur, Michael Norton, recently spoke at 80,000 Hours: Oxford.

Michael started his career as a scientist, merchant banker and publisher before becoming a social activist. Since then, he has helped to found over 40 charities and social enterprises, including UnLtd, which has raised an endowment of over £100 million to support thousands of social enterprises. He spoke to us about his career and what he’s learned about making a difference.

What follows are some notes I made based on his presentation. All are paraphrased, and I can’t guarantee they accurately reflect Michael’s views.

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What I learned quitting my job to found a tech startup

Ben West

I’ve been earning to give as a software developer for the past several years, and it started to become clear that I could make more money in a different job. But I was torn between a finance career which put my math skills to use and founding a company where I might achieve the vocational equivalent of winning the lottery.

I eventually decided to pursue entrepreneurship because I thought it would better build career capital, i.e. it would prepare me for a wider variety of future careers. After four months of running a company that idea still doesn’t seem completely idiotic, but it doesn’t seem completely true either.

I’ve encountered several people who are in similar positions, so I’d like to give an overview of my motivations (particularly the ones which haven’t been discussed here before), how I went about my career change, and of course how I should’ve gone about my career change. Optimizing for one narrow career path is a bad idea, so I hope this post is useful to everyone, not just potential entrepreneurs.

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The payoff and probability of obtaining venture capital

Venture capital has facilitated the growth of many companies including Apple, Google and Facebook. But is venture capital a key to success for most startups? In this post, we answer three component questions:

  1. What are the likely outcomes for companies backed by venture capital?

  2. What fraction of companies attract venture capital?

    a) How many startups and venture capital deals are there?

    b) What proportion of applicants to venture capitalists say they accept?

  3. How much work is it to apply for venture capital?

We found that:

  • According to the data of Professors Hall and Woodward, the average venture capital-backed founder exits with $5.8 million of equity.

  • Roughly 1% of companies that aspire to obtain venture capital obtain it.

  • Finding out whether you will receive venture capital can take months to years of work.

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Which university has better entrepreneurs?

Some of the most successful companies in recent years have been founded by students of America’s most prestigious universities. The founders of Google and Facebook, from Stanford and Harvard respectively, are prime examples. So which universities have the most successful entrepreneurs? To answer this question, we’ve assessed how many students from each top US university have obtained investment in their startup, how many are worth over $30 million, and how many are worth over $1 billion. This builds upon Jonah Sinick’s work on the wealth of Harvard alumni.

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What is the average net worth of Stanford entrepreneurs?

In this post we estimate the mean net worth of Stanford alumni who made their wealth primarily through founding startups.

Our estimate is that the mean net-worth of a Stanford alumnus who founded a corporation $10.8 million as of 2013.

The reason we are interested in making this estimate is because it fits in with a larger research project to into entrepreneurship, and within that project, into the wealth that can be gained by becoming an entrepreneur.

In this post, we estimate the total net worth of Stanford alumni who have founded corporations then we estimate the total number of Stanford alumni who have founded corporations. We then arrive at our estimate by dividing the total net worth of Stanford alumni founders by the total number of Stanford alumni founders. We close with some caveats and qualifications to our estimate.

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How much do Y Combinator founders earn?

Paul Graham

Introduction

We’re interested in estimating how much tech entrepreneurs earn, since it’s one of our top recommended careers, and this is in part because it seems particularly high earning (enabling high donations, and potentially indicating the creation of a lot economic value). As part of this, we wanted to find out: if you can get into Y Combinator, how much will you earn? We’re particularly interested in Y Combinator because it’s the best known seed accelerator, and the data is available. In summary, here’s what we found:

  • The total value of Y Combinator companies is $26 billion, of which the founders own $8 billion.
  • Most of the returns have gone to a tiny minority of super-successes. The founders of AirBnB, Dropbox and Stripe are worth about US$7 billion, about 80% of all founders’ equity, although they account for 0.5% of the companies.
  • Outside of the most successful companies, it was still possible to earn significant returns. 12% of companies from the first five years of Y Combinator are now worth US$40 million or more, and a further 10% have sold for US$5-40 million. The remainder probably earned little more than their (low) salaries.
  • On average, founders from the first five years of Y Combinator are now worth US$18 million after 5-9 years, giving past average earnings of US$2.5 million per year
  • When it invests in its companies, Y Combinator values them at US$1.7 million, of which each founding team owns $1.6 million. This implies that founders must earn (in cash or equity) substantially more than $100,000 per year on average.
  • We expect the average earnings going forward to be less than $2.5 million per founder per year because of competitors to Y Combinator and regression to the mean.
  • Y Combinator accept 2.5% of applications.
  • Your personal expected earnings from applying to Y Combinator depend on your chance of being accepted and your chance of creating the next AirBnB or Dropbox.

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Biographies of Top Entrepreneurs

Lots of the people we coach want to know how to become a successful technological entrepreneur. One approach to this difficult question is to assess which unusual traits are common among the most successful tech entrepreneurs. In this post, we review the biographies of the ten richest tech entrepreneurs. Here is what we found:

  • All attended American Universities, though only half graduated (3 to start companies but 2 dropped out before they started their companies), and none have postgraduate qualifications.

  • 8 of the 10 entrepreneur’s Wikipedia page had stories or achievements demonstrating exceptional tech skills or interest in technology. (Azim Premji (Wipro) and Lawrence Ellison (Oracle)) are the only two whose Wikipedia pages do not demonstrate exceptional talent/interest in tech.

  • Fewer demonstrated early interest in business – Jeff Bezos and Michael Dell being the only exceptions

  • Only three took a job after finishing university and before starting a company.

    • Jeff Bezos, worked in multiple computer science-related jobs

    • Larry Ellison, worked for a data company while developing his product

    • Paul Allen, worked in programming before starting Microsoft

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Shared values predict startup success? An interview with Saberr

Saberr

Introduction

As part of our ongoing research we have been looking at the best ways to go into entrepreneurship. When we talked to Matt Clifford, of Entrepreneur First about the question, he suggested talking to Saberr. Saberr are a small startup focussed on the question of predicting the success of teams in business settings, and they have already had some impressive successes.

We spoke to Alistair Shepherd by phone, one of the two original founders of Saberr, about their perspective on forming a successful entrepreneurial team. The following is a selection of highlights from the call, edited and reorganised for clarity.

Key points

According to research by Noam Wasserman most startups fail because of their team, suggesting team composition is important for entrepreneurial success.
While standard personality tests have not been shown to be very successful at predicting success in careers, Saberr have achieved some impressive, if small scale, predictive success using a model based on value alignment and behavioural diversity.

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