Question
There are two forms of compensation from every job: Pecuniary compensation; and Non-pecuniary compensation. Pecuniary compensation is the cash payments (salaries, wages, bonuses, etc.) while
There are two forms of compensation from every job: Pecuniary compensation; and Non-pecuniary compensation. Pecuniary compensation is the cash payments (salaries, wages, bonuses, etc.) while non-pecuniary compensation encompasses the non-cash utility we get from the work (fulfillment, dependability of co-workers, certainty of work environment, friendships, etc.).
A good friend is considering changing jobs and seeking your advice. The current job has provided a consistent 5% growth in pecuniary compensation over the past several years and every indication is that this will continue into the future. The new job promises a 9% growth rate over time, guaranteed. The non-pecuniary risk discount defines the stability of the non-pecuniary compensation. Because of the uncertainty about the new company, you assume that the non-pecuniary risk discount rate is 10% and decays to 0% by Year 5, when familiarity with the new company will be equal to (or better than) the current company.
What is the undiscounted opportunity cost over ten years of taking the new job instead of staying with the current job?
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