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Fixed costs of working and the decision to work 2

Introduction 3
Fixed costs of working: monetary aspect 3
Fixed costs of working: psychological aspect 4
Decision to work 4

Conclusion 6
Bibliography 7

In connection with the fact that all of us (students of IBS faculty of Plekhanov’s Russian Academy of Economics) are obliged to pass practical course in the seventh semester, I find the question of working and fixed costs connected with this experience very essential.
Generally, it is commonly thought that if a person starts working, he/she only gains but not looses anything, because he/she accumulates experience, earns a salary, which particularly grows with experience, etc. Concerning students, nowadays there is such a tendency among future specialists as starting to work being a third year student or even earlier. Not being the topic of the essay, opportunity costs of combining work and studies will not be mentioned in my essay, though it is also a debatable and very interesting question. But what is actually of interest for me now is what fixed costs of working are for a student and whether the salary covers them.
Fixed costs of working: monetary aspect
To make a decision whether to work or not a rational individual has to estimate possible costs and benefits and advantages of being an employee. Of course, every case is very individual, but in order to make an approximate estimation and draw conclusion I will consider an average situation. Actually the costs are very similar for every person employed in the market. They usually include transportation costs, cost of clothing, cost of eating outside and some psychological costs. Let us consider them in more details.
Assuming that a student starts to work, his/her transportation costs will likely include cost of going by metro and probably by municipal transport. Students are granted a special right for discounts thus fixed costs will not increase significantly as far as our hypothetical student already possesses a metro card. It costs 180 roubles per month to use metro with such a permanent ticket. For comparison it can be mentioned that in case of using municipal transport the result will be approximately the same as far as there exit special permanent tickets. For those who drive a car increase in costs will also be insignificant as they nevertheless have to go to the place of their studies everyday. Finally, the transportation cost in our analysis will equal to 180 roubles per month.
Suppose our imaginary student intends to work in a company or in a certain office. Usually such organizations’ policies stipulate dress code. In these circumstances our student has to buy at least two smart suits or just to renew the wardrobe keeping in mind the necessity to follow corporate dress code. Again prices vary greatly, among other factors there is a difference in prices of clothes for ladies and young gentlemen. This part of estimating costs of working appears to be the most difficult. Nevertheless, the cost of adjusting a student’s wardrobe will approximately be from 12,000 roubles and higher.
The third common component of employee’s fixed costs is cost of eating outside. Usually office workers have to think of their lunch themselves, so widely spread cafes and restaurants offer so called business lunches at a price approximately about 350-400 roubles per day.
Fixed costs of working: psychological aspect
The beginning of a career or just first working experience is associated not only with monetary costs but also with psychological difficulties. Among them can be mentioned traffic jams, which are normal even in metro nowadays. The matter is that students usually avoid at least one rush-hour or even both of them (I mean one in the morning and the other in the evening), but having to be in time for work our hypothetical student will have to use transport in rush-hours twice a day. No matter where, whether it is in metro, in a bus, on an avenue, people suffer stresses everyday, and that is a certain disadvantage connected with fulltime working in the market. The same situation occurs during lunch time. All the restaurants, cafes and etc. are overcrowded by workers from the nearby organizations. Moreover, there occurs a problem of lack of time as far as the student works all day long. His/her leisure time decreases significantly because of full-time working day and increase of time for transportation to the place of work and back home.
Decision to work
I have mentioned the most common fixed costs of working. Now let us consider possible salary of a person without finished higher education. If we assume that our imaginary student decides to work for a big international company, he/she may expect to be hired on the position of intern only. Nevertheless his/her salary might vary around 30,000 roubles. If we now deduct all costs mentioned above we will get the following:
30,000 – (180 + 400x30 days + 12,000) = 30,000 – 24,800 = 5,200 roubles
Actually there is not so much left after deduction of the fixed costs. It is worth mentioning also that the approximate salary was taken without tax deduction.
But, despite the fact that actual income of a student, at least at the beginning of his working has to be spent almost entirely to provide an ability to work in decent conditions, there are still arguments for working when being a student. They are as follow: first of all, experience is actually gained; second, is that for the moment when today’s working student graduates he will possess so valuable experience and he will not face a problem of looking for a place where he/she will be able to apply his/her knowledge and professional skills, because by that moment he/she will have already had a position in a company and probably it will not be the lowest one. So the person will have a chance not to start with the very beginning and it is an advantage over the competitors in persons of the contemporaries graduating the same year.
These things are rather obvious but there is more serious aspect to mention. The matter is that if in the end of practical course or in the end of the semester our hypothetical student will decide to continue working, his/her fixed costs will increase significantly.
The reason is the following. A student without higher education can not be employed on high positions. At the period when his/her contemporaries continue studying he/she is paid a salary which particularly might increase though not very significantly. In several years when the student’s contemporaries graduate they may start even from higher positions than, for instance, a position of intern, as our hypothetical student started. Thus the starting salary of those graduates is supposed to be higher from the very beginning of their careers. Moreover, they are usually very quickly promoted. Thus the greatest cost is the long-term cost of leaving studies for the work.
Thus, the utility of the student whose case has been considered in the essay increases at the beginning but decreases with time passing in comparison with those students who graduated and then started their career. The costs as it has been proved above will increase in the long-run by the same reasons.
Just for comparison I suggest to consider briefly a situation with temporary work. Suppose our hypothetical student decides to work on a temporary basis. It can be courier or waiter or any other profession. For instance, he/she chooses working as a courier for a month during summer holidays. Usually, employing firms offer compensation of transportation costs, which is supposed to be the only great expenditure. Working for a month on a full-day basis a courier may earn about 25,000 roubles. No wardrobe costs, just costs of eating outside may occur and problems with traffic jams will probably exit.
Now let us calculate monthly income of a working student (costs for food could be taken as in the case of working in an office and going for lunch to the nearby restaurant):
25,000 – 400x30 days = 25,000 – 12,000 = 13,000 roubles per month
Actually such temporary works are paid a little less, though at the same moment the costs are less. Such works are not usually chosen for a long time and as the ones to build a career but to get some working experience and to earn some pocket money.
After considering three a little bit different cases it can be concluded that decision to work should be taken basing on the future plans. In three cases costs differ not only in monetary terms but also in psychological aspects and long-term prospects.
Making a decision whether to work or not is not possible without estimating costs, both monetary and psychologically (which besides comfort things include time consumption, future prospects). In any situation fixed costs are inevitable. Considering the case of a student studying during a practice course, leaving studies after some three years for starting a career and the case of student’s temporary work it is found that averaged costs are the highest in case of complete finishing studies without graduation. The highest cost in this case is the long-term cost of not being a certificated specialist, which is a serious disadvantage in the labour market, though the experience is greater than in two other cases.
The case of working during a practical course is the best solution for those who want to obtain experience and find potential employers for future. Fixed costs of working at least for the first several months are rather high and are hardly covered by salary though in the long run this alternative yields the highest profits and benefits.
The case of temporary work is of the least costs and with lower salary though the decision to work might be taken by a student if he/she wants to obtain some working experience and to earn pocket money.
Students are free to choose the best solutions in accordance with preferences and plans for future.
1. “Modern labour economics” by Ehrenberg, R.G.; Addison-Wesley, 2003
2. “Labour Market. Employment. Unemployment” by Pavlenkov, V.A.; Publishing house of the Moscow State University, 2004

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