Public sector jobs are perceived as the safest jobs, which is true from the perspective of stability.

From the perspective of Paretian reality though, they are the employment choice that is the most short convexity, because governments can and do go bankrupt.

This has happened multiple times throughout history, all over the world.

More recent examples include the ‘97 crisis when multiple Southeast Asian governments needed IMF bailouts; and in 2013-2018, when governments of the Eurozone periphery also needed bailouts.

As such, a public sector worker is, in most cases, happy accepting a lower salary, and working in a bureaucratic environment in exchange for perceived higher levels of job security.

Do note that there are other factors that draw people to careers in the government outside of money, such as the desire to be of service to the public/community.

The problem, and convexity, arises when the rare public event occurs that pushes a government to the fiscal brink.

Where do these workers go after losing their government jobs?

After all, while they were collecting their relatively lower salaries (vs the private sector), and enjoying more job security, most of them were not acquiring skills that make them employable by the private sector.

Consequently, when things take a turn for the worse for public sector workers, they turn really bad, just like with all short convexity bets.

On the other side of the employment convexity spectrum, jobs in cyclical industries come with more instability. Just think about how badly affected tourism and aviation have been by the Covid pandemic; but on the upside, pay and bonuses tend to be better than in the public sector (of course this differs by country).

In a sense, the risk of job losses/industry shutdowns during bad times is partially compensated for by the higher remuneration.

However, the higher remuneration doesn’t tend to be enough to compensate for the risk of pay cuts/job losses during downturns. Any pilot, air hostess, service/hospitality employee will tell you that after the 2020 they’ve had, and are still having in 2021.

A possible exception to this might be the banking industry, specifically investment banking.

That is one industry where firms pay a large percentage of profits to employees, especially the ones which bring in the most profits. Of course, the risk of job loss is much higher, staff turnover is often very high, and the working hours and environment tend to be grueling.

Hence, a job is not just a tradeoff between how much one must work and its benefits. It also must be thought of in terms of how it affects our ability to weather the harshest economic storms. 

To be concluded…