Career Sharpe Ratio

 Motivation

If you're a young person trying to decide a career path but don't know much about the world and haven't established a particular passion in any field, it stands to reason that an objective measure may provide better guidance than following media hype or a random experiment based on anecdotal evidence.

To that end, I asked an LLM for an analogous measure to the Sharpe Ratio used for choosing stocks by risk rated return.  

The Sharpe Ratio:

$$\text{Sharpe Ratio} = \frac{R_p - R_f}{\sigma_p}$$where:

• $R_p$ = average return of the portfolio (or investment)

• $R_f$ = risk-free rate of return (e.g., yield on Treasury bills)

• $\sigma_p$ = standard deviation of the portfolio’s returns (a measure of volatility)

   

 The Career Efficiency Score (CES): A Risk-Adjusted Metric for Career Choice

Inspired by the Sharpe ratio in finance, the Career Efficiency Score (CES) measures how much career reward you gain per unit of career risk:

$$\text{CES} = \frac{\text{Expected Career Reward} - \text{Baseline Reward}}{\text{Career Risk}}$$

CES = Career RiskExpected Career Reward−Baseline Reward​

• Career Reward: Average salary (optionally adjusted for satisfaction or growth potential).

• Baseline Reward: A stable benchmark, such as the median national salary or income from a low-risk profession.

• Career Risk: A composite index capturing job instability (layoff rate), skill obsolescence, and burnout or turnover risk.

 

Example:
A software engineer earning $140K with an 8% layoff rate vs. a $70K baseline:

$$(140 - 70)/0.08 = 87$$Interpretation:

Higher CES = better reward per unit of risk; lower or negative CES = poor risk-adjusted payoff.
The CES offers a rational way to compare careers by balancing income potential against instability and volatility.

 

Rank	Career Abbrev	Avg Salary (USD)	Growth % (10-yr)	Risk Rate	CES	Satisfaction
1	Physician	$220,000	4%	0.04	3,750	8.2
2	Comp Info Res Sci	$140,910	20%	0.05	1,418	8.7
3	Actuary	$125,770	22%	0.04	1,397	7.9
4	Physician Asst	$133,260	20%	0.05	1,263	8.4
5	Nurse Pract	$129,210	40%	0.05	1,182	8.5
6	Info Sec Analyst	$124,910	29%	0.06	916	8.3
7	Med/Health Mgr	$117,960	23%	0.05	959	8.2
8	Software Eng	$140,000	25%	0.08	875	8.0
9	Health Teach (Postsec)	$105,620	17%	0.05	711	8.2
10	Data Scientist	$112,590	34%	0.07	607	8.0
11	Ops Res Analyst	$91,290	21%	0.06	354	7.8
12	Financial Examiner	$90,400	19%	0.07	286	7.7
13	Nursing Instructor	$79,940	17%	0.05	179	8.1
14	PT Assistant	$65,510	22%	0.10	0	8.1
15	OT Assistant	$68,340	19%	0.08	0	8.0
16	Hearing Aid Spec	$61,560	18%	0.10	0	7.4
17	Home Health Aide	$34,900	17%	0.20	0	7.3
18	Psych Tech	$42,590	20%	0.15	0	7.5
19	Ophthalmic Tech	$44,080	20%	0.12	0	7.6
20	Wind Turbine Tech	$62,580	50%	0.15	0	7.8
21	Solar Installer	$51,860	42%	0.18	0	7.5

 

 Sources (illustrative):
- U.S. Bureau of Labor Statistics (BLS)
- Gallup and Glassdoor satisfaction surveys
- Projected 10-year growth based on 2024–2034 U.S. averages

Note:

- While growth and satisfaction are indicated here, they are not factored into the score.  

Is This a Good Measure? When we think of the labor market, one's compensation is determined by supply and demand.  One's risk of being laid off or burning out is not necessarily baked into the number to begin with.  That depends on the tastes of supply side participants and is itself highly complex.  Perhaps immeasurably so.
It's certainly not an ideal economic measure.  First, there's the years of education necessary for credentialing and the tuition they require.  In addition, the Sharpe Ratio is specifically useful for stocks because at any time an investor can sell their position for market price and buy another stock.  This isn't true for careers.  If we're to view them as assets, they're highly illiquid.  More like homes than stocks.
The CES gives us an objective ranking of annual return for risk.  It tells us, "How much am I being compensated annually for bearing this career's level of uncertainty?"  It's maybe best interpreted as a general quality-of-life metric.  In choosing a career, one should consider additional factors like the cost and level of effort of entry, aptitude and enjoyment of the work, safety of the work environment, etc.  This at least gets us started with a ranked list to begin a more detailed analysis.  Better than just taking a dive into the unknown.