A recent report says a person's first job could have a much greater impact on lifelong earnings than economists previously thought.
The report, written by economists Fatih Guvenen, Greg Kaplan, Jae Song, and Justin Weidner, says a person's first job has a lifelong impact on their earnings.
To compile the report, the economists analyzed Social Security earnings over the course of thirty years, from the ages of 25 to 55. To account for historical variations, the economists used cohorts from different generations. The youngest cohort turned 25 in 1983, and the oldest cohort turned 25 in 1957.
The economists found that when it comes to lifelong earnings, the vast majority of growth occurs within the first ten years of a person's career.
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In all cohorts the economists analyzed, the highest percent of income growth occurred before the worker reached the age of 35. Contributing to the problem, pay raises have decreased since 1957, adjusting for inflation.
According to the report, workers who receive low salaries when they first enter the labor market end up with smaller raises over time. Entering the labor market in a recession can take a toll on your earnings that lasts for the rest of your life. Likewise, landing a first job at a company that pays well can set a person on a more lucrative path over the long term.
The economists also found that there has been a significant increase in income inequality within each gender since the 1950's. The median lifetime income for men has declined since 1967, adjusting for inflation.
Writing for Quartz, Allison Schrager explains that the findings are surprising, considering many economists argue that income inequality has to do with differences in skills, which develop over a long period of time. The fact that pay disparity occurs much more among young workers suggests income mobility might be much more rigid than previously thought. As Schrager concludes, "your economic fate may be settled much earlier than you think" (Schrager, Quartz, 5/4).
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