Social Econ Blog

A NY Times article today reports that young workers should no longer approach their first job with a "work your way to the top" approach. Rather, aiming for the top from the get go seems to be the most effective strategy for maximizing future income streams.

"Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one's way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today's economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates' first jobs have an inordinate impact on their career path and their "future income stream," as economists refer to a person's earnings over a lifetime."

To test this effect, the authors look at several economic studies that use economic conditions upon graduation as an instrument. These studies find that students who graduate from business school during a recession have an average lower income than those who graduate during good economic times. Furthermore, these differences in wage stick around for well over a decade, indicating that a large part of future income is based on luck.

"The Stanford class of 1988, for example, entered the job market just after the market crash of 1987. Banks were not hiring, and so average wages for that class were lower than for the class of 1987 or for later classes that came out after the market recovered. Even a decade or more later, the class of 1988 was still earning significantly less. They missed the plum jobs right out of the gate and never recovered."

"These data confirm that people essentially cannot close the wage gap by working their way up the company hierarchy. While they may work their way up, the people who started above them do, too. They don't catch up. The recession graduates who actually do catch up tend to be the ones who forget about rising up the ladder and, instead, jump ship to other employers."