Wage Growth and Initial Occupations

This research brief summarizes new large-scale evidence on how U.S. workers' first jobs relate to their career progressions and how the importance of initial job placement varies by the gender, race, and ethnicity of the worker.^[1] The majority of a worker's wage growth is concentrated in the worker's first decade in the labor market, so understanding the role of early career experiences is crucial for understanding the rising economic inequality and declining mobility in the United States (Card, 1999; Rubinstein and Weiss, 2006; von Wachter, 2020; Autor, Katz, and Kearney, 2008; Chetty et al., 2022; Piketty and Saez, 2003).^[2]

Workers' initial occupation choices are likely to be particularly important in determining career progression and subsequent disparities by gender, race, and ethnicity (Hanson et al., 2024). However, the lack of large-scale longitudinal data in the United States that tracks individual wage trajectories over time and contains information about a worker’s initial occupation means that little is known about the importance of early career occupational sorting in the U.S. context.

RAND researchers addressed this gap by constructing a longitudinal database of workers' wages and early career occupations using data from several U.S. states from 2005 to 2019. Quarterly data on wages and firm characteristics came from the Longitudinal Employer Household Database (U.S. Census Bureau, undated-b); these records were then linked to information on worker demographics and occupations reported in the American Community Survey (U.S. Census Bureau, undated-a) for people ages 18 to 26. Linking these data produced a dataset on roughly 313,000 individuals who entered the labor market between ages 18 and 26 from 2005 to 2011 and whose employment and earnings could be followed for eight years.^[3] These efforts allowed RAND researchers to explore, on a large scale, the relationship between U.S. workers' early career occupations and wage mobility in the United States.

Wage Growth from Labor Market Entry to Eight Years After Entry

On average, workers in the sample experience a 49 percent increase in wages from when they enter the labor market to eight years after entry; mean wages at labor market entry are $29,280 versus $41,320 eight years later, and the median wages are $25,270 versus $36,610 eight years later (in 2019 dollars). There is, however, significant heterogeneity in average wage growth across four-digit occupations.^[4] For example, people who start as software engineers, police officers, or accountants have average wage growth of more than 100 percent, while there is almost no wage growth for people who start as cosmetologists, maids, or child care workers.

Figure 1 shows how baseline wages in a worker's initial four-digit occupation compare with wage growth for workers who started in that occupation. It shows that wage growth is positively correlated with baseline wages, meaning that workers who start in occupations with a high average starting wage tend to have the highest longer-term wage growth. This finding has important implications for earnings inequality: The positive relationship between initial earnings and growth implies that wage inequality increases during the start of workers' careers.

Despite this positive correlation, there are some occupations that have notably higher or lower average wage growth than would be expected given the typical starting wages of those occupations. For instance, people who start as registered nurses have high starting wages but only moderate wage growth, while people who start as police officers or accountants have high wage growth relative to their starting wages.

Gender, Racial, and Ethnic Wage Gaps Across Occupations

The wage growth documented in the previous section differs significantly by gender, race, and ethnicity. In particular, average wage growth is largest for men (63 percent), Asian workers (71 percent), White workers (52 percent), and workers with a bachelor's degree or higher (85 percent). Conversely, wage growth is smaller for women (32 percent), Hispanic workers (43 percent), Black workers (28 percent), and those with no college experience (29 percent). Some of the differences by gender, race, or ethnicity might reflect differences in labor force participation or hours of employment eight years after entry.^[5]

To understand how differences in individuals' initial occupation might explain these patterns, average wage growth for women relative to men (Figure 2) and Black workers relative to White workers (Figure 3) is shown for each initial two-digit occupation (from the 2018 Standard Occupation Classification). Figure 2 shows that, although occupations with high wage growth for men also tend to have high wage growth for women, women tend to experience lower average wage growth than men across all occupations. Similar patterns are also present for Black workers relative to White workers in Figure 3, though there are smaller gaps in wage growth within occupations for Black workers relative to White workers than there are between women relative to men. These patterns suggest that the lower average wage growth observed for women and Black workers cannot be fully explained by initial occupation choice.

To understand how much of these differences in wage growth by gender and race can be explained by initial occupation choice and other relevant demographic differences across workers, such as age at time of labor market entry, educational attainment, or firm characteristics, RAND researchers ran regression models that control for those worker and firm characteristics. Observed gender gaps in wage growth persisted, although the Black-White gap in wage growth was slightly smaller in these models. This suggests that the majority of gender and race differences in average wage growth cannot be explained by differing choices in initial occupations.

Nonroutine Analytical Skills and Interacting with Others Are Most Associated with Wage Growth

RAND researchers also examined how the skills profile of a worker's four-digit occupation is related to their wage growth (using skills profiles from Deming, 2017). Wage growth is largest for workers who start in occupations with a high concentration of nonroutine analytical skills, deductive and inductive reasoning, and interacting with others, while it is lowest for workers in occupations that require greater number facility skills and coordinating work and teams. This dynamic is somewhat consistent with evidence that wage growth is faster in occupations that involve nonroutine tasks (see Deming, 2023; Deming, 2021; and Autor, Levy, and Murnane, 2003) and that occupations requiring social skills—such as those required in jobs with a lot of worker interactions and communications—tend to have larger wage growth (Deming, 2017).

The relationships between skills and wage growth also vary across demographic groups. For women and Hispanic workers, wage growth is disproportionately large relative to their nonminority counterparts in occupations with high concentrations of service skills; for Black workers, wage growth is larger in occupations that require information use and coordinating skills. These dynamics suggest that these skills might be particularly conducive to upward mobility for minority workers, though more research is needed to understand the mechanisms.

Implications

This research indicates that workers' initial occupations play an important role in shaping their career trajectories. Workers who start in occupations with high average starting wages tend to have higher wage growth over their first eight years in the labor market. Thus, earnings inequality is likely to expand over a worker's time in the labor market. Furthermore, women and Black workers have lower average wage growth than their nonminority counter­parts. This is true both overall and within most occupations, even conditional on differences in educational attainment and worker and firm characteristics. Wage growth, and the magnitude of the gaps in wage growth by gender and race, varies across occupations and according to the skill composition of a worker’s first occupation.

This work highlights the importance of identifying ways to close gaps in wage growth by gender and race. There could be some benefits to workers who shift to starting in occupations with smaller wage gaps or with high starting wages. However, the prevalence of wage gaps across occupations suggests the need for additional efforts to address these gaps. More work is needed to understand potential policies or tools that could help close gender and racial wage gaps within occupations. Future research examining additional mechanisms for disparities in wage growth can help guide this work.

Notes

• [1] Any views expressed are those of the authors and not those of the U.S. Census Bureau. The Census Bureau has reviewed this data product to ensure appropriate access, use, and disclosure avoidance protection of the confidential source data used to produce this product. This research was performed at a Federal Statistical Research Data Center under FSRDC Project Number 2759 (CBDRB-FY25-P2759-R11726).
• [2] This study was funded by WorkRise, which aims to rebuild a more equitable and resilient labor market that expands opportunity and economic mobility for workers. For more information, please visit WorkRise's website. This research uses data from the Census Bureau’s Longitudinal Employer-Household Dynamics Program, which was partially supported by the following National Science Foundation Grants: SES-9978093, SES-0339191, and ITR-0427889; National Institute on Aging Grant AG018854; and grants from the Alfred P. Sloan Foundation.
• [3] For the purposes of this analysis, entering the labor market for the first time is defined as when a worker has annual earnings that are greater than or equal to what the worker would earn working 2,000 hours a year at their state’s minimum wage. This research focused on workers who enter the labor market by 2011 to examine their earnings eight years after labor market entry.
• [4] Occupation codes are used by the federal government as a way to classify occupational categories.
• [5] These increases reflect unconditional differences (i.e., the differences do not further control for correlated factors). The sample includes people who have zero earnings eight years after labor market entry. These people might be out of the labor force, unemployed, or employed in a job or state not covered by the Longitudinal Employer Household Database sample.

References

• Autor, David H., Frank Levy, and Richard J. Murnane, "The Skill Content of Recent Technological Change: An Empirical Exploration," Quarterly Journal of Economics, Vol. 118, No. 4, November 2003.
• Autor, David H., Lawrence F. Katz, and Melissa S. Kearney, "Trends in US Wage Inequality: Revising the Revisionists," Review of Economics and Statistics, Vol. 90, No. 2, 2008.
• Card, David, "The Causal Effect of Education on Earnings," in Orley C. Ashenfelter and David Card, eds., Handbook of Labor Economics, Vol. 3, 1999.
• Chetty, Raj, Matthew O. Jackson, Theresa Kuchler, Johannes Stroebel, Nathaniel Hendren, Robert B. Fluegge, Sara Gong, Federico Gonzalez, Armelle Grondin, Matthew Jacob, et al., "Social Capital I: Measurement and Associations with Economic Mobility," Nature, Vol. 608, No. 7921, 2022.
• Deming, David J., "The Growing Importance of Social Skills in the Labor Market," Quarterly Journal of Economics, Vol. 132, No. 4, November 2017.
• Deming, David J., The Growing Importance of Decision-Making on the Job, National Bureau of Economic Research, 2021.
• Deming, David J., Why Do Wages Grow Faster for Educated Workers? National Bureau of Economic Research, 2023.
• Hanson, Andrew, Carlo Salerno, Matt Sigelman, Mels de Zeeuw, and Stephen Moret "Talent Disrupted: Underemployment, College Graduates, and the Way Forward," Burning Glass Institute and Strada Institute for the Future of Work, February 2024.
• Piketty, Thomas, and Emmanuel Saez, "Income Inequality in the United States, 1913–1998," Quarterly Journal of Economics, Vol. 118, No. 1, 2003.
• Rubinstein, Yana, and Yoram Weiss, "Post Schooling Wage Growth: Investment, Search and Learning," in Eric Hanushek and Finis Welch, eds., Handbook of the Economics of Education, Vol. 1, 2006.
• U.S. Census Bureau, American Community Survey Data via API, database, undated-a. As of November 19, 2024: https://www.census.gov/programs-surveys/acs/data/data-via-api.html
• U.S. Census Bureau, Longitudinal Employer-Household Dynamics, database, undated-b. As of November 19, 2024: https://lehd.ces.census.gov/data/
• von Wachter, Till, "The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources," Journal of Economic Perspectives, Vol. 34, No. 4, 2020.

Available for Download

Download PDF

Topics

• Gender Equity in the Workplace
• Labor Markets
• Racial Equity
• Wages and Compensation