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If you fancy yourself “young, scrappy and hungry” like the title character of Broadway blockbuster “Hamilton,” that means you're probably willing to subsist on peanuts for the chance to make it big in your dream career … for now. (You figure you’ve got lots time to make the big bucks — isn’t that what your 40s are for!?)
But your “salary arc” is much shorter than you might think.
We’ve always tried to make our readers aware of this pitfall, so we’re glad to see that some additional data has surfaced to back us up. Last month a group of economists published a paper that did something a lot of previous income-gap studies have failed to do: Look closely at people’s pay over their entire working lives.
The research was conducted as a cohort study, following American workers from ages 25 to 55 and recording their earnings histories via Social Security data. The oldest cohort turned 25 in 1957, the youngest in 1983.
The findings, which were reported on in Quartz, are a little heady — so let’s break down the most important points:
• Almost all income growth happens in the first 10 years of your career. Across several cohorts, nearly all increases — in percentage terms — took place before age 35.
• Pay raises are getting smaller. Salary increases are critical in the early years of your career but they’ve continued to diminish over time. This explains why, after adjusting for inflation, the average American man hasn’t gotten a raise since the 1970s. (Ouch!)
• Smaller raises are worse when you start out with a lower salary. The researchers believe that measly increases during these crucial early years can account for for both lifetime wage stagnation and deepening income inequality. (Talk about pouring salt on a wound.)
• There’s a big pay disparity for younger workers. The researchers saw a bigger income discrepancy between the top 10% of earners and everyone else when it came to those who were just starting out in their careers. It’s not entirely clear why that's the case — although as Quartz suggests, it could be that some entry-level workers are simply choosing higher paid companies, which better positions them to rake it in for the rest of their careers.
So, what does this slightly depressing news mean for you? If you’re just starting out in your career, give some extra thought to the compensation levels of the companies you’re considering. If you’ve been in the workforce for a while, then negotiate the heck out of your offer package the next time you get a new gig. And if you’ve been in the same position for a while without a raise, then it may be time to have a talk with your boss.