The Occupational Ladder

The idea that workers experience wage growth by switching to better paying occupations – climbing an occupational ladder – is commonplace among workforce development and career counselling practitioners. The paper presented in this ZEW Research Seminar quantifies the importance of this in accounting for life-cycle wage growth. The authors decompose an individual worker’s wage into an occupation’s mean wage and its deviation from that occupational wage. The presented paper shows how much of the life-cycle profile is attributable to changes in the distribution of employment across occupations – climbing an occupational ladder – relative to wage growth within an occupation – climbing a job ladder. Climbing the occupational ladder plays an important role in early career when the life-cycle profile is most steep. The job ladder is an important contributor to wage growth later in the career. In terms of gender differences, while men continuously climb up the occupational ladder, women climb down starting in mid-career. Nonetheless, the widening of the gender wage gap over the life cycle is almost entirely a “within occupation” phenomenon. By contrast, the occupational ladder is more important in accounting for the size of the racial gap and its widening over the life cycle. Blacks and Hispanics start their careers at lower-paying occupations and are much less likely to ascend the occupational ladder than Whites.