The Occupational Ladder: Implications for Life-Cycle Wage Dynamics

Henry Siu, Kelly Foley and Guido Matias Cortes

No 35929, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Some occupations pay higher wages than others, even conditional on worker characteristics, implying that occupations can be ranked on a ladder. We develop a simple decomposition to study the role this occupational ladder plays in average wage growth and in the fanning out of wages over the life cycle. We present three main findings. First, the distribution of employment shifts towards higher-paying occupations as workers gain experience. This contributes modestly to average life-cycle wage growth, with greatest impact in early career. Second, this upward movement in the occupational employment distribution is not accompanied by increasing dispersion; thus, the occupational ladder does not directly contribute to the fanning out of wages. Third, early-career workers who are well-positioned on the occupational ladder tend to earn wages far below the occupational average. However, by mid-career, workers’ relative wages within occupations (their positions on the job ladder) no longer depend on their occupation. This change in the covariance between individuals’ positions on the job and occupational ladders is a major contributor to the fanning out of wages over workers’ careers.

JEL-codes: E24 J24 (search for similar items in EconPapers)
Date: 2026-10
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lma
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