Path Dependence in the Labor Market: The Long-run Effects of Early Career Occupational Experience

We study the causal effect of different early career occupational experiences on labor market outcomes. To do so, we pair over two decades of administrative tax data with internal personnel records from one of the largest employers of young adults in the United States: the US Army. Enlistees work in a diverse and varied set of occupations, including non-combat roles like mechanics, legal services, financial specialists, cooks, dental hygienists, police officers, and network/computer specialists. Occupational eligibility is determined by test score cutoffs which we leverage in a series of 35 regression discontinuity designs. We find that a typical early career occupational experience generates a substantial amount of path dependence, with point estimates that suggest a 19p.p. increase in the likelihood of being observed in an identical or closely related occupation as much as 20 years later. The corresponding impact of different occupations on earnings are highly heterogeneous, yet predictable: long-run changes in the average earnings of the occupations applicants are pushed into, and pulled out-of, can explain over 60% of the causal variation across cutoffs, with point estimates that suggest improvements in occupational earnings premia translate dollar-for-dollar into economic success. Taken together, our results highlight the importance of early career occupational experience as a key channel for promoting long-run well-being among young adults who are not college bound.