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The Importance of Obtaining a High-Paying Job

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  • Devereux, Paul J.

Abstract

Given the high level of job mobility in the United States, one might think that obtaining a low-paying job would have only temporary consequences. However, using longitudinal data, I find that state dependence in wages is large and persistent. If two comparable individuals start jobs that pay a different wage, about 60% of the wage differential is still present four years later. Moreover, about 50% of the wage differential is still present for workers who have switched employers during that period. The results indicate that the jobs acquired by individuals have long- term effects on their future careers. I also examine the mechanisms that lead to state dependence. In a stigma model, prospective employers use wages as a signal of ability. Thus, getting a poor job can lead the market to believe that an individual has low ability. In the learning-by-doing model, workers who get high-paying jobs also attain greater opportunities to acquire human capital. The evidence suggests that both stigma and learning by doing models contribute to state dependence in wages.

Suggested Citation

  • Devereux, Paul J., 2002. "The Importance of Obtaining a High-Paying Job," MPRA Paper 49326, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49326
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    File URL: https://mpra.ub.uni-muenchen.de/49326/1/MPRA_paper_49326.pdf
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    References listed on IDEAS

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    Blog mentions

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    1. Au mauvais endroit au mauvais moment? Le devenir des primo-entrants sur un marché du travail en crise
      by arthur.heim@education.gouv.fr (Arthur Heim) in BS Initiative on 2014-06-17 13:09:18

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    Cited by:

    1. Wozniak, Abigail, 2006. "Educational Differences in the Migration Responses of Young Workers to Local Labor Market Conditions," IZA Discussion Papers 1954, Institute for the Study of Labor (IZA).
    2. Michael Boehm & Martin Watzinger, 2012. "The Allocation of Talent over the Business Cycle and its Effect on Sectoral Productivity," CEP Discussion Papers dp1143, Centre for Economic Performance, LSE.
    3. Steffen Habermalz, 2014. "Rational inattention and employer learning," Oxford Economic Papers, Oxford University Press, vol. 66(2), pages 605-626.
    4. Daniel J. Benjamin, 2015. "A Theory of Fairness in Labour Markets," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 182-225, June.

    More about this item

    Keywords

    state dependence; wage dynamics;

    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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