What's one of the most important factors that will determine a graduate's future financial success? Their major? Their height? Their GPA? Their alma mater? Maybe, but apparently the general state of the economy at the time of graduation can have far-reaching effects on salary.

Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one's way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today's economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates' first jobs have an inordinate impact on their career path and their "future income stream," as economists refer to a person's earnings over a lifetime. ...

The Stanford class of 1988, for example, entered the job market just after the market crash of 1987. Banks were not hiring, and so average wages for that class were lower than for the class of 1987 or for later classes that came out after the market recovered. Even a decade or more later, the class of 1988 was still earning significantly less. They missed the plum jobs right out of the gate and never recovered.

The fact is that you will never catch up by "working your way to the top". The only way to use a good job market to your benefit is to jump ship and move to a different company altogether. Your existing employer will never increase your salary just because the job market is strong. By staying put when the job market goes down and then moving when the market goes back up you can continually stay on top by working your career like a ratchet.

(HT: Alex Tabarrok.)

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