Right now is one of the best times to find a new job.
This is the result of the latest data on wage growth in the Atlanta Federal Reserve. They find that the past 12 months have been among the strongest on record for people changing jobs, with the pay premiums associated with changing jobs being roughly double the usual rate.
For workers looking to boost their lifetime earnings, not to mention their retirement accounts, the 2023 job market offers some of the best opportunities in a long time.
Here’s what’s happening.
Talk to a financial advisor today plan to maximize your income and retirement.
Job change and lifetime income
A well-known characteristic of the labor market is that it tends to reward people who change jobs.
This has been studied and documented for decades, ever since researchers first started noticing this trend. In 1992, for example, Harvard’s Quarterly Journal of Economics published a paper finding that job change accounts for at least a third of a worker’s salary growth at the start of their career. “Job change is an essential part of the movement of workers toward stable employment relationships linked to mature careers…it is the principal method by which workers today improve their condition on their own initiative.”
The Federal Reserve Bank of Atlanta has been tracking this phenomenon for almost as long, releasing monthly wage data since 1998. In almost every month for the past 25 years, their data shows that people who change jobs have wage growth higher than those who remain in the same position. . The only significant exceptions have occurred following recessions, which tend to create a short-term preference for stability. (This was not the case for the historically strong post-Covid recovery.)
And above all, this wage growth is cumulative.
A worker who changes jobs and receives a 5% raise has increased their earning capacity. By changing jobs later, they could receive an additional 5% raise and another after that, ending up 15.7% ahead of where they started. Each increase increases the value of the previous one. In this way, changing jobs can significantly increase a worker’s lifetime income.
Right now, people who change jobs are more successful than ever
What has changed, according to Federal Reserve data, is the scale of this phenomenon.
Historically, people who change jobs tend to get an advantage of between 0.5 and 1 point over those who stay put. For example, in January 2017, people who kept their jobs saw an average growth of 3.2%, compared to growth of 4.1% for people who changed jobs.
Over the past two years, and especially over the past 12 months, this advantage has doubled. In June 2023, wages increased by an average of 5.5% for workers who remained behind. Those who changed jobs got an average raise of 7.3%. In April 2023, these figures were 5.6% and 7.6% respectively, and 5.5% for people who remained in their job compared to 7.7% for people who changed jobs in January 2023.
This trend has been broadly true since the start of 2022. In 2020 and 2021, people who changed jobs maintained their advantage of around 1 point over people who stayed in their jobs. Then, about two years ago, job growth began to gain real momentum, with a significant advantage today.
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What you do matters
That said, the data does contain some details. Concretely, the less you earn, the less it works.
Today’s job market has rewarded some of the traditionally forgotten sectors of the economy. In the post-pandemic recovery, low-wage workers have seen some of the highest income gains of any group. The causes of this phenomenon remain debated, with theories that include pandemic-related disruptions, the Trump and Biden administrations’ stimulus bills, and the Biden administration’s economic plans.
But historically this has not been true.
The practice of changing jobs to increase one’s lifetime income is known as “job laddering.” In the economics metaphor, workers move up the ladder to gain cumulative gains as they go. Like the Federal Reserve of St. Louis find when they studied the impact of job change on male workers, it generally did not apply to low-income earners.
Even though low-income workers are more likely to change jobs, they write, this rarely translates into wage growth and momentum. Rather, it is often the result of prolonged unemployment, which tends to lower lifetime earnings. For most income levels, they found: “(a)verage annual income growth for people who remain employed is strikingly similar…while for people who change jobs it increases almost linearly, from 0% for the lowest earners to around 3% for those in the 65th percentile. “
For the poorest 40% of employees, changing jobs tends to hurt their wage growth relative to their stability. After that, the more a person earns, the more they tend to gain by changing jobs. It is particularly true employees, who tend to benefit about three times as much as employees when changing jobs.
This observation echoes that of published research by McKinsey & Company, in which they found that job changers see the largest salary gains in the context of skills development. “Professional transfers involving salary increases required on average greater skills development than other transfers. Incremental changes with largely overlapping skill requirements do not have the same impact. Going to another company to perform many of the same tasks can bring in a paycheck. short-term growth but no real long-term growth. »
Change jobs to boost your retirement
So what does all this say about your retirement?
The long-term bottom line is this: one of the best ways to increase your retirement savings is to maintain your career momentum. Every time you change jobs, you have the opportunity to negotiate for more money, creating a cumulative effect that helps increase your income again and again.
This will still give you more flexibility in contributing to your retirement account. With more lifetime income, you can put more money into a 401(k), IRA, or other self-funded accounts. Higher income also means higher employer contributions, since these are based on a percentage of your income. Future increases will also be based on your income, creating a cumulative effect that increases your ability to save for retirement over the long term.
But it’s also important to keep in mind that it’s not all about volatility. Income gains from a new job are usually linked to developing your skills and moving up the career ladder. To increase your income and savings, focus on generating new skills and think in terms of career rather than employment. Workers who tend to move laterally between similarly situated positions tend not to enjoy many, if any, of the gains from changing jobs.
Or, as McKinsey puts it, “When someone has learned everything they can from an employer, they shouldn’t just go there; he should also go boldly in search of learning opportunities elsewhere. »
Tips for increasing income
Just as it’s good to think of your work in terms of a career, it’s helpful to think of your income in terms of net worth. And there’s a lot you can do to increase your net worth.
A financial advisor can help you develop a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool connects you with up to three approved financial advisors that serve your area, and you can have a free introductory call with your advisor to decide which one seems best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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