How Earnings Change Over a Career

Why earnings typically rise steeply early in a career and flatten later, what the returns to education look like, and a recap of labour economics ideas.

How do earnings change over a working life? Labour economists have studied this for decades, and the pattern is strikingly consistent across countries.

The age-earnings profile

For most workers, earnings:

Rise steeply in the early years of a career as workers gain skills and experience.
Grow more slowly in middle age.
Flatten or decline later, as skills become outdated or people reduce hours.

This shape is called the age-earnings profile.

Why earnings rise with experience

Learning on the job: workers become more productive.
Job shopping: early in careers, workers move to better-matched and better-paid jobs.
Promotions and seniority.

The Mincer equation

Economist Jacob Mincer, a pioneer of human capital theory, developed an equation in 1974 linking earnings to years of schooling and experience. It remains one of the most widely used tools in labour economics.

Returns to education

Using such methods, economists estimate how much each extra year of schooling raises earnings. A global review by economists George Psacharopoulos and Harry Patrinos found an average return of around 9 percent per year of schooling, with higher returns in lower-income countries and for higher education in many places.

Differences between groups

Workers with more education often have steeper earnings growth.
Career interruptions, such as time off for caregiving, can flatten profiles, contributing to the gender pay gap.
Informal workers in India often have flat profiles, with little wage growth over time.

Module recap

Compensating differentials explain pay for risky jobs when workers have choices.
Efficiency wages explain why some firms pay above market.
Correspondence studies reveal hiring discrimination.
Job polarisation hollowed out middle-skill jobs.
Employment protection balances security and hiring.
The Beveridge curve shows matching between jobs and workers.
India faces educated youth unemployment, rising contract labour, limited unemployment insurance and large circular migration.

Two careers

A software engineer's salary doubles in her first five years as she gains skills and switches to a better job, then rises more slowly. Her cousin, working informally as a tailor, earns roughly the same inflation-adjusted amount at 45 as at 25. The difference reflects education, experience and the type of work.

Thinking earnings rise steadily throughout a career

Earnings usually grow fastest early and flatten later. Planning finances around this pattern helps.

Key takeaways

Earnings typically rise steeply early in careers and flatten later.
The Mincer equation links earnings to schooling and experience.
Returns to schooling average about 9 percent per year globally.
Career interruptions and informal work can flatten earnings profiles.