Life Cycle Wage and Job Changes

Evidence from the Panel Study of Income Dynamics shows that while the majority of job changers who state they were not fired or laid off choose jobs with wages that are higher than their previous jobs, a substantial proportion of these job changers choose jobs that have lower wages. A model is constructed that is consistent with workers choosing a career path that entails a job change to either a higher paying or lower paying job. In the model, a job consists of a tied wage and amenity package. Due to compensating wage differentials, higher wages are paid where other job amenities are unattractive. Given this, a worker chooses a career path that leads to a job change where the wage in the new job may be higher or lower than in the previous job, with the actual choice being determined by the rate of time preference.