Job changes lead to higher salaries

Changing jobs pays off. People who acquire new skills and venture out of their comfort zones have a good chance to increase their earning power.

The most important resource that every economy or organization possesses is its human capital. All human beings have their own unique set of skills and decide for themselves where they want to apply them. One key way to expand skills and boost incomes is career steps taken during an individual’s work life. A McKinsey study titled “Human Capital at Work: the Value of Experience” shows that role changes pay off—particularly if the new positions expand an individual’s skills set or optimally apply it.

In Germany, the combined impact of these role changes results in an average increase in salary of 30 percent. In this process, employees will change jobs two to four times over a period of 10 years. When all role and job changes are added together—i.e., including those that occur after the loss of a job—individual pay increases total an average of just 5 percent. The largest salary gains of 30 percent to 46 percent were made by employees who decided more frequently to switch jobs—an average of five times in Germany.

Two other key factors behind jumps into higher pay grades are lateral role changes (the same/similar role at a different company) or a switch to a job in a different sector. Both require a high degree of new skills. The higher the percentage share of newly acquired skills in an individual’s skills set (skill distance), the higher the pay rise. The average skill distance per role change is 25 percent or more—that is, individuals gain a share of 25 percent of new skills on average by every job change.

Experience is just as important as formal education

The McKinsey study reached one other conclusion as well: Lifetime earnings – that is, the total amount of income earned during an entire career – make up two-thirds of the assets held by an average individual and are a key determinant of prosperity. In Germany, half of this human capital is produced through work experience and the other half through formal education (primary and secondary schools, universities and vocational colleges).

The key to career success is to frequently change roles and take bold employment steps. Role and job changes are particularly important for people in low-paying jobs. After all, work experience will make up 60 to 80 percent of lifetime earnings if an individual has little formal education.

Good start—higher income

But the crucial factor is the positions that an individual has at the start of his or her work life. Employees who work at companies that invest significantly in advanced training have better opportunities to develop their talents and will earn higher salaries during the latter stages of their careers. Even though 80 percent of job changes involve a change in employer, this does not mean that companies should ignore employee training. Rather, companies must evolve into “learning organizations” in order to appeal to talented employees. Numerous studies have shown that such individuals place a high priority on advanced training opportunities when they select an employer.