Happy Labor Day!
I graduated from graduate school over 16 years ago and got my first “real” job at MegaCorp. I switched jobs in January 2013 to LittleCorp, which was bought within a year by DumpsterFire. Later, in January 2017, I left DumpsterFire for StartupInc, and I’ve been here for over 4 ½ years.
Over that time, I’ve been able to watch my wages grow as I’ve gained greater experience and influence. However, during those years, inflation has also been working it’s charm. Even though my nominal salary has gone up, has it kept pace with inflation? Is there any easy way to compare what I was earning as a new graduate with what I earn today?
The Social Security Administration (SSA) cares very much about being able to compare a worker’s wages over time. A few weeks ago, Max Out of Pocket touched on the SSA’s process of indexing wages when he dug into his Social Security earnings.
Now that we’re armed with the SSA indexing tables, I thought it would be interesting to apply the indexing to my past 16 years of employment since graduate school, and see if my current self has kept up with my past self. How have my job changes affected my lifetime earnings?
First, let’s start with a graph. The following graph shows my earnings since 2004. The solid lines are the actual values reported on my W2 forms while the dotted lines are multiplied by the SSA’s indexing tables for that year. Because I didn’t stop employment right on December 31st when I left MegaCorp and DumpsterFire, I’ve divided my wages by the number of weekdays during the year that I was employed at a particular company. This should normalize my salary during that period.
The blue lines are from my 8 ½ years at Megacorp. My compensation included salary as well as an annual bonus, restricted stock units (RSUs) and an ESPP, all of which was reflected on my W2. I’m not sure how to explain the final bump towards the end, but it must have been a larger bonus or RSUs. I’ve removed the nice little bump in my pay from my final paycheck for the accrued PTO.
The red lines are from my 4 years at LittleCorp/DumpsterFire. When I started at LittleCorp, I took a paycut, mostly because LittleCorp wasn’t public and I was no longer getting RSUs or participating in an ESPP. But all that changed in my second year with LittleCorp with the acquisition by DumpsterFire. DumpsterFire had gone public just months before purchasing LittleCorp, so now my options were worth something on paper. So in years two and three, I exercised and sold some options, leading to a bump in W2 income. In addition, I started getting RSUs and had access to an ESPP. And lastly, DumpsterFire moved everyone over to “flexible time off”, paying out our accrued vacation during year three. My final years at DumpsterFire more than made up for my initial pay cut.
The green lines are from my current 4 ½ years at StartupInc. You can see from the chart that my total W2 income started out on par with my final income from MegaCorp. But when indexed, it’s an even bigger drop. Again, I have no access to RSUs or an ESPP, nor even a 401(k) match. However, I do have options and if StartupInc makes it, it should make up for what I’ve lost. It won’t be reflected in the W2 income because when I sell my already-exercised shares, I will have held them long enough to show up instead as long-term capital gains and not on my W2.
I’ve been fortunate over my career to have pay increases that exceed inflation. I suspect for many wage earners, while they’ve been getting pay increases over time, when you factor in inflation, they are making more or less the same that they made in the past. Inflation bites.
What are your thoughts about my analysis? I’d love to hear them in the comments!
Hasta luego and Happy Labor Day!