I recently realized that the opportunity cost of taking off work is not just the lost wages in the present year, but reduced future wages. This is because salaries are generally based on experience. This applies if you plan to work up to a certain age. If you take a year off, you will have one year less experience for each of the futures years you work. From a couple sources, I have found this experience premium to be about 2% per experience year. Therefore, taking off early in a career results in lost future salaries roughly equal to the lost salary in the present year. This doubles the opportunity cost. Does anyone know if someone has posted on this topic more rigorously?
I recently realized that the opportunity cost of taking off work is not just the lost wages in the present year, but reduced future wages. This is because salaries are generally based on experience. This applies if you plan to work up to a certain age. If you take a year off, you will have one year less experience for each of the futures years you work. From a couple sources, I have found this experience premium to be about 2% per experience year. Therefore, taking off early in a career results in lost future salaries roughly equal to the lost salary in the present year. This doubles the opportunity cost. Does anyone know if someone has posted on this topic more rigorously?
Yeah, this is a pretty key point that it would be nice to see covered, here or on the 80k blog.