Is changing careers financially risky?

It depends almost entirely on direction rather than on whether you switch. Following displaced workers for fifteen years, those who moved into occupations using fewer of their existing skills earned 22.4 percent below their pre-displacement wages, while those moving toward more demanding work earned 8.9 percent below and caught up with their expected path within seven years. The act of switching is not the risk. Switching downward is.

How do I tell whether a target job is a step up or a step down?

Compare skill profiles rather than job titles or salaries. O*NET, the Department of Labor's occupational database, lists the skills, tasks and work activities for occupations in a comparable format, so you can see how much of your current profile the target actually uses. A role that draws on most of what you can already do and adds to it is a different proposition from one that uses little of it, even when the advertised salary looks similar.

Should I make one big career change or several smaller moves?

When the destination is far from where you stand, the evidence favors intermediate steps that each keep the direction upward, rather than a single jump that lands below your current skill level. The penalty in the research attaches to moving into work that uses fewer of your skills, and chained moves let you keep adding rather than resetting. A wide gap crossed in one leap is the pattern most associated with a lasting earnings cost.

Does this research apply to a voluntary career change?

Only partly, and the limits are worth being clear about. The study followed German workers between 1975 and 2010, and most switches in the sample were involuntary, triggered by displacement. Someone changing deliberately while still employed, with time to prepare and choose, is in a materially better position. If anything the finding argues for moving on your own terms before circumstances force a move you did not design.

Is a lateral move a waste of time?

No, and it is better supported than its reputation suggests. A sideways move into an adjacent occupation preserves the skill base you have built while changing the context you work in, and it avoids the persistent penalty attached to moving downward. It is unglamorous advice, but the earnings data treats it far more kindly than a dramatic leap into unrelated work.

Career Change: Why Direction Matters More Than the Leap

What you will learn

Across fifteen years after displacement, workers who switched into occupations using fewer of their skills earned 22.4 percent below their pre-displacement wages, against 8.9 percent for those who switched upward.
Upskilling switchers caught up with their expected wage path within seven years. Downskilling switchers still fell short of theirs after fifteen.
Losing a job raised the probability of an occupational change eleven-fold, which is why displaced workers form a large sample of unplanned career changes.
Ten years out, the interquartile range of earnings losses ran from 17 percent to 4 percent below the counterfactual, so any single average penalty describes almost nobody.
The practical rule is to measure how much of your existing skill set a target occupation uses before weighing how appealing it sounds, and to chain intermediate steps when the gap is wide.

-22.4% Earnings against pre-displacement wages over 15 years, downskilling switchers Neffke, Nedelkoska and Wiederhold, Skill mismatch and the costs of job displacement, Research Policy, 2024, 53(2)

-8.9% Same measure for upskilling switchers, who caught up within seven years Neffke, Nedelkoska and Wiederhold, Skill mismatch and the costs of job displacement, Research Policy, 2024, 53(2)

11x Increase in the probability of changing occupation after job loss Neffke, Nedelkoska and Wiederhold, Skill mismatch and the costs of job displacement, Research Policy, 2024, 53(2)

Career change advice splits into two camps. One says take the leap, life is short, reinvention is available at any age. The other says be careful, you will lose your seniority and start over. Both are talking about the size of the jump. The evidence says size is not the variable that matters most.

What fifteen years of data shows

Researchers tracked work histories in Germany between 1975 and 2010, comparing displaced workers against statistically similar workers who were not displaced. Losing a job increased the probability of changing occupation eleven-fold, which makes displaced workers a large natural sample of people who did not plan to switch and had to (Neffke, Nedelkoska and Wiederhold, Research Policy, 2024).

Of those who switched, roughly similar shares moved into occupations demanding fewer of their existing skills, 35 percent, or more of them, 36 percent. Two nearly equal groups, both changing careers, both under pressure.

Their outcomes were not close. Across the first fifteen years after displacement, downskilling switchers earned on average 22.4 percent below their pre-displacement wages. Upskilling switchers earned 8.9 percent below.

The recovery gap is the part worth internalizing

Upskilling switchers caught up with their expected wage path within seven years. Downskilling switchers still fell short of theirs fifteen years later.

One group took a detour. The other group took a permanent step down and never fully recovered, on average, inside the window the study could observe. Same act, opposite result, and the difference was the direction of the skill move.

Why the averages hide this

Most reporting on job loss quotes a single average earnings penalty, which is close to meaningless for an individual deciding what to do next. The same study found that ten years after displacement, the interquartile range of earnings losses ran from 17 percent below the counterfactual to just 4 percent below it.

That is an enormous spread hiding inside one number, and skill mismatch explains a large part of it. A statistic describing everyone describes nobody in particular. Yours depends on which occupation you land in relative to the one you left.

The practical translation

Measure the distance before you measure the appeal

The question is not whether a target occupation excites you. It is how much of what you can already do it uses. An occupation that draws on most of your existing skills and adds a few is a different financial proposition from one that starts you over, even when both feel like the same brave decision.

The Department of Labor's O*NET database is the least glamorous and most useful tool here. It lists the skills, tasks and work activities of occupations in a comparable format, so you can see which parts of your current profile carry over and which do not.

Chain the move if the gap is wide

If the destination is far from where you stand, the evidence favors intermediate steps that keep the direction upward rather than one jump that lands below your current skill level. Two deliberate moves that each use most of what you have often beat one dramatic move that uses little of it.

Take the sideways option seriously

A lateral move into an adjacent occupation is the least romantic advice available and one of the better-supported ones. It preserves the skill base, changes the context, and does not carry the persistent penalty that a downward move does.

What this does not say

It does not say stay put. Upskilling switchers recovered, which is an argument for moving toward more demanding work rather than against moving at all.

It also comes with limits worth stating. The data covers German workers between 1975 and 2010, and most of those switches were involuntary. A planned change, made while employed, with time to prepare, is a materially better position than the one those workers were in. If anything, that argues for making the move before it is made for you.

Making the case for a change on paper

A career change puts unusual weight on how you describe past work, because the reader has to see the transfer that you can see. That means writing the underlying achievements in terms of the skill rather than the job title, which is what the achievement library is for, and then tailoring hard for each posting with the resume optimizer so the overlap is visible rather than implied.

Expect to answer the why question out loud, repeatedly. That is worth rehearsing with interactive interviews before it costs you something.

For how the pieces fit together, see how it works and the plans page.

The short version

Changing careers is not the risk. Changing downward is. Point the move at work that uses more of what you can do rather than less, and if the destination is far away, get there in steps that each keep the direction right.

References

Neffke, F., Nedelkoska, L., and Wiederhold, S. (2024). Skill mismatch and the costs of job displacement. Research Policy, 53(2). IWH Discussion Paper 11/2023. iwh-halle.de
O*NET OnLine, US Department of Labor, Employment and Training Administration. Occupation skill, task and activity profiles. onetonline.org

Disclosure: This article is published by MyJobsSearch and reflects our analysis and commentary on career strategy and job search tactics. It is for informational purposes only and does not constitute professional career, legal, or financial advice. It does not guarantee employment outcomes, interview offers, or job placements. Career results depend on many factors specific to your situation, industry, and geography. Consult a career coach or qualified professional for personalized guidance.

Two ways to change occupation, followed for fifteen years
Type of switch	Share of switchers	Earnings vs pre-displacement	Recovery
Upskilling, target uses more of your skills	36%	-8.9% over 15 years	Caught up with expected path within 7 years
Downskilling, target uses fewer	35%	-22.4% over 15 years	Still short of expected path at 15 years
All displaced workers, 10 years out	interquartile range	-17% to -4% vs counterfactual	Spread is largely explained by skill mismatch

Neffke, Nedelkoska and Wiederhold, Skill mismatch and the costs of job displacement, Research Policy, 2024, 53(2). German work histories 1975 to 2010, difference-in-differences against matched non-displaced workers.

Same act, opposite result, and the difference was the direction of the skill move.
MyJobsSearch, on Neffke, Nedelkoska and Wiederhold, Research Policy, 2024