Earnings cyclicality of new and continuing jobs: The role of tenure and transition length

Abstract

This paper contributes to the literature on the effect of the unemployment rate on individual job earnings using administrative data for the universe of formal wage earners in Chile. A key advantage of the data is that it provides precise measures of the length of job transitions and the tenure of job keepers, which we show is important to understand the cyclical behavior of earnings. Consistent with the previous literature, we find that newly created jobs (new hires) earnings are significantly more sensitive to aggregate unemployment than those of continuing jobs (job keepers). However, and contrary to recent evidence for the US, the larger sensitivity of the earnings of new jobs is a feature of both job-to-job movements as well as hires within the first year of non-employment, transitions for which wage sensitivity is less likely to be driven by cyclicality in the quality of new jobs. We also find a relevant degree of heterogeneity in the cyclical response of earnings among job keepers, with earnings being less cyclical for workers with longer tenure. These results highlight that the precise length of tenure and job transitions is relevant to correctly understand the cyclicality of wages. Our results are robust to controlling for changes in the workers’ relative wage position, suggesting that earnings cyclicality is not only an artifact of the behavior of job transitions inside and outside the firm.