Earnings Cyclicality of New and Continuing Jobs: The Role of Tenure and Transition Length

This paper contributes to the literature on the effect of the unemployment rate on individual job earnings by using administrative data for the universe of formal wage earners in Chile. A relevant advantage of this dataset relative to previous papers is that provides precise measures of the length of job transitions, as well as the tenure of job keepers. We show that this detailed characterization of the worker’s employment status is important to understand the cyclical behavior of earnings. We find that, consistent with the previous literature, earnings of newly created jobs (new hires) are significantly more sensitive to aggregate unemployment than those of continuing jobs (job keepers). However, and contrary to recent evidence for the US, we find that the larger sensitivity of the earnings of new jobs is a feature of both job-to-job transitions as well as hires from up to six months of non-employment. 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.