Identification of Earning Dynamics using Rotating Samples over Short Periods: The Case of Chile

Due to the absence of longitudinal data, empirical studies ignore labor income dynamics in developing economies, where earnings inequality is highest and social insurance is weakest. This work proposes a dynamic earnings process with two distinct shocks: unemployment spells and the wage of workers who stay employed. I then show this income process can be estimated from employment surveys with a rotating sample design, which are available for several countries. Applying this procedure to Chilean data I show wage volatility and unemployment rates are highly heterogeneous across workers. Unemployment spells are the most important source of earnings risk for workers.