Cyclical Earnings, Career and Employment Transitions

Career changes across occupations are central to the cyclical behavior of workers’ earnings growth. Using SIPP data, we show that workers who switch both employers and occupations account for 58 percent of the increase in the left-skewness of earnings growth during recessions. This is driven mainly by cyclical variation in the earnings changes upon a transition, rather than in transition flows. In a business cycle model with on-the-job search over employer and occupation ladders, cyclical shifts in the quality of worker-occupation matches are the main source of cyclical earnings risk, but they generate procyclical skewness only through workers’ optimal mobility decisions: without these, procyclical skewness becomes countercyclical variance. Our results give a structural foundation to reduced-form income processes with higher-order risk, and point to policies that target occupational reallocation directly.