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Earnings Instability and Tenure

Author

Listed:
  • Cappellari, Lorenzo

    (Università Cattolica del Sacro Cuore)

  • Leonardi, Marco

    (University of Milan)

Abstract

This paper develops a tractable empirical approach to estimate the effect of on-the-job tenure on the permanent and the transitory variance of earnings. The model is also used to evaluate earnings instability associated with fixed-term contracts (short-tenure contracts) in Italy. Our results indicate that each year of tenure on the job reduces earnings instability on average by 15%. Workers on a fixed-term contract on average have an earnings instability 10% higher than workers on a permanent contract. Workers who spend their entire working life on fixed-term contracts can expect an earnings instability twice as high.

Suggested Citation

  • Cappellari, Lorenzo & Leonardi, Marco, 2006. "Earnings Instability and Tenure," IZA Discussion Papers 2527, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2527
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    Cited by:

    1. Caterina Giannetti & Marianna Madia & Luigi Moretti, 2014. "Job insecurity and financial distress," Applied Financial Economics, Taylor & Francis Journals, vol. 24(4), pages 219-233, February.
    2. Wizan, Maisarah & Sologon, Denisa M. & Marchal, Sarah, 2025. "The Shift from Persistent Inequality to Earnings Instability in Belgium," IZA Discussion Papers 18132, Institute of Labor Economics (IZA).
    3. SOLOGON Denisa & VAN KERM Philippe, 2014. "Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009," LISER Working Paper Series 2014-03, Luxembourg Institute of Socio-Economic Research (LISER).
    4. Andrea Brandolini & Romina Gambacorta & Alfonso Rosolia, 2018. "Inequality amid income stagnation: Italy over the last quarter of a century," Questioni di Economia e Finanza (Occasional Papers) 442, Bank of Italy, Economic Research and International Relations Area.
    5. Francesco Devicienti & Bernardo Fanfani & Agata Maida, 2019. "Collective Bargaining and the Evolution of Wage Inequality in Italy," British Journal of Industrial Relations, London School of Economics, vol. 57(2), pages 377-407, June.
    6. Koray Aktas, 2021. "Characterizing Life-Cycle Dynamics of Annual Days of Work, Wages, and Cross-Covariances," Working Papers 465, University of Milano-Bicocca, Department of Economics.
    7. Albanese, Andrea & Gallo, Giovanni, 2020. "Buy flexible, pay more: The role of temporary contracts on wage inequality," Labour Economics, Elsevier, vol. 64(C).
    8. Koray Aktaş, 2025. "Characterising life-cycle dynamics of annual days of work, wages, and cross-covariances," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 23(2), pages 571-604, June.
    9. Alessio Tomelleri, 2021. "Temporary jobs and increasing inequality for recent cohorts in Italy," LABOUR, CEIS, vol. 35(4), pages 500-537, December.
    10. Marco Leonardi, 2017. "Job Mobility And Earnings Instability," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 260-280, January.
    11. Francesca Bergamante & Tiziana Canal, 2018. "Giovani nel mercato del lavoro: transizioni, ricerca e qualit?," ECONOMIA E SOCIET? REGIONALE, FrancoAngeli Editore, vol. 2018(2), pages 41-58.
    12. Flabbi, Luca & Leonardi, Marco, 2010. "Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market," European Economic Review, Elsevier, vol. 54(6), pages 832-854, August.
    13. Sara AYLLÓN & Xavier RAMOS, 2019. "Youth earnings and labour market volatility in Europe," International Labour Review, International Labour Organization, vol. 158(1), pages 83-113, March.
    14. María Cervini-Plá & Xavier Ramos, 2012. "Long-Term Earnings Inequality, Earnings Instability and Temporary Employment in Spain: 1993–2000," British Journal of Industrial Relations, London School of Economics, vol. 50(4), pages 714-736, December.
    15. Amina Ebrahim & Kezia Lilenstein, 2019. "Gender and the South African labour market: Policy relevant research possibilities using South African tax data," WIDER Working Paper Series wp-2019-31, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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