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Earnings Instability and Tenure

  • Cappellari, Lorenzo

    ()

    (Università Cattolica del Sacro Cuore)

  • Leonardi, Marco

    ()

    (University of California, Berkeley)

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.

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File URL: http://ftp.iza.org/dp2527.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2527.

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Length: 33 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2527
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  1. Andrea Brandolini & Piero Cipollone & Paolo Sestito, 2001. "Earnings Dispersion, Low Pay and Household Poverty in Italy, 1977-1998," Temi di discussione (Economic working papers) 427, Bank of Italy, Economic Research and International Relations Area.
  2. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
  3. Low, Hamish & Meghir, Costas & Pistaferri, Luigi, 2008. "Wage Risk and Employment Risk over the Life Cycle," IZA Discussion Papers 3700, Institute for the Study of Labor (IZA).
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  7. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  8. Parent, Daniel, 2002. "Matching, human capital, and the covariance structure of earnings," Labour Economics, Elsevier, vol. 9(3), pages 375-404, July.
  9. Dickens, Richard, 2000. "The Evolution of Individual Male Earnings in Great Britain: 1975-95," Economic Journal, Royal Economic Society, vol. 110(460), pages 27-49, January.
  10. Peter Gottschalk & Robert Moffitt, 2009. "The Rising Instability of U.S. Earnings," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 3-24, Fall.
  11. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-66, July.
  12. Mortensen, Dale T, 1988. "Wages, Separations, and Job Tenure: On-the-Job Specific Training or Matching?," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 445-71, October.
  13. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers.
  14. Parent, D., 1995. "Industry-Specific Capiatl and the Wage Profile: Evidence from the NLSY and the PSID," Cahiers de recherche 9508, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  15. Molly Dahl & Thomas DeLeire & Jonathan A. Schwabish, 2011. "Estimates of Year-to-Year Volatility in Earnings and in Household Incomes from Administrative, Survey, and Matched Data," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 750-774.
  16. Joseph G. Altonji & Nicolas Williams, 2005. "Do Wages Rise with Job Seniority? A Reassessment," ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
  17. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
  18. Kalwij, Adriaan & Alessie, Rob, 2003. "Permanent and Transitory Wage Inequality of British Men, 1975-2001: Year, Age and Cohort Effects," IZA Discussion Papers 686, Institute for the Study of Labor (IZA).
  19. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  20. Cappellari, Lorenzo, 2002. "Earnings dynamics and uncertainty in Italy: how do they differ between the private and public sectors?," Labour Economics, Elsevier, vol. 9(4), pages 477-496, September.
  21. Shin, Donggyun & Solon, Gary, 2011. "Trends in men's earnings volatility: What does the Panel Study of Income Dynamics show?," Journal of Public Economics, Elsevier, vol. 95(7), pages 973-982.
  22. Cappellari, Lorenzo, 2000. "The dynamics and inequality of Italian male earnings: permanent changes or transitory fluctuations?," ISER Working Paper Series 2000-41, Institute for Social and Economic Research.
  23. Ann Huff Stevens, 2001. "Changes in earnings instability and job loss," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(1), pages 60-78, October.
  24. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
  25. Leonardi, Marco, 2003. "Earnings Instability of Job Stayers and Job Changers," IZA Discussion Papers 946, Institute for the Study of Labor (IZA).
  26. Xavier Ramos, 2003. "The Covariance Structure of Earnings in Great Britain, 1991-1999," Economica, London School of Economics and Political Science, vol. 70(278), pages 353-374, 05.
  27. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  28. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  29. Danielle Venn, 2011. "Earnings Volatility and its Consequences for Households," OECD Social, Employment and Migration Working Papers 125, OECD Publishing.
  30. Bingley, Paul & Cappellari, Lorenzo & Westergård-Nielsen, Niels C., 2013. "Unemployment Insurance, Wage Dynamics and Inequality over the Life Cycle," IZA Discussion Papers 7128, Institute for the Study of Labor (IZA).
  31. Sule Celik & Chinhui Juhn & Kristin McCue & Jesse Thompson, 2009. "Understanding Earnings Instability: How Important are Employment Fluctuations and Job Changes?," Working Papers 09-20, Center for Economic Studies, U.S. Census Bureau.
  32. Lorenzo Cappellari, 2004. "The Dynamics and Inequality of Italian Men’s Earnings: Long-term Changes or Transitory Fluctuations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
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