Working Paper: CEPR ID: DP17560
Authors: Carlos Carrillo-Tudela; Ludo Visschers; David Wiczer
Abstract: This paper studies the cyclical behaviour of earnings risk and career changes. We document that the procyclical skewness of the earnings growth distribution arises mostly from the earnings changes of employer and occupation switchers. To uncover their relative importance in driving cyclical earnings changes and whether this arises from changes in the returns to mobility or mobility shocks, we propose a multi-sector business cycle model with on-the-job search and endogenous occupational mobility. Idiosyncratic occupational mobility is the main driver of cyclical earnings risk, mainly due to cyclical shifts in the returns to this mobility. This is the main reason why the sullying effects of recessions are long-lasting. These effects manifest themselves through a collapse of the job ladder and forgone lifetime earnings gains, especially for low-paid workers, and through large lifetime earnings losses among high-paid workers who experience forced occupational mobility and poor re-employment outcomes.
Keywords: earnings; unemployment; business cycles; on-the-job search; occupational mobility
JEL Codes: E24; E30; J62; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy interventions aimed at enhancing occupational mobility (J68) | mitigate cyclical earnings risks (E32) |
| idiosyncratic occupational mobility (J62) | cyclical earnings risk (E32) |
| cyclical shifts in the returns to mobility (J62) | idiosyncratic occupational mobility (J62) |
| cyclical shifts in the returns to mobility (J62) | cyclical earnings risk (E32) |
| changes in returns to occupational mobility during recessions (J62) | long-lasting sullying effects (Q53) |
| long-lasting sullying effects (Q53) | significant lifetime earnings losses among high-paid workers (J17) |
| collapse of the job ladder (J62) | significant lifetime earnings losses among low-paid workers (J31) |
| cyclical changes in occupational mobility (J62) | differences in earnings growth distributions (D39) |
| job loss/job finding probabilities (J63) | observed earnings changes (J31) |