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

Carlos Madeira

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: 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.

Date: 2015-04
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