Cyclical Earnings and Employment Transitions

Recessions increase unemployment risk and decrease job and occupation flows. This paper connects cyclical differences in the earnings change distribution with cyclical differences in workers flows. Earnings changes are typically larger when workers change jobs and even larger when switching occupation. This implies that the incidence of flows directly affects earnings changes. However, the business cycle also affects earnings outcomes conditional on a job, employment status and/or occupation change. We formally decompose cyclical movements in the earnings change distribution into worker-flow components and ``returns'' components. Then, because job and occupation switching are endogenous, we look through the lens of a business cycle model with on-the-job search and occupational mobility to rationalize observed behaviour, thereby distinguishing who moves and why, and how this relates to the underlying risks workers face.