Description

We study the effect of idiosyncratic firm shocks on the earnings and employment trajectories of workers. We use a matched employer-employee census between 2007 and 2019 for Chile, a developing economy with a significant degree of earnings inequality. The dataset allows us to explore different dimensions of heterogeneity for workers. Our results suggest that the pass-through of changes in firm sales on the wages of continuing workers can be significant, especially for large negative shocks, and that the effects vary significantly with labor market conditions. We show that responses along the extensive margin of employment also play a relevant role, as workers can face a significant risk of displacement. Our findings suggest that considering the earnings of workers who leave the firm after a negative shock provides a more precise assessment of how firms transfer risks to workers since displacement can have relevant implications.