We study the effect of tenure on earnings instability in Italy using the reforms of temporary employment contracts which affected the average tenure of workers differentially across cohorts. We develop a model of earnings dynamics and exploit the variation of tenure and instability over time and across birth cohorts to estimate policy-relevant parameters. Our results indicate that each year of tenure on the job reduces earnings instability by 11%; the drop is faster in the first three years of the match. Workers on a temporary contract have an earnings instability up to 100% higher than workers on a permanent contract.
- Earnings Instability