Job loss and earnings inequality: Distributional effects of formal re-employment in Chile

This paper examines the impact of job losses on the subsequent earnings of formal workers in Chile using administrative data. It contributes to the literature by examining the impact of job losses across the earnings distribution using unconditional quantile regression analysis. The paper thus provides evidence on the costs of losing a formal job in an emerging economy that is now considered 'high-income' but still suffers from high earnings inequality and other issues that characterise labour markets in developing countries, such as high job rotation. Our results show that, on average, wages decline by 42 % in the first month after an involuntary job loss and never fully recover their previous level within our observation period of 3 years after this loss. Workers in the bottom 10 per cent of the earnings distribution experience greater wage losses after unemployment and take longer than average to recover. Conversely, those in the top 5 per cent experience little or no wage loss and even increase their wages over time. By having a more pronounced effect at the bottom of the earnings distribution, our findings suggest that involuntary job losses reinforce earnings inequality in the Chilean labour market.