Post Schooling Human Capital Investments and the Life Cycle Variance of Earnings

77 Pages Posted: 18 May 2013

See all articles by Thierry Magnac

Thierry Magnac

Toulouse School of Economics; University of Toulouse 1 - Industrial Economic Institute (IDEI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Nicolas Pistolesi

University of Toulouse 1

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Abstract

We propose an original model of human capital investments after leaving school in which individuals differ in their initial human capital obtained at school, their rate of return, their costs of human capital investments and their terminal values of human capital at a fixed date in the future. We derive a tractable reduced form Mincerian model of log earnings profiles along the life cycle which is written as a linear factor model in which levels, growth and curvature of earnings profiles are individual-specific. Using panel data from a single cohort of French male wage earners observed over a long span of 30 years, a random effect model is estimated first by pseudo maximum likelihood methods. This step is followed by a simple second step fixed effect method by which individual-specific structural parameters are estimated. This allows us to test restrictions, compute counterfactual profiles and evaluate how earnings inequality over the life-cycle is affected by changes in structural parameters. Under some conditions, even small changes in life expectancy seem to imply large changes in earnings inequality.

Keywords: human capital investment, earnings dynamics, post-schooling earnings growth, dynamic panel data

JEL Classification: C33, D91, I24, J24, J31

Suggested Citation

Magnac, Thierry and Pistolesi, Nicolas and Roux, Sébastien, Post Schooling Human Capital Investments and the Life Cycle Variance of Earnings. IZA Discussion Paper No. 7407, Available at SSRN: https://ssrn.com/abstract=2266834

Thierry Magnac (Contact Author)

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nicolas Pistolesi

University of Toulouse 1 ( email )

Place Anatole France
Toulouse Cedex, F-31042
France

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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