Separating Uncertainty from Heterogeneity in Life Cycle Earnings

Cunha, Flavio; Heckman, James J.; Navarro-Lozano, Salvador

Separating Uncertainty from Heterogeneity in Life Cycle Earnings

IZA Discussion Paper No. 1437

125 Pages Posted: 5 Jan 2005

See all articles by Flavio Cunha

Flavio Cunha

University of Pennsylvania - Department of Economics

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Salvador Navarro-Lozano

University of Chicago - Department of Economics

There are 3 versions of this paper

Date Written: December 2004

Abstract

This paper develops and applies a method for decomposing cross section variability of earnings into components that are forecastable at the time students decide to go to college (heterogeneity) and components that are unforecastable. About 60% of variability in returns to schooling is forecastable. This has important implications for using measured variability to price risk and predict college attendance.

Keywords: uncertainty, lifecycle earnings, schooling, heterogeneity, counterfactuals

JEL Classification: C33, D84, I21

Suggested Citation: Suggested Citation

Cunha, Flavio and Heckman, James J. and Navarro-Lozano, Salvador, Separating Uncertainty from Heterogeneity in Life Cycle Earnings (December 2004). IZA Discussion Paper No. 1437. Available at SSRN: https://ssrn.com/abstract=643622