Separating Uncertainty from Heterogeneity in Life Cycle Earnings

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

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Separating Uncertainty from Heterogeneity in Life Cycle Earnings

NBER Working Paper No. w11024

124 Pages Posted: 2 Feb 2005 Last revised: 17 Aug 2022

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: January 2005

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.

Suggested Citation: Suggested Citation

Cunha, Flavio and Heckman, James J. and Navarro-Lozano, Salvador, Separating Uncertainty from Heterogeneity in Life Cycle Earnings (January 2005). NBER Working Paper No. w11024, Available at SSRN: https://ssrn.com/abstract=645266