Separating Uncertainty from Heterogeneity in Life Cycle Earnings
124 Pages Posted: 2 Feb 2005 Last revised: 17 Aug 2010
Date Written: January 2005
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.
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