Svenska To intranet

Separating uncertainty from heterogeneity in life cycle earnings

Author: Flavio Cunha, And James Joseph "Jim" Heckman , And Salvador Navarro-Lozano, And

Published in: Oxford Economic Papers 2005, vol. 57, iss. 2, pp. 191-261

Summary of Working paper 2005:6

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.
JEL Codes: C33, D84, I21

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.

JEL Codes: C33, D84, I21

Research areas