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Separating uncertainty from heterogeneity in life cycle earnings

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  • Flavio Cunha
  • James Heckman
  • Salvador Navarro

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. Copyright 2005, Oxford University Press.

Suggested Citation

  • Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
    • Handle: RePEc:oup:oxecpp:v:57:y:2005:i:2:p:191-261
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    File URL: https://hdl.handle.net/10.1093/oep/gpi019
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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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