Uncertainty in Human Capital Investment and Earnings Dynamics
AbstractThis paper provides a human capital theory-based explanation for the presence of a permanent component in earnings levels as well as individual heterogeneity in earnings slopes. We incorporate uncertainty about the future rental rates of human capital into a life-cycle human capital investment model and obtain an earnings equation implied by the solution to the worker's optimal investment decision. While heterogeneous growth stems from individual heterogeneity in the ability of human capital production, permanent errors are induced by the response of optimal investments to transitory rental rate shocks. We empirically show that both components are present. (c) 2010 by The University of Chicago. All rights reserved..
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Human Capital.
Volume (Year): 4 (2010)
Issue (Month): 1 ()
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Web page: http://www.journals.uchicago.edu/JHC/
Other versions of this item:
- Seik Kim, . "Uncertainty in Human Capital Investment and Earnings Dynamics," Working Papers UWEC-2008-18-P, University of Washington, Department of Economics.
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