Human capital accumulation over the life cycle under multiple sources of uncertainty
AbstractIn this paper, we analyse the human capital accumulation process over the life cycle of individuals under the hypothesis of earnings uncertainty. To do so, we develop a continuous time dynamic programming model which takes into account several sources of uncertainty, concerning the human capital accumulation process and the labour market. In particular, the risks over future wage rates and over-education are explicitly taken into account. The model permits an in-depth study of each source's effect of uncertainty on human capital investment. We demonstrate that investment in education may be encouraged, depending on the individual's perception of the different risks.
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Date of creation: 2004
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Human capital; Life cycle; Risk; Stochastic optimal control;
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