Uncertainty in Human Capital Investment and Earnings Dynamics
This 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..
When requesting a correction, please mention this item's handle: RePEc:ucp:jhucap:v:4:y:2010:i:1:p:62-83. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.