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Sources of Lifetime Inequality

  • Mark Huggett


    (Georgetown University)

  • Gustavo Ventura


    (University of Iowa)

  • Amir Yaron


    (The Wharton School, University of Pennsylvania)

Is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital, estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth. We find that, as of age 23, differences in initial conditions account for more of the variation in lifetime earnings, lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime.

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Paper provided by Human Capital and Economic Opportunity Working Group in its series Working Papers with number 2011-020.

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Date of creation: Nov 2010
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Publication status: Forthcoming in American Economic Review
Handle: RePEc:hka:wpaper:2011-020
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  1. Mark Hugget & Gustavo Ventura & Amir Yaron, 2002. "Human Capital and Earnings Distribution Dynamics," NBER Working Papers 9366, National Bureau of Economic Research, Inc.
  2. Fatih Guvenen, 2006. "Learning your earning: are labor income shocks really very persistent?," Discussion Paper / Institute for Empirical Macroeconomics 145, Federal Reserve Bank of Minneapolis.
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  4. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
  5. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1997. "Consumption and risk sharing over the life cycle," GSIA Working Papers 228, Carnegie Mellon University, Tepper School of Business.
  6. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "The Cross-Sectional Implications of Rising Wage Inequality in the United States," CEPR Discussion Papers 4296, C.E.P.R. Discussion Papers.
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  8. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "Two Views of Inequality Over the Life-Cycle," CEPR Discussion Papers 4728, C.E.P.R. Discussion Papers.
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  12. Cunha, Flavio & Heckman, James & Navarro, Salvador, 2004. "Separating uncertainty from heterogeneity in life cycle earnings," Working Paper Series 2005:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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  17. Primiceri, Giorgio E & van Rens, Thijs, 2006. "Heterogenous Life-Cycle Profiles, Income Risk and Consumption Inequality," CEPR Discussion Papers 5881, C.E.P.R. Discussion Papers.
  18. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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  21. Mincer, Jacob, 1997. "The Production of Human Capital and the Life Cycle of Earnings: Variations on a Theme," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S26-47, January.
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  29. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
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  34. Burhanettin Kuruscu, 2006. "Training and Lifetime Income," American Economic Review, American Economic Association, vol. 96(3), pages 832-846, June.
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