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Separating Uncertainty from Heterogeneity in Life Cycle Earnings

Author

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  • Cunha, Flavio

    (University of Pennsylvania)

  • Heckman, James J.

    (University of Chicago)

  • Navarro, Salvador

    (University of Wisconsin-Madison)

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.

Suggested Citation

  • Cunha, Flavio & Heckman, James J. & Navarro, Salvador, 2004. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," IZA Discussion Papers 1437, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1437
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    References listed on IDEAS

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    More about this item

    Keywords

    counterfactuals; uncertainty; lifecycle earnings; schooling; heterogeneity;
    All these keywords.

    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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