Human Capital Investments and the Life Cycle of Earnings

Magnac, Thierry, Pistolesi, Nicolas and Roux, Sébastien (2018) Human Capital Investments and the Life Cycle of Earnings. Journal of Political Economy, 126 (3). pp. 1219-1249.

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We propose an original model of human capital investments after leaving school in which
individuals differ in their initial human capital obtained at school, their rate of return, their
costs of human capital investments and their terminal values of human capital at a fixed
date in the future. We derive a tractable reduced form Mincerian model of log earnings
profiles along the life cycle which is written as a linear factor model in which levels, growth
and curvature of earnings profiles are individual-specific. Using panel data from a single
cohort of French male wage earners observed over a long span of 30 years, a random effect
model is estimated first by pseudo maximum likelihood methods. This step is followed by a
simple second step fixed effect method by which individual-specific structural parameters
are estimated. This allows us to test restrictions, compute counterfactual profiles and
evaluate how earnings inequality over the life-cycle is affected by changes in structural
parameters. Under some conditions, even small changes in life expectancy seem to imply
large changes in earnings inequality.

Item Type: Article
Language: English
Date: June 2018
Refereed: Yes
JEL codes: C33 - Models with Panel Data
D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Dec 2016 13:35
Last Modified: 24 Jul 2019 09:21

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