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Post Schooling Human Capital Investments and the Life Cycle Variance of Earnings

Author

Listed:
  • Magnac, Thierry

    (University of Toulouse I)

  • Pistolesi, Nicolas

    (Toulouse School of Economics)

  • Roux, Sébastien

    (CREST-INSEE)

Abstract
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.

Suggested Citation

  • Magnac, Thierry & Pistolesi, Nicolas & Roux, Sébastien, 2013. "Post Schooling Human Capital Investments and the Life Cycle Variance of Earnings," IZA Discussion Papers 7407, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7407
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    References listed on IDEAS

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    2. Brodaty, Thomas & Gary-Bobo, Robert J. & Prieto, Ana, 2014. "Do risk aversion and wages explain educational choices?," Journal of Public Economics, Elsevier, vol. 117(C), pages 125-148.
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    More about this item

    Keywords

    human capital investment; earnings dynamics; post-schooling earnings growth; dynamic panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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