Reference

Thierry Magnac, Nicolas Pistolesi, and Sébastien Roux, Post schooling human capital investments and the life cycle variance of earnings, TSE Working Paper, n. 13-380, January 2013.

Abstract

We propose an original model of human capital investments after leaving school in which individuals di¤er 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 e¤ect 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 a¤ected by changes in structural parameters. Under some conditions, even small changes in life expectancy seem to imply large changes in earnings inequality.

JEL codes

  • C33: Panel Data Models • Spatio-temporal Models
  • D91: Intertemporal Household Choice • Life Cycle Models and Saving
  • J24: Human Capital • Skills • Occupational Choice • Labor Productivity
  • J31: Wage Level and Structure • Wage Differentials