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IFAU - Institute for Evaluation of Labour Market and Education Policy Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2005:6:
Separating uncertainty from heterogeneity in life cycle earnings

Flavio Cunha, James Heckman and Salvador Navarro

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.

Keywords: earnings; unforecastable; forecastable; (follow links to similar papers)

JEL-Codes: C33; D84; I21; (follow links to similar papers)

122 pages, December 10, 2004

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This paper is published as:
Cunha, Flavio, James Heckman and Salvador Navarro, (2005), 'Separating uncertainty from heterogeneity in life cycle earnings', Oxford Economic Papers, Vol. 57, No. 2, pages 191-261



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