Sources of Lifetime Inequality / Mark Huggett, Gustavo Ventura, Amir Yaron.

Format:

Book

Author/Creator:

Huggett, Mark.

Contributor:

National Bureau of Economic Research.

Ventura, Gustavo.

Yaron, Amir.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13224.

NBER working paper series no. w13224

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

Is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital, estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth -- features which are chosen to match observed properties of earnings dynamics by cohorts. We find that as of age 20, differences in initial conditions account for more of the variation in lifetime utility, lifetime earnings and lifetime wealth than do differences in shocks received over the lifetime. Among initial conditions, variation in initial human capital is substantially more important than variation in learning ability or initial wealth for determining how an agent fares in life. An increase in an agent's human capital affects expected lifetime utility by raising an agent's expected earnings profile, whereas an increase in learning ability affects expected utility by producing a steeper expected earnings profile.

Notes:

Print version record

July 2007.