Thursday, July 21, 2011

Does Where You Start Determine Where You End Up?

Sources of Lifetime Inequality

Mark Huggett, Gustavo Ventura & Amir Yaron
American Economic Review, forthcoming

Abstract: 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. We find that, as of age 23, differences in initial conditions account for more of the variation in lifetime earnings, lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime.

(Nod to Kevin Lewis)

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