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Title: College Attainment and the Changing Life Cycle Profile of Earnings
Citation Type: Miscellaneous
Publication Year: 2012
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Abstract: I document the life-cycle earnings profile for the 25-year-old college- and high school-educated white men in 1940, 1950, 1960 and 1970. I find that older cohorts have flatter average life-cycle earnings profile: The average annual real earnings of college-educated individuals from the 1940 cohort rose by a factor of 4, while those for the 1970 cohort rose by a factor of less than 2.5. Using a version of the Ben-Porath model, I propose an explanation based on the composition effect. In my model, all individuals have a high school diploma and are differentiated by their ability. They must decide whether to work or go to a four-year college. There is a threshold ability above which individuals choose to attend college and below which they work. As in the Ben-Porath model, life-cycle earnings profiles have a hump shape, and individuals with higher ability have steeper earnings profiles. All cohorts face the same ability distribution and an exogenous sequence of wage rate per unit of human capital that grows at a constant rate. That is, individuals from the 1970 cohort will face the same growth in wage rate as the 1940 cohort but start with a higher initial level. A higher initial level of wage rate increases college attainment implying that the average ability is lower for both college- and high school-educated individuals. Since lower ability individuals have less steep increment in their earnings, the average college life-cycle earnings profile for the 1970 cohort will be flatter than that of the 1940 cohort. A similar result holds for the average high school earnings profile. My model is able to quantitatively explain approximately 67 percent of the flattening in the average life-cycle earnings profile for college-educated individuals and about 35 percent of that for high school-educated individuals. The model also consistently predicts the unconditional earnings profile behavior across generations.
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Authors: Kong, Yu-Chien
Publisher: University of Iowa
Data Collections: IPUMS USA
Topics: Education, Labor Force and Occupational Structure
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