Explaining Cross-Cohort Di fferences in Life Cycle Earnings

Guillaume Vandenbroucke, B Ravikumar and Yu-Chien Kong ()

No 1409, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Earnings growth has been systematically decreasing from one cohort to the next, starting with the cohort that was 25-year-old in 1940. This cohort's labor earnings were multiplied by a factor of 4 between the ages of 25 and 55. For the 1980 cohort the same calculation yields a factor of 2.2. Why are recent cohorts facing flatter earnings profiles? Our theory combines two elements: (1) the incentives to accumulate human capital over one's work life are decreasing in the initial stock of human capital; (2) recent cohorts are more educated and do start their work lives with more human capital. We build and calibrate a parsimonious model of schooling and human capital accumulation on the job to fit the earnings of the 1940 cohort at different ages. Our model accounts for more than 60% of the decline in the growth rate of earnings between the 1940 and the 1980 cohorts as the result of a single exogenous factor: increasing aggregate productivity.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-edu
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Related works:
Journal Article: Explaining cross-cohort differences in life-cycle earnings (2018)
Working Paper: Explaining Cross-Cohort Differences in Life Cycle Earnings (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:1409

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