 Returns to Education with Earnings Uncertainty and Employment Risk over the Life CycleKai Liu, Magne Mogstad and Kjell G. Salvanes Janeway Institute Working Papers from Faculty of Economics, University of Cambridge Abstract: We measure the returns to education in the presence of earnings uncertainty and employment risk over the life cycle. The context of our study is Norway, offering a credible instrument for schooling and population panel data with nearly career long earnings histories. We first characterize the causal relationship between schooling, earnings, and employment over the life cycle. This relationship allows us draw conclusions about how additional schooling affects the probability of having a job as well as the level and dispersion of earnings over the life cycle. To disentangle uncertainty from heterogeneity, we next model the underlying earnings process, targeting the estimated causal relationship between schooling, earnings, and employment over the life cycle. We then fit a life-cycle model with precautionary saving motive to the estimated earnings process and observed consumption profiles. The estimated model allows us to quantify how earnings uncertainty and employment risk affect the incentives to invest in education, and to examine the extent to which the progressive tax-transfer system distorts these incentives. Keywords: Returns to Education; Life-Cycle Earnings; Income Uncertainty; Employment Risk; Precautionary Savings (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cam:camjip:2517 Access Statistics for this paper More papers in Janeway Institute Working Papers from Faculty of Economics, University of Cambridge |
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