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Micro Foundations of Earnings Differences

Tirthatanmoy Das and Solomon Polachek

No 10922, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines how human capital based approaches explain the distribution of earnings. It assesses traditional, quasi-experimental, and new micro-based structural models, the latter of which gets at population heterogeneity by estimating individual-specific earnings function parameters. The paper finds one's ability to learn and one's ability to retain knowledge are most influential in explaining earnings variations. Marketable skills actually acquired in school depend on these two types of ability. However, schools may also implement ability enhancing interventions which can play a role in improving learning outcomes. Policy initiatives that improve these abilities would be a possible strategy to increase earnings and lower earnings disparity.

Keywords: earnings distribution; human capital; heterogeneity; ability (search for similar items in EconPapers)
JEL-codes: I3 J3 J7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma
Date: 2017-07
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Forthcoming in: Palgrave Handbook of Economic Performance Analysis

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