Events

Economics Seminar

Authors:

• Thierry Magnac
  Toulouse School of Economics

• Nicolas Pistolesi
  Toulouse School of Economics

• Sébastien Roux
  CREST INSEE, Paris

We propose an original model of human capital investments in which individuals differ in their initial human capital, their rate of return, their costs of human capital investments and their terminal values of human capital at retirement. We derive a tractable reduced form Mincerian model of log earnings profiles along the life cycle which is written as a linear factor model in which levels, growth and curvature of earnings profiles are individual-specific. The model is first estimated by pseudo maximum likelihood using panel data for a single cohort of French male wage earners observed over a long span of 30 years. This is followed by a simple second step fixed effect method by which individual-specific structural parameters are estimated. This allows us to test restrictions, compute counterfactual profiles and evaluate how earnings inequality over the life-cycle is affected by changes in structural parameters.