TY  - JOUR
AU  - Huggett,Mark
AU  - Ventura,Gustavo
AU  - Yaron,Amir
TI  - Sources of Lifetime Inequality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13224
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13224
L1  - http://www.nber.org/papers/w13224.pdf
N1  - Author contact info:
Mark Huggett
Georgetown University
E-Mail: mh5@georgetown.edu

Gustavo Ventura
Department of Economics
Arizona State University
501 E Orange St., CPCOM 412A
Tempe, AZ 85287-9801
Tel: 319-335 0842
E-Mail: gventura1967@gmail.com

Amir Yaron
The Wharton School
University of Pennsylvania
2256 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6367
Tel: 215/898-1241
Fax: 215/898-6200
E-Mail: yaron@wharton.upenn.edu
AB  - Is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital, estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth -- features which are chosen to match observed properties of earnings dynamics by cohorts. We find that as of age 20, differences in initial conditions account for more of the variation in lifetime utility, lifetime earnings and lifetime wealth than do differences in shocks received over the lifetime. Among initial conditions, variation in initial human capital is substantially more important than variation in learning ability or initial wealth for determining how an agent fares in life. An increase in an agent's human capital affects expected lifetime utility by raising an agent's expected earnings profile, whereas an increase in learning ability affects expected utility by producing a steeper expected earnings profile.
ER  -