The Technology of Skill Formation

This paper develops a model of skill formation that explains a variety of findings established in the child development and child intervention literatures. At its core is a technology that is stage-specific and that features self productivity, dynamic complementarity and skill multipliers. Lessons are drawn for the design of new policies to alleviate the consequences of the accident of birth that is a major source of human inequality.

The Evolution of Inequality, Heterogeneity and Uncertainty in Labor Earnings in the U.S. Economy

A large empirical literature documents a rise in wage inequality in the American economy. It is silent on whether the increase in inequality is due to greater heterogeneity in the components of earnings that are predictable by agents or whether it is due to greater uncertainty faced by agents. Applying the methodology of Cunha, Heckman, and Navarro (2005) to data on agents making schooling decisions in different economic environments, we join choice data with earnings data to estimate the fraction of future earnings that is forecastable and how this fraction has changed over time. We find that both predictable and unpredictable components of earnings have increased in recent years. The increase in uncertainty is substantially greater for unskilled workers. For less skilled workers, roughly 60% of the increase in wage variability is due to uncertainty. For more skilled workers, only 8% of the increase in wage variability is due to uncertainty. Roughly 26% of the increase in the variance of returns to schooling is due to increased uncertainty. Using conventional measures of income inequality masks the contribution of rising uncertainty to the rise in the inequality of earnings for less educated groups.wage inequality, uncertainty, sorting, inequality accounting

Investing in Our Young People

This paper reviews the recent literature on the production of skills of young persons. The literature features the multiplicity of skills that explain success in a variety of life outcomes. Noncognitive skills play a fundamental role in successful lives. The dynamics of skill formation reveal the interplay of cognitive and noncognitive skills, and the presence of critical and sensitive periods in the life-cycle. We discuss the optimal timing of investment over the life-cycle.skill formation, cognitive skills, noncognitive skills, technology of skill formation, investment in children

The Economics & Psychology of Inequality and Human Development

Recent research on the economics of human development deepens under- standing of the origins of inequality and excellence. It draws on and contributes to personality psychology and the psychology of human development. Inequal- ities in family environments and investments in children are substantial. They causally aect the development of capabilities. Both cognitive and noncognitive capabilities determine success in life but to varying degrees for dierent out- comes. An empirically determined technology of capability formation reveals that capabilities are self-productive and cross-fertilizing and can be enhanced by investment. Investments in capabilities are relatively more productive at some stages of a child's life cycle than others. Optimal child investment strategies dier depending on target outcomes of interest and on the nature of adversity in a child's early years. For some congurations of early disadvantage and for some desired outcomes, it is ecient to invest relatively more in the later years of childhood than in the early years.inequality, capabilities, noncognitive traits, human development, technology of capability formation, policy targeting

A New Framework for the Analysis of Inequality

This paper presents a new framework for analyzing inequality that moves beyond the anonymity postulate. We estimate the determinants of sectoral choice and the joint distributions of outcomes across sectors. We determine which components of realized earnings variability are due to uncertainty and which components are due to components of human diversity that are forcastable by agents. Using our tools, we can determine how policies shift persons across sectors and outcome distributions across sectors.

The Evolution of Inequality, Heterogeneity and Uncertainty in Labor Earnings in the U.S. Economy

A large empirical literature documents a rise in wage inequality in the American economy. It is silent on whether the increase in inequality is due to greater heterogeneity in the components of earnings that are predictable by agents or whether it is due to greater uncertainty faced by agents. Applying the methodology of Cunha, Heckman and Navarro (2005) to data on agents making schooling decisions in different economic environments, we join choice data with earnings data to estimate the fraction of future earnings that is forecastable and how this fraction has changed over time. We find that both predictable and unpredictable components of earnings have increased in recent years. The increase in uncertainty is substantially greater for unskilled workers. For less skilled workers, roughly 60% of the increase in wage variability is due to uncertainty. For more skilled workers, only 8% of the increase in wage variability is due to uncertainty. Roughly 26% of the increase in the variance of returns to schooling is due to increased uncertainty. Using conventional measures of income inequality masks the contribution of rising uncertainty to the rise in the inequality of earnings for less educated groups.

Separating uncertainty from heterogeneity in life cycle earnings

This paper develops and applies a method for decomposing cross section variability of earnings into components that are forecastable at the time students decide to go to college (heterogeneity) and components that are unforecastable. About 60 % of variability in returns to schooling is forecastable. This has important implications for using measured variability to price risk and predict college attendance.earnings; unforecastable; forecastable

The Technology of Skill Formation

his paper presents formal models of child development that capture the essence of recent findings from the empirical literature on child development. The goal is to provide theoretical frameworks for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical studies and for formulating policy. We start from the premise that skill formation is a life-cycle process. It starts in the womb and goes on throughout most of the adult life. Families and firms have a role in this process that is at least as important as the role of schools. There are multiple skills and multiple abilities that are important for adult success. Abilities are both inherited and created, and the traditional debate of nature versus nurture is outdated and scientifically obsolete. The technology of skill formation has two additional important characteristics. The first one is that IQ and behavior are more plastic at early ages than at later ages. Furthermore, behavior is much more malleable than IQ as individuals age. The second is that human capital investments are complementary over time. Early investments increase the productivity of later investments. Early investments are not productive if they are not followed up by later investments. The returns to investing early in the life cycle are high. Remediation of inadequate early investments is difficult and very costlyhuman capital, life cycle of skill formation