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College and Lifecycle Earnings Inequality

Contrary to prior work, I find that college attainment has increased alongside the college earnings premium. How much has this trend contributed to rising earnings inequality? I find that lifetime earnings inequality within cohorts has risen from a Gini index of 28 to 37 since the 1970s but little, if any, of this is due to increases in tuition, attainment, or the college premium. Increasing earnings risk seems to be the main driver. My findings are generated by developing a model of college linked with a Ben-Porath human capital problem. I discipline this model by matching it to lifecycle income profiles, which I document by education level. In this framework I find education return uncertainty improves the model’s fit to income trajectory data by about 25%, including a consumption value to education is unnecessary, and omitting labor market risk worsens the model’s fit nearly sevenfold with error concentrated on earnings dispersion moments. “You must never let schooling interfere with education” Grant Allen