Becker Friedman Institute

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Sources of Lifetime Inequality

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. We find that, as of age 23, differences in initial conditions account for more of the variation in lifetime earnings, lifetime wealth, and lifetime utility than do differences in shocks received over the working lifetime.

Authors: 
Mark Huggett, Georgetown University
Amir Yaron, The Wharton School, University of Pennsylvania
Gustavo Ventura, Arizona State University
Publication Date: 
December, 2011
Publication Type: 
Journal: 
American Economic Review
Volume: 
101
Issue Number: 
7
Pages: 
2923-2954