Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital
(UNIVERSITY of TORONTO)
DECEMBER 10, 2020
Abstract: We study the determinants of lifetime earnings (LE) inequality in the U.S. by focusing on job ladder dynamics and on-the-job learning as sources of wage growth. Using administrative data, we document that i) lower LE workers change jobs more often, mainly driven by higher nonemployment; ii) earnings growth for job stayers is similar at around 2% in the bottom two thirds of the LE distribution, whereas for job switchers it rises with LE; iii) top LE workers enjoy high earnings growth regardless of job switching. We estimate a job ladder model with on-the-job learning featuring ex-ante heterogeneity in learning ability and job ladder risk—job loss, job finding, and contact rates. We find that the large heterogeneity in job ladder risk accounts for 80% of wage growth differences among workers below median LE. Above the median, almost all lifetime wage growth differences are due to Paretodistributed learning ability.