The Frontal Cortex

Sources of Inequality

Here’s your depressing determinist paper for the day:

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.

My guess is that such blunt determinism is much truer at the negative end of the spectrum. If you are born into a stressful, impoverished environment (shitty initial conditions) there are several good neurobiological reasons to assume that your brain will suffer some sort of lingering damage. However, there is surprisingly little evidence that extremely enriched environments lead to better brains. So don’t waste a fortune of money on sending your kids to a private preschool or kindergarten.


  1. #1 tekel
    July 10, 2007

    so, what is this mysterious “human capital” then, and where can we buy it?

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