Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job-Ladder Risk versus Human Capital

Abstract

We study the determinants of lifetime earnings (LE) inequality in the United States by focusing on latent heterogeneity in job-ladder dynamics and on-the-job learning. We use administrative data to document a novel set of moments on job mobility and earnings growth across the LE distribution. We then estimate a structural model featuring a rich set of worker types and firm heterogeneity. We find vast ex ante differences in job-loss, job-finding, and contact rates across worker types. These differences account for 75% of the lifetime wage growth differential among the bottom half of the LE distribution. Above the median, almost all lifetime wage growth differences are a result of Pareto-distributed learning ability.