Uncertainty and the Accumulation of Human Capital Over the Life Cycle

TLDR: This paper developed the properties of optimal allocations to labor, leisure, and education over the life cycle for the individual facing uncertainty from several soul-ces Results are reported for both a simple stochastic model and a more general adaptive model in which the individual, by investing in education, not only accumulates huan capital but also gradually learns about his ability to acquire additional huanman capital.

Abstract: Models of the accumulation of human capital over the life cycle have recently received widespread attention in the literature on labor economics The seminal work by Becker (1964) and Ben-Porath (1967) characterized optimal investments in education and the resulting lifetime profiles for both human capital and labor income More recent refinements by Ghez and Becker (1975), Blinder and Weiss (1976), and Heckman (1976) added consumption and leisure, thereby altering predicted patterns for labor supply and labor earnings Simultaneously, empirical stLudies by Mincer (1974), Haley (1976), Rosen (1976), and others used the current theory to estimate relevant parameters affecting labor earnings over the life cycle Despite this lengthy literature on human capital, existing research has largely ignored all significant sources of uncertainty affecting observed behavior over the life cycle' This is unfortunate if only because the introduction of uncertainty significantly alters predicted patterns for both labor supply and labor earnings For Existing models of the accumulation of human capital over the life cycle ignore uncertainty In this paper proper-ties of optimal allocations to labor, leisure, and education over the life cycle are developed in detail for the individual facing uncertainty from several soul-ces Results are reported for both a simple stochastic model and a more general adaptive model in which the individual, by investing in education, not only accumulates hUman capital but also gradually learns about his ability to acquire additional huLman capital