College and Lifecycle Earnings Inequality
Abstract: Has a rising college earnings premium contributed to increased earnings inequality over the past 50 years? I answer this question with a model of college linked to a Ben-Porath human capital problem. The model is estimated from data on college attainment rates and lifecycle income profiles, which I document by education level. I find that lifetime earnings inequality within cohorts has risen significantly since the 1970s but little of this is directly attributable to the college premium. Higher tuition is also not particularly important. Increasing earnings risk seems to be the main driver, with higher college return dispersion a contributing factor. Furthermore, the model indicates that free tuition would lower per capita lifetime earnings but increase utility due to substitution toward leisure. A targeted tuition forgiveness/insurance scheme could increase earnings but by less than the cost of the program.