IZA DP No. 1437: Separating Uncertainty from Heterogeneity in Life Cycle Earnings
published in: Oxford Economic Papers, 2005, 57 (2), 191-261
This paper develops and applies a method for decomposing cross section variability of earnings into components that are forecastable at the time students decide to go to college (heterogeneity) and components that are unforecastable. About 60% of variability in returns to schooling is forecastable. This has important implications for using measured variability to price risk and predict college attendance.