Growth-rate heterogeneity and the covariance structure of life-cycle earnings

Using U.S. panel data on adult males, I compare the ''profile heterogeneity model'' of earnings dynamics, in which the earnings/experience profile varies across individuals, to a competing model in which earnings ''has a unit root.'' The latter specification enjoys increasing popularity among researchers. My analysis questions this favor, suggesting the profile heterogeneity model provides a more consistent representation of the data. I also provide new estimates of the variation in earnings growth rates. Previous evidence is from relatively unrepresentative samples. Individuals one standard deviation above the mean enjoy a 20%-30% earnings advantage in just 10 years.