We provide theory for calculating bounds on both the value of an individual’s human capital and the return on an individual’s human capital, given knowledge of the process governing earnings and financial asset returns. We calculate bounds using U.S. data on male earnings and financial asset returns. The large idiosyncratic component of earnings risk implies that bounds on values and returns are quite loose. However, when aggregate shocks are the only source of earnings risk, both bounds are tight.
Published in: _Journal of Economic Theory_ (Vol. 146, No. 3, May 2011, pp. 897-919) https://doi.org/10.1016/j.jet.2010.09.005.