Age-dependent skill formation and returns to education

This study investigates the distribution of returns to investments in cognitive and self-regulatory skills over the life cycle. In our simulation model, the distribution of returns to education results from the interaction of neurobiological and socioeconomic factors in age-dependent skill formation. A novel feature of our extension of the technology of skill formation [Cunha, F., Heckman, J.J., 2007. The technology of skill formation. The American Economic Review 97 (2), 31-47] is a life span model that integrates skill depreciation at older ages and calibrates it to German data. Our evidence quantitatively illustrates the role early childhood plays in the shaping of human capital formation, inequality and economic growth. (C) 2008 Elsevier B.V. All rights reserved.