Uncertainty about Future Income: Initial Beliefs and Resolution During College

 

This study uses unique data from the Berea Panel Study to characterize how much earnings uncertainty is present for students at college entrance and how quickly this uncertainty is resolved. 

Taking advantage of the longitudinal nature of the expectations data, the authors find that roughly two-thirds of the income uncertainty present at the time of entrance remains at the end of college. Taking advantage of a variety of additional survey questions, they provide evidence about how the resolution of income uncertainty is influenced by factors such as college GPA and college major, and also examine why much income uncertainty remains unresolved at the end of college. 

This paper also contributes to a literature interested in understanding the relative importance of uncertainty and heterogeneity in determining observed earnings distributions.