Earnings Equation Ln Y = 6.20 + .107 S + .081 e - .0012 +2 where Ln Y = natural log of earnings S = years of schooling e = years of labor market experience e2 = experience squared Source: 1960 U.S. Census data The coefficient (.107) implies that a year of schooling raises one's earnings by 10.7 percent. The quadratic form of the experience variable (i.e., e and e) implies that for a given level of schooling, earnings are concave with respect to experience. That is, earnings rise quickly at younger ages, peak in the early to mid-fifties, and then begin to decline. In Y Age-Earnings Profiles 110 10 0 S = 16 90 S = 12 8.0 Experience Age (S=12) 52 Age (Ss=16) 1. Why do most people finish schooling early in life as opposed to later in life? 2. Why do earnings at early ages rise but level off ands decline at later ages