From Mincer to AKM: Decomposing School Effects on Early-Career Wages

István Boza () and Dániel Horn ()
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István Boza: ELTE Centre for Economic and Regional Studies
Dániel Horn: Corvinus University Budapest; ELTE Centre for Economic and Regional Studies

No 2604, KRTK-KTI WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: This paper introduces a framework that combines a traditional Mincer wage equation with an Abowd–Kramarz–Margolis (AKM) decomposition in a unified linear framework. The approach allows pre-labor market entry group-level factors to be mapped transparently onto the underlying channels of wage determination, including individual earning capacity, firm sorting, and occupational allocation. Applying the method to linked employer–employee administrative data from Hungary, we study how secondary schools are related to early-career wage inequality. Secondary school affiliation explains about 15% of wage variation among young workers, with a substantial share operating through sorting into firms and occupations. Controlling for completed educational attainment reduces school effects. However, these effects do not disappear completely and persist even after controlling for pre-existing differences in student pools measured around the age of 14-15. More broadly, the framework provides a general tool for studying how institutions shape labor-market outcomes through multiple economic channels.

Keywords: wage inequality; school effects; AKM decomposition; Mincer equation; employer–employee linked data; labor market outcomes (search for similar items in EconPapers)
JEL-codes: C32 I26 J24 J31 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-edu and nep-lma
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