Current earnings, persistence and schooling returns

Corrado Andini and José Eusébio Santos

Journal of Economic Studies, 2023, vol. 51, issue 2, 319-337

Abstract: Purpose - The aim is to study the impact of schooling on between-groups wage inequality beyond the lens of the standard approach in the literature. Design/methodology/approach - Simple econometric theory is used to make the main point of the paper. Supporting empirical evidence is also presented. Findings - Disregarding the persistence of current earnings implies a bias in the estimation of the wage return to schooling both at labour-market entry and in the rest of the working life. Research limitations/implications - The use of current earnings as a dependent variable in wage-schooling models may be problematic and requires specific handling. Social implications - The impact of schooling on the between-groups dimension of wage inequality may be different than previously thought. Originality/value - The paper is the first to show that, when current earnings are used as a dependent variable, the identification of a wage-schooling model with the standard (time-invariant external instrument-variable) approach may lead to misleading conclusions.

Keywords: Schooling; Wages; Dynamic models; C23; I21; J31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-12-2022-0630

DOI: 10.1108/JES-12-2022-0630

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