Abstract
This article argues in favour of a dynamic specification of the Mincer equation, where the past observed earnings play the role of additional explanatory variable for current observed earnings. A dynamic approach offers an explanation why the return to schooling in terms of observed earnings is not independent of labour-market experience, as suggested by some recent empirical evidence for the United States.
Acknowledgements
I gratefully acknowledge financial support from the European Commission (EDWIN Project, HPSE-CT-2002-00108). For valuable comments on an earlier version of this article, I would like to thank Pedro Telhado Pereira, Santiago Budría, Günther Lang, Joop Hartog, Rudolf Winter-Ebmer and the participants at the 6th Meeting of the EDWIN Project.
Notes
1 Although not original, I believe that Section II is crucial for this article.
2 It is assumed that schooling starts at the beginning of life.
3 Notice that the symbol of equality (=) in expression (Equation4) becomes a symbol of rough equality (≈) in expression (Equation5).
4 See Taylor (Citation1999) for a good survey.
5 See expression (Equation8).
6 Notice that ρβ[1/(1 − (1 − ρ))] = β.
7 See, for instance, expression (Equation22).
8 Examples are provided by Hartog et al. (Citation2001), Machado and Mata (Citation2001) and Andini (Citation2008), among others.
9 Notice that, using my terminology, this difference measures the impact of schooling on within-groups net potential wage inequality.
10 See Pereira and Martins (Citation2002b) and Budría and Pereira (Citation2005).