A dynamic Mincer equation with an application to Portuguese data

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 (4) becomes a symbol of rough equality (≈) in expression (5).

⁴ See Taylor (1999) for a good survey.

⁵ See expression (8).

⁶ Notice that ρβ[1/(1 − (1 − ρ))] = β.

⁷ See, for instance, expression (22).

⁸ Examples are provided by Hartog et al. (2001), Machado and Mata (2001) and Andini (2008), 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 (2002b) and Budría and Pereira (2005).