Current earnings, persistence and schooling returns

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.