The aim is to study the impact of schooling on between-groups wage inequality beyond the lens of the standard approach in the literature.
Simple econometric theory is used to make the main point of the paper. Supporting empirical evidence is also presented.
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.
The use of current earnings as a dependent variable in wage-schooling models may be problematic and requires specific handling.
The impact of schooling on the between-groups dimension of wage inequality may be different than previously thought.
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.
