Dynamic Returns to Schooling by Work Experience

This paper investigates the effect of education on the rate of growth of a worker’s salary for workers with different levels of work experience. Two alternative models of the earnings curve are presented, the Mincer model and a model with wage premia that change over the course of a workers’ career. Then, I derive analytically the coefficients that would be obtained by estimating these two models with a dynamic panel data model in which earnings are a function of schooling and past earnings. Finally, I estimate these coefficients empirically using data from the German Socio-Economic Panel. The results indicate that the coefficients for schooling and lagged wage in a dynamic panel data model of the earnings curve display substantial variation by work experience, which seems more consistent with the dynamic wage premium model than with the Mincer model.