Schooling, Experience, Career Interruptions, and Earnings

Breno Braga, Urban Institute

This paper investigates whether the returns to work experience vary with education. Different from existing literature, I distinguish the returns to actual experience from the returns to potential experience. While I find that returns to potential experience do not vary across education groups, I estimate that more educated workers have a higher wage increase with actual experience. This result is not explained by known sources of potential experience bias, as more educated workers have higher employment attachment throughout their careers. In order to rationalize these findings, I discuss a new source of potential experience bias generated by wage losses after non-working periods. Indeed, I find evidence that more educated workers suffer higher wage losses after periods of unemployment. This result explains the greater downward bias of potential experience for more educated workers.