Private and Social Returns to Investment in Education: the Case of Turkey with Alternative Methods

ABSTRACT

This paper estimates private and social returns to investment in education in Turkey, using the 2017 Household Labour Force Survey (latest available at the time of writing) and alternative methodologies. The analysis uses the 1997 education reform of increasing compulsory education by three years as an instrument. This results in a private rate of return on the order of 16% for higher education and a social return of 10%. Using the number of children younger than age 15 in the household as an exclusion restriction, sample selection correction is applied, and it shows that the returns to education for females are higher than those for males. Contrary to many findings in other countries, private returns to those working in the public sector are higher than those in the private sector, and private returns to those who followed the vocational track in secondary education are higher than those in the general academic track. The paper discusses the policy implications of the findings.

KEYWORDS:

• Education
• returns to education
• Heckman two-step
• instrumental variables
• Turkey

JEL CLASSIFICATIONS:

• I21
• I26
• J24

Acknowlegements

The views expressed here are those of the authors and should not be attributed to their respective organizations. We would like to thank Murat Karakaş of TURKSTAT for his kind explanations about the data used in this study.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The examples of such variables used include amount of unearned income of the women, the amount of land owned, the number or age of children or the number of elderly in the household, the number of other wage earners in the household, years of schooling of father/ mother.

² Turkey has the lowest female labour force participation rate among the OECD countries. It was 20% in 2007 and increased since then reaching to about 35% in 2018 (TURKSTAT 2020b).

³ Extension of the compulsory schooling is widely used as an instrument for schooling in the literature. Some recent examples are the following: Oreopoulos (2006) for the United Kingdom and Ireland; Devereux and Hart (2010) for the United Kingdom; Grenet (2013) for France, England and Wales; Chib and Jacobi (2016) for the United Kingdom, Fischer et al. (2016) for Sweden; and Aydemir and Kirdar (2017) for Turkey.

⁴ The HLFS was conducted for the first time only once in October 1988. It was conducted twice a year in April and October between 1989 and 1999. Since 2000 the survey has been conducted every month. The data were released quarterly during 2000–2004 and monthly as three-month-moving averages since 2005.

⁵ A major educational reform took place in August 1997. Until then five years of primary schooling was the only compulsory level of schooling. In 1997, the compulsory level of schooling was extended to 8 years covering the middle school. This has increased enrolments at the compulsory eight-year level and also had spillover effects at the high school level. In 2012 the compulsory level of schooling was further extended to 12 years covering the high school as well.

⁶ Our definition of private sector wage workers includes also those who work in the informal sector which constituted about 18% of the total wage earners in 2019. Further, private sector excludes foundations, associations, cooperatives, political parties, international organizations, non-governmental organizations and embassies.