Low Wage Returns to Schooling in a Developing Country: Evidence from a Major Policy Reform in Turkey
| Date | 01 December 2017 |
| Author | Murat G. Kirdar,Abdurrahman Aydemir |
| DOI | http://doi.org/10.1111/obes.12174 |
| Published date | 01 December 2017 |
1046
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
doi: 10.1111/obes.12174
LowWage Returns to Schooling in a Developing
Country: Evidence from a Major Policy Reform in
Turk e y *
Abdurrahman Aydemir† and Murat G. Kirdar‡
†Faculty of Arts and Social Sciences, Sabanci University, Orhanli, Tuzla 34956, Istanbul,
Turkey (e-mail: aaydemir@sabanciuniv.edu)
‡Department of Economics, Bo˘gazi¸ci University, Istanbul, 34342, Turkey
(e-mail: murat.kirdar@boun.edu.tr)
Abstract
In this paper, we estimate returns to schooling for young men and women inTurkey using
the exogenous and substantial variation in schooling across birth cohorts brought about by
the 1997 reform of compulsory schooling within a fuzzy regression discontinuity design.
We estimate that the return from an extra year of schooling is about 7–8% for women and
an imprecisely estimated 2–2.5% for men. The low level of the estimates for men contrasts
starkly with those estimated for other developing countries. We identify several reasons
why returns to schooling are lowfor men and why they are higher for women in our context.
In particular, the policy alters the schooling distributions of men and women differently,
thus the average causal effect puts a higher weight on the causal effect of schooling at
higher grade levels for women than for men.
I. Introduction
Fewstudies deal with the endogeneity of education in the estimation of returns to schooling
in developing country contexts. These include Duflo (2001), who uses a major school
construction policy as a source of exogenous change in schooling in Indonesia; Spohr
(2003), who explores the impact of Taiwan’s 1968 reform and Fang et al. (2012), whostudy
the 1986 implementation of compulsory education law in China. This paper contributes to
this small literature by estimating the returns to schooling for both men and women in the
developing country context of Turkey – using an IV regression discontinuity design that
relies on the extension of compulsory schooling from 5 to 8 years in 1997.
JEL Classification numbers: J18, J31, I21, I28.
*We would like to thank Jonah Gelbach, James MacKinnon, and the seminar participants at Bilkent and Ko¸c
Universities and at the 2015 SOLE/EALE conference for valuable comments and suggestions.The usual disclaimer
holds.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 79, 6 (2017) 0305–9049
Low wage returns to schooling in a developingcountry 1047
In 1997, Turkey instituted a major reform of its education system, which increased
the duration of compulsory schooling from 5 to 8 years.1According to national education
statistics, during the 1996–97 school year, the year before the law changed, the net enrol-
ment was 89.4% at the primary school level (grades 1–5), while enrolment at the secondary
school level (grades 6–8) was 52.8%.2Thus, the 1997 reform potentially affected close to
half of school-age children at the secondary school level. By the 2000–01 school year, 4
years after the law was enacted, the net enrolment rate at the compulsory schooling stage
(grades 1–8) increased to 95.3%. Such a drastic rise in the number of students could raise
concerns about the quality of schooling. However, the government reacted very fast to
expand the schooling infrastructure. By early 2000, two years after the school reform, the
student-to-teacher ratio and student-to-class ratio were below their pre-reform levels (Kir-
dar, Dayio˘glu-Tayfur and Koc, 2015). In fact, based on the results of certain international
tests, we show that achievement of the affected cohorts vis-`a-vis the unaffected indicates
no deterioration in the quality of schooling (MEB, 2007).3
Although several studies have estimated the causal returns to schooling, mostly in
developed-country settings, this paper adds to the small number of studies employing re-
gression discontinuity design – which imposes weaker identifying assumptions than the
difference-in-differences methodology used in many of the previous studies.4Our identi-
fication method in estimating returns to schooling thus rests on the comparison of birth
cohorts which are affected by the policy with those which are not. Imperfect compliance
with the policy in our context leads to a fuzzy regression discontinuity design, where we
instrument schooling with a policy dummy defined by birth cohort. In our context, a critical
issue is disentangling the policy effect from the strong time trends in the outcome variables.
For this purpose, we allow for very flexible time trends, going up to fourth-order poly-
nomials. In certain specifications, we allow the time trends to be different before and after
the discontinuity.Moreover,using various subsamples defined by gradually taking narrower
time intervals around the discontinuity and adjusting for the degree of the polynomials
simultaneously,we check the robustness of our results in a similar vein to a non-parametric
approach.
A key distinguishing feature of this study is the plausible exogeneity of our instrument.
The actual timing of the policy wasdriven by political developments and was independent of
potential returns to education and macroeconomic conditions. While there was a substantial
financial investment on schooling infrastructure to meet the needs of increased student
population due to the extension of compulsory school, its timing did not coincide with an
economic boom – which could imply the implementation of other simultaneous policies
affecting schooling outcomes. Moreover,the implementation of the reform was unexpected
and took place over a short period of time. Another important feature of our study is the
strength of our instrument, resulting from the remarkable change in schooling outcomes
1Basic Education Law (no. 4306, dated 16 August 1997).
2TUIK (Turkish Statistical Institute), Education Statistics.
3We providedetailed evidence on this in section III.
4Stephens andYang (2014) show that once the common-trend assumption of the difference-in-differencesstudies
is relaxed, the returns to schooling estimate in the US context becomes either very small or wrong-signed and
statistically insignificant.
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
1048 Bulletin
with the reform.5The policy led to a sharp increase in schooling levels across birth cohorts
for two main reasons. First, the duration of the extension waslong (3 years). Second, since
the dropout rates after the completion of compulsory schooling were high inTurkey prior to
the reform, the reform changed the behaviour of many students. In addition, since Turkey’s
compulsory schooling reform affected a large fraction of the population, the local average
treatment effect we estimate comes close to the average treatment effect as in Oreopoulos
(2006).
The data we use in this study come from the 2002–13 Household Labor Force Surveys
(HLFS) of Turkey. Since our identification strategy is based on a comparison of birth
cohorts – albeit one where the discontinuity across birth cohorts is very substantial and
where there are no other contaminating policies – our key variable of interest, the policy
variable, is invariant across birth cohorts. Moreover, the number of birth cohorts in some
samples is as small as 18. Therefore, we use several alternative approaches (outlined in
Cameron and Miller, 2015) to estimate accurate standard errors when there are few clusters.
In addition to the standard cluster-robust estimates, these approaches include inference
based on aTdistribution with adjusted degrees-of-freedom, parametric Moulton cor rection
of standard errors, and wild cluster bootstrap.
We find that the instrumental-variable regression-discontinuity (IV-RD) estimate is a
statistically insignificant 2–2.5% for men and about 7–8% for women.These estimates, par-
ticularly those for men, are much smaller than the estimates reported by the previousstudies
in developing country settings. Duflo (2001) reports return estimates for men ranging from
6.8% to 10.6%. Spohr (2003) finds larger effects on females’ workforce participation and
total earnings, where annual earnings increase by 5.8% per additional year of schooling
for men and by 16.7% for women. Fang et al. (2012) report overall returns to education
of approximately 20% per year. However, the low returns we find in this study add to a
growing number of recent studies that report zero or low returns to schooling in developed
country contexts (Pischke and von Wachter, 2008; Devereux and Hart, 2010; Stephens
and Yang, 2014) but in a developing country context. Hence, this paper contributes to the
renewed discussion in the literature on returns to education.
While the previous studies in developingcountry contexts find higher retur ns for women
than for men, there is little discussion of these differential returns. We provide a detailed
account of how the reform affects the distribution of highest grade completed by gender (as
in Acemo˘gluand Angrist, 2000), which provides important insights related to this apparent
difference in returns. In particular, the female sample for whom we estimate the returns
to schooling include a larger fraction of those who are induced to complete high school
as a result of the policy, compared to the male sample. Thus, the average causal effect for
women puts a higher weight on the returns to schooling at high school grade levels than
that for men, and returns to schooling are higher at high school grade levels than at lower
grade levels.
Since our fuzzy regression discontinuity design estimates have LATE interpretation (as
shown by Hahn, Todd and van der Klaauw, 2001), our estimates are only for compliers
5The importance of a strong source of exogenous variation is discussed by Bound, Jaeger and Baker (1995), who
show that asymptotic bias resulting from weakinstr uments pushes the 2SLS estimates towardthe OLS estimate. This
issue is further addressed by Staiger and Stock (1997).
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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