Estimating returns to education: The control function approach

Abstract

This study aims to evaluate the effect of schooling years on wage level in Turkey by using the Mincer wage equation. This function is used as the baseline for the investigation of earnings determinants. For this purpose, the relationship between wage and education level of people is estimated by using a semiparametric regression model considering the control function approach. Various variables such as education level, experience, gender and marital status are estimated separately in the wage model by utilizing the Household Budget Statistics micro data set of 2017 in Turkey obtained by the Turkish Statistical Institute. The parametric model does not clarify the model clearly when functional form of relation is not known. To overcome this drawback, semiparametric regression model, which contains parametric and nonparametric variables, can be successfully applied. This model is extended by adding the 1997 education reform as a control variable. The achieved semiparametric test results from this study showed that there is a positive relationship between schooling years and wage level. On the other hand, control function approach results indicate the existence of fluctuant progress for the effect of schooling years on the wage level along the period.