and policy makers searching for reasons for the growth slowdown and ways to reverse it (World Bank 2016). Turkey faces downside risks if structural changes—in the education and training system, and the economy more broadly—are not made to ensure that contributions to economic growth come from improvements in productivity (Del Carpio 2018).

High returns to education, and especially to higher education, have been estimated for the case of Turkey since the 1960s. The returns explain the high demand for education in Turkey. The educational achievement of Turkey’s population has increased many times in the past few decades. From only 1.1 years of schooling on average in 1950 to 3.6 years in 1980 to more than 7 years by 2010. Other aspects of educational development include the improvement in performance in terms of student performance and reduced inequality.

Using a variety of estimation methods and the latest survey, we find the average rate of return to schooling to be 8.8 percent, which puts it at just about the global average. Women receive higher returns to schooling compared to men, at least two percentage points higher. This, too, is in line with global findings. The returns to schooling are high for women even when we control for selection. We used the number of children under 15 years of age living in the household as an exclusion restriction frequently invoked in the female labor force participation decision. This is similar to the studies by Martins (2001), Chang (2011) and Huber and Mellace (2014). This variable potentially impacts the caregiving activities of women but does not affect earnings.

We use the 1997 education reform to instrument schooling. We find that the reform was associated with a higher return for women than for men. This is consistent with previous findings. The instrumental variable’s sharp increase of returns for women is _prima facie_ evidence of the productive, rather than screening, function of education. It also demonstrates the causal impact of schooling in Turkey, and the fact that schooling is an excellent policy for encouraging the educational and economic performance of women.

Surprisingly, the average rate of return to schooling is higher in the public sector at 7.9 percent, compared to 6.5 percent in the private sector. Also, the private return to vocational secondary education is higher than general secondary education, 6.5% vs. 5.7, respectively.

Using the full discounting method, we estimate the private and social returns to education. Private returns are highest at the tertiary level and the lowest private returns are for secondary education. This is in line with recent global trends. This justifies cost-sharing at the tertiary level, as this level of schooling needs to continue to expand. However, social returns are low for primary and secondary schooling, but high at the higher education level. This demonstrates the need for further expansion of higher education and justifies some level of public subsidy.

The size of the returns is much higher than any reasonable alternative private social discount rate, pointing to the need for higher investment in education. The size of the private returns to higher education suggests the need for selective cost-recovery, while the social returns suggest some level of public subsidy is warranted, especially through student loans for efficiency and equity.

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