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Why does field of study–occupation mismatch have no effect on wages in Turkish labour markets?

Taylor & Francis
Applied Economics
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Abstract

The Turkish labour market has undergone remarkable changes in the last two decades. An important development is the rising number of university graduates: The aim of this study is to explore whether the Turkish economy has undergone sufficient technological progress to favour more skilled workers, by analysing the effects of skill mismatch on wages in the Turkish labour market. Using three recent Labour Force Surveys from 2014 to 2016, we show that a significant proportion of university graduates are overeducated for their jobs. This descriptive finding in itself would not necessarily indicate a fundamental education-specific mismatch problem, but a transition in labour markets following rapid structural shifts in a developing economy. However, our findings also show that the most suitable jobs for university graduates may not require specialization in any field of study in Turkey. Both findings imply that supply and demand for skilled workers may be in short-term disequilibrium leading to surpluses in different skills in Turkish labour markets consistent with the recent evidence for constant relative real wages for skilled workers.

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... This subject is highly relevant because of the rapid expansion in the number of graduates and changing industry composition in a developing country. According to our knowledge, a study (Orbay, Aydede, and Erkol, 2021) examined this issue in Turkey and found no effect of the field of study on wages. They concluded that disequilibrium between supplydemand for skilled workers creates excessive relative supply and thus constant relative wages. ...
... Lastly, studies examining the relationship between horizontal mismatch and wages in Turkish labor markets are so limited. While Suna et al. (2020) using self-reported information and Ege (2020) analyzed the reasons and incidence of horizontal mismatch among vocational high school and university graduates respectively, Orbay, Aydede, and Erkol (2021) is the most relevant study to our paper. They developed a relatedness index capturing vertical mismatch and found no significant wage effect of horizontal mismatch, arguing that except for regulated occupations, jobs do not need major-specific requirements in Turkey. ...
... On the one hand, it takes simultaneously account the distribution of fields of study for each occupation and of occupations for each field of study. On the other hand, it rescales simple density using occupation share in the economy (Aydede and Dar, 2016;Orbay, Aydede, and Erkol, 2021). ...
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In this paper, we estimate the income effects of horizontal mismatch and its interaction with fields of study for Turkish higher education graduates using the Turkish Labor Force Survey dataset. After controlling the vertical mismatch to reduce potential bias, our baseline findings show that one point (decrease) increase in the (mis)matching index leads to 21.9% wage (penalty) growth. However, the return to the matching varies significantly between fields of study. We also explore the extent to which the impact of horizontal mismatch is sensitive to the ability levels represented by the conditional quantile of the income distribution of graduates. Our quantile regression estimations point us to heterogeneous matching returns for different quantiles of fields of study. While the positive wage effect of matching is significantly valid at the above and below the median income in six and three majors respectively, the three majors' negative matching is above the median income.
... Among them, there are only seven studies that examine the consequences of mismatch on wage. These are Galasi (2008) Orbay et al (2021) are the only studies that analyze the effect of eld of study mismatch on wages. The rest focus on wage effect of vertical mismatch. ...
... Among the seven studies that examined the wage effect for Turkey, OECD (2016) and Orbay et al (2021) analyze the effect of eld of study mismatch on wages but does not nd a statistically signi cant effect. All the other ve studies focus on wage effect of vertical mismatch and nd that overeducated employees earn more than their colleagues with lower levels of educational attainment in their jobs but less than the employees with the same level of education who work at well-matched jobs, which implies a wage penalty ranging from 4.1-7.5% in Turkey. ...
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Using a micro dataset from labor force survey of Turkey, this paper estimates the effects of covariates on wages by employing a quantile regression method, with special emphasis on the effect of overlapping mismatch. The analyses are conducted separately for two target groups: the employees who graduated from (i) higher education and (ii) vocational and technical high schools. For both target groups, employees who are well-matched by field of study but overeducated (mere vertical mismatch) and those who are both overeducated and mismatched by field of study (full-mismatch) incur wage penalties at an increasing rate along the wage distribution. However, for higher education, the effect of mere field of study mismatch (well-matched by education level but mismatched by field of study) on wages is mixed and novel to some extent in the literature. More notably, employees who graduated from higher education and who are merely field of study mismatched incur wage penalties at the first three quantiles of wage distribution but earn more than the well-matched employees at higher quantiles. This finding suggests that mere field of study mismatch need not be considered negative per se but it yields a wage premium, especially at higher quantiles of the wage distribution . This novel finding might imply that these employees are highly skilled and are preferred by employers with a reward of higher wages.
... The severance pay is considerably high in Turkey, whereby the firms need to pay their workers one monthly wage for each year they worked for the firm, strongly favoring older workers versus younger workers. Skill mismatch is also widely cited as a barrier to finding rewarding employment, even though data is harder to find (Orbay, Aydede, and Erkol 2021). In sum, the youth unemployment rate in Turkey stood at 20.3 percent in 2018, with a much higher rate of 25.3 percent among women (Uysal, Paker. ...
... Finally, we modelled the incidence of skills mismatch and labour force participation with several demographic and socioeconomic indicators by considering the choice of being over or undereducated as a labour market participation choice rather than an employment choice in contrast to many other recent studies in Turkey (Acar, 2017;Duman, 2018;Filiztekin, 2015;Kantarmacı et al., 2021;Orbay et al., 2021;Şahin, 2021). In other words, our sample consists of the working-age population rather than the employed. ...
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During the 1980's, a period in which the average level of real wage rates was roughly stagnant, there were large changes in the structure of relative wages, most notably a huge increase in the relative wages of highly educated workers. This paper attempts to assess the power of several alternative explanations of the observed relative wage changes in the context of a theoretical framework that nests all of these explanations. Our conclusion is that their major cause was a shift in the skill structure of labor demand brought about by biased technological change.
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U.S. educational and occupational wage differentials were exceptionally high at the dawn of the twentieth century and then decreased in several stages over the next eight decades. But starting in the early 1980s the labor market premium to skill rose sharply and by 2005 the college wage premium was back at its 1915 level. The twentieth century contains two inequality tales: one declining and one rising. We use a supply-demand-institutions framework to understand the factors that produced these changes from 1890 to 2005. We find that strong secular growth in the relative demand for more educated workers combined with fluctuations in the growth of relative skill supplies go far to explain the long-run evolution of U.S. educational wage differentials. An increase in the rate of growth of the relative supply of skills associated with the high school movement starting around 1910 played a key role in narrowing educational wage differentials from 1915 to 1980. The slowdown in the growth of the relative supply of college workers starting around 1980 was a major reason for the surge in the college wage premium from 1980 to 2005. Institutional factors were important at various junctures, especially during the 1940s and the late 1970s.
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By making use of the Duncan&Hoffman model, the paper estimates returns to educational mismatch using comparable microdata for 25 European countries. Our aim is to investigate the extent to which the main empirical regularities produced by other papers on the subject are confirmed by our data base. On the basis of tests proposed by Hartog&Oosterbeek, we also consider whether the observed empirical patterns are in line with the Mincerian basic human capital model and Thurow’s job competition model. Using Heckman’s sample-selection estimator, we find that results are rather consistent with those found in the literature, and that the job-competition model could be accepted, whereas the Mincerian human capital model could be rejected for most of the countries.
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One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key issue is properly adjusting for risk. The traditional actuarial approach – the approach currently used by the Social Security Administration in generating its most widely cited numbers - ignores risk and instead simply discounts “expected†future flows back to the present using a risk-free rate. If benefits are risky and this risk is priced by the market, then actuarial estimates will differ from market value. Effectively, market valuation uses a discount rate that incorporates a risk premium. Developing the proper adjustment for risk requires a careful examination of the stream of future benefits. The U.S. Social Security system is “wage-indexedâ€: future benefits depend directly on future realizations of the economy-wide average wage index. We assume that there is a positive long-run correlation between average labor earnings and the stock market. We then use derivative pricing methods standard in the finance literature to compute the market price of individual claims on future benefits, which depend on age and macro state variables. Finally, we aggregate the market value of benefits across all cohorts to arrive at an overall value of accrued benefits. We find that the difference between market valuation and “actuarial†valuation is large, especially when valuing the benefits of younger cohorts. Overall, the market value of accrued benefits
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In this paper, we explore the connection between education and wage inequality in Spain for the period 1994-2001. Drawing on quantile regression, we describe the conditional wage distribution of different populations groups. We find that higher education is associated with higher wage dispersion. A contribution of the paper is that we explicitly take into account the fact that workers who are and workers who are not in jobs commensurate with their qualifications have a different distribution of earnings. We differentiate between three different types of educational mismatch: 'over-qualification', 'incorrect qualification', and 'strong mismatch'. We find that while over-qualification and incorrect qualification are not associated with lower wages, strong mismatch carries a pay penalty that ranges from 13% to 27%. Thus, by driving a wedge between matched and mismatched workers, the incidence of strong mismatch contributes to enlarge wage differences within education groups. We find that over the recent years, the proportion of strongly mismatched workers rose markedly in Spain, contributing toward further within-groups dispersion.
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