Effect of different price indices on linkage between real GDP growth and real minimum wage growth in Turkey

Abstract

The accuracy of Turkish CPI as a price deflator is questionable especially when it comes to calculating real minimum wages. In this study we investigate the effect of different price indices on the relation between real GDP growth rates and real minimum wage growth rates by using a Granger causality analysis framework using VAR based granger causality tests. Result reveals that there is no causality between real minimu wage growth rates and real GDP growth rates in both directions. We also find a biderectional Granger causality between nominal minimum wage growth rates and COLI (an alternative price indice) growth rates. The results also showed that in line with our assumptions when an alternative deflator is used, the causality relations significantly differes.