The role of unemployment in wage determination: further evidence on the wage curve from Turkey

Abstract

This paper presents an empirical estimation of the correlation between wages and regional unemployment rates in Turkey, more specifically it explores the role of regional unemployment rates in wage determination. The analysis builds upon a series of recent empirical studies on the wage-unemployment relationship, now commonly known as 'the wage curve', a downward sloping curve in wage-unemployment space. The existing studies are for most part in advanced market economies, while this paper presents one of the few attempts at a wage curve analysis within the context of a developing market economy. A cross-sectional estimation of micro level individual wage data for the Turkish labour market in 1994, suggest a statistically significant negative correlation between wages and regional unemployment rates. Separate regressions for men and women, however, show a wage curve to exist only in the male labour market. The study also presents the results on other variables of wage determination such as returns to schooling, returns to age, job tenure, gender, industrial and occupational affiliation of the worker, economic sector and union status.

The Turkish Spatial Wage Curve

“…The overall unemployment elasticity of real wages is found to be in line with international findings, around −0.10 (e.g., Ilkkaracan and Selim 2003;Baltagi et al 2012Baltagi et al , 2013. Ilkkaracan and Selim (2003) provide the first evidence for the Turkish wage curve but fail to control for regional differences as it is a cross-section analysis.…”

“…The overall unemployment elasticity of real wages is found to be in line with international findings, around −0.10 (e.g., Ilkkaracan and Selim 2003;Baltagi et al 2012Baltagi et al , 2013. Ilkkaracan and Selim (2003) provide the first evidence for the Turkish wage curve but fail to control for regional differences as it is a cross-section analysis. Baltagi et al (2012) is the first economy-wide study on the Turkish wage curve which controls for regional differences and endogeneity of the unemployment rate, using data for 26 NUTS-2 regions over the period [2005][2006][2007][2008].…”

Sectoral Employment and Labor Costs: Elasticity Evidence on Turkey

“…Second reason is the availability of data. Even though wage curve estimation has been performed for Turkey, extending the performed study is nearly impossible due to data limitations as stated by İlkkaracan and Selim (2003). Thirdly, the wage curve does not match the aim of this study conceptually.…”

“…Wage curve estimation for Turkey by İlkkaracan and Selim (2003) gives a negative effect of unemployment on wages. That is; as unemployment increases, wages fall.…”

“…Blanchflower and Oswald (2005) list a considerable literature of such estimations. Included in this biography is a wage curve estimate for Turkey by İlkkaracan and Selim (2003).…”