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The Effects of Social Security Taxes and Minimum Wages on Employment: Evidence from Turkey

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  • Papps, Kerry L.

    ()
    (University of Bath)

Abstract

Worker-level panel data are used to analyse the separate employment effects of increases in the social security taxes paid by employers and increases in the minimum wage in Turkey between 2002 and 2005. Variation over time and among low-wage workers in the ratio of total labour costs to the gross wage gives rise to a natural experiment. Regression estimates indicate that a given increase in social security taxes has a larger negative effect on the probability of a worker remaining employed in the next quarter than an equal-sized increase in the minimum wage. This result is incompatible with the textbook model of labour supply and demand and suggests that workers may increase effort in response to an increase in wages. Consistent with this explanation, it is found that groups with the least access to the informal sector experience the smallest disemployment effects of the minimum wage.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6214.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Publication status: published in: Industrial and Labor Relations Review, 2012, 65 (3), 686-707
Handle: RePEc:iza:izadps:dp6214

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Keywords: Turkey; payroll taxes; employment; minimum wages;

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References

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  1. Ozturk, Orgul, 2006. "Employment Effects of Minimum Wages in Inflexible Labor Markets," MPRA Paper 8016, University Library of Munich, Germany, revised 2008.
  2. Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2008. "Do Employment Subsidies Work? Evidence from Regionally Targeted Subsidies in Turkey," IZA Discussion Papers 3508, Institute for the Study of Labor (IZA).
  3. William F. Maloney & Jairo Nunez Mendez, 2003. "Measuring the Impact of Minimum Wages: Evidence from Latin America," NBER Working Papers 9800, National Bureau of Economic Research, Inc.
  4. Sara Lemos, 2006. "Minimum Wage Effects in a Developing Country," Discussion Papers in Economics 06/1, Department of Economics, University of Leicester.
  5. Strobl, Eric & Walsh, Frank, 2003. "Minimum Wages and Compliance: The Case of Trinidad and Tobago," Economic Development and Cultural Change, University of Chicago Press, vol. 51(2), pages 427-50, January.
  6. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc.
  7. Janet Currie & Bruce Fallick, 1993. "The Minimum Wage and the Employment of Youth: Evidence from the NLSY," NBER Working Papers 4348, National Bureau of Economic Research, Inc.
  8. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, . "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Working Papers 2003-14, FEDEA.
  9. Linneman, Peter, 1982. "The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 443-69, June.
  10. Andreas Georgiadis, 2008. "Efficiency wages and the economic effects of the minimum wage: evidence from a low-wage labour market," LSE Research Online Documents on Economics 19628, London School of Economics and Political Science, LSE Library.
  11. Francis Kramarz & Thomas Philippon, 2000. "The Impact of Differenctial Payroll Tax Subsidies on Minimum Wage Employment," Working Papers 2000-10, Centre de Recherche en Economie et Statistique.
  12. Neumark, David & Wascher, William, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA).
  13. Krishna, Pravin & Mitra, Devashish & Chinoy, Sajjid, 2001. "Trade liberalization and labor demand elasticities: evidence from Turkey," Journal of International Economics, Elsevier, vol. 55(2), pages 391-409, December.
  14. James B. Rebitzer & Lowell J. Taylor, 1991. "The Consequences of Minimum Wage Laws: Some New Theoretical Ideas," NBER Working Papers 3877, National Bureau of Economic Research, Inc.
  15. Vivi Alatas & Lisa A. Cameron, 2008. "The Impact of Minimum Wages on Employment in a Low-Income Country: a Quasi-Natural Experiment in Indonesia," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 61(2), pages 201-223, January.
  16. Blundell, Richard & Meghir, Costas & Neves, Pedro, 1993. "Labour supply and intertemporal substitution," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 137-160, September.
  17. Morrison, Philip S. & Papps, Kerry L. & Poot, Jacques, 2006. "Wages, employment, labour turnover and the accessibility of local labour markets," Labour Economics, Elsevier, vol. 13(5), pages 639-663, October.
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Cited by:
  1. Alfredo Marvão Pereira & Jorge M. Andraz, 2014. "On The Long-Term Macroeconomic Effects Of Social Security Spending:Evidence For 12 Eu Countries," Working Papers 150, Department of Economics, College of William and Mary.
  2. World Bank, 2008. "Turkey - Country Economic Memorandum : Volume 2. Sustaining High Growth, Selected Issues," World Bank Other Operational Studies 8017, The World Bank.
  3. World Bank, 2008. "Investing in Turkey's Next Generation : The School-to-Work Transition and Turkey's Development," World Bank Other Operational Studies 8084, The World Bank.
  4. Cengiz, Sibel & Sahin, Afsin, 2013. "Modelling Nonlinear Behavior of Labor Force Participation Rate by STAR: An Application for Turkey," MPRA Paper 47805, University Library of Munich, Germany, revised 07 May 2013.
  5. Lehmann, Hartmut & Muravyev, Alexander, 2012. "Labor Market Institutions and Informality in Transition and Latin American Countries," IZA Discussion Papers 7035, Institute for the Study of Labor (IZA).
  6. Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2010. "Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey," Labour Economics, Elsevier, vol. 17(4), pages 710-722, August.

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