Wage Inequality in Turkey: 2002-2010

This paper studies the evolution of wage inequality over the last decade in Turkey using household labor force survey between 2002 and 2010. During the period between 2002 and 2004, the relative supply of more educated workers to less educated workers stayed almost constant while their relative wages have decreased in the benefit of less educated workers. However, in the second period between 2004 and 2010 the relative supply of more educated workers to less educated workers had risen while their relative wages remained constant or kept increasing in the benefit of more educated workers. Both of these developments calls for factors other than those implied by a simple supply-demand model such as skill-biased technical change or minimum wage changes. The decomposition of wage inequality reveals that price(wage) e ect is dominant over the composition particularly in the period between 2002 and 2004. Our results show that the real minimum wage hike in 2004 corresponds to a major institutional change which proves to be welfare increasing in terms of wage inequality. The upper-tail (90/50) wage inequality decreased between 2002 and 2004 and stayed constant thereafter. The lower-tail (50/10) wage inequality decreased smoothly between 2002 and 2010. Our findings provide another evidence to the institutional view.