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Wage inequality dynamics in Turkey

Author

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  • Ozan Bakis

    (Bahcesehir University and BETAM)

  • Sezgin Polat

    (Galatasaray University and GIAM)

Abstract

This study aims to analyze wage inequality trends over the last two decades and investigate the impacts of two major policy interventions, minimum wage increases and educational expansion, in Turkey between 2002 and 2019, using Household Labor Force Surveys. We find a significant decline in wage inequality over the period analyzed, which can be explained by a combination of (i) minimum wage hikes (2004 and 2016), (ii) a stable aggregate demand curve, and (iii) relative stagnation of post-secondary graduate wages. The two minimum wage hikes led to real gains that were preserved over the years for lower-wage earners and reduced the wage gap between the upper and lower percentiles. The decomposition analysis based on DiNardo et al. (Econometrica 1996:1001–1044, 1996) shows that minimum wage hikes had a strong wage (price) effect on the wage distribution. This impact even spilled over to wage earners above the minimum wage. In an emerging economy with many low-skilled jobs and weak labor market institutions, we argue that minimum wage adjustments replace the role of central wage bargaining. In recent years, the stagnant real wages of the top deciles contributed further to the decline in inequality.

Suggested Citation

  • Ozan Bakis & Sezgin Polat, 2023. "Wage inequality dynamics in Turkey," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(3), pages 657-694, August.
    • Handle: RePEc:kap:empiri:v:50:y:2023:i:3:d:10.1007_s10663-023-09579-8
    DOI: 10.1007/s10663-023-09579-8
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    2. Aracı, Doğu Tan & Demirci, Murat & Kırdar, Murat Güray, 2022. "Development level of hosting areas and the impact of refugees on natives’ labor market outcomes in Turkey☆," European Economic Review, Elsevier, vol. 145(C).

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    More about this item

    Keywords

    Minimum wage; Wage inequality; Decomposition; Wage distribution; Turkey;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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