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Wage-Productivity Gap in Turkish Manufacturing Sector

  • Ceyhun Elgin
  • Tolga Umut Kuzubas

Perfectly competitive labor markets without distortionary taxes combined with a profit maximizing behavior of firms should imply that real wages should equal marginal product of labor (MPL). In this paper, we study the Turkish manufacturing industry and find that there exist a significant widening gap between real wages and marginal product of labor over the period 1950-2009. Using different time-series econometric techniques we show that this gap is foremost correlated with the unemployment rate over the period of study. To provide an economic mechanism for this relationship we build a search model of employment with endogenous bargaining. Our model implies that this observation is consistent with declining bargaining power of the workers, which is also supported by the data.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2012/03.

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Date of creation: Mar 2012
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Handle: RePEc:bou:wpaper:2012/03
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