Productivity, structural change and skills dynamics: Evidence from a half century analysis in Tunisia and Turkey

This article explores the contribution of structural change and the skill upgrading of the labor force to productivity in Tunisia and Turkey in the institutional context of the post-World War II period. Our growth decomposition shows that productivity is mainly explained by intra-industry changes for both countries during the import substitution period. Structural change played an important role in Turkey for a longer period of time than in Tunisia. Based on an instrumental variable regression setting, we find evidence that overall, the change in the share of high-educated workers had a causal impact on productivity levels in Turkey, but no such relation was found in Tunisia. Secondly, we show that this productivity increase has mainly been driven by the reallocation of higher educated labor between sectors rather than the absorption of highly educated workers within sectors. In Tunisia we do not find evidence of links between education demand and productivity. Moreover, the evidence from the instrumental variable regressions show that when we exclude the government sector in Tunisia, the overall skills upgrading is negatively associated with productivity growth, suggesting a downward return to educated labor demand over time.