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Transition to Democracy, Real Wages and Productivity: The Turkish Experience

Author

Listed:
  • Erol Taymaz

    (Department of Economics, METU)

  • Ebru Voyvoda

    (Department of Economics, METU)

  • Kamil Yilmaz

    (Department of Economics, Koç University)

Abstract

We analyze the behavior of plant-level real wages and productivity in Turkish manufacturing after the transition to democracy in 1987 and test whether wages under democracy causes productivity. The Turkish experience provides almost an experimental case: real wages in manufacturing increased by 120% in the 1987-93 period due to (exogenous) political changes, together with unprecedented total factor productivity and labor productivity growth. While these observations provide support for the “democracies pay higher wages” hypothesis, they also stimulate further evaluation of the consequences of such politically-motivated ‘exogenous’ wage hikes on economic performance. Our analysis shows that real wage hikes during the democratic transition forced firms to increase productivity to stay competitive. The findings also help explain why countries that undergo an orderly transition from autocracy to democracy may achieve rapid productivity gains.

Suggested Citation

  • Erol Taymaz & Ebru Voyvoda & Kamil Yilmaz, 2021. "Transition to Democracy, Real Wages and Productivity: The Turkish Experience," Koç University-TUSIAD Economic Research Forum Working Papers 2111, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:2111
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    More about this item

    Keywords

    Democratic transition; Real wages; Total factor productivity; Labor productivity; Labor unions; Efficiency wages; Long-run growth.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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