Unemployment Invariance Hypothesis, Added and Discouraged Worker Effects in Canada?

Aysit Tansel and Zeynel Abidin Özdemir

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This article explores the long-run relationship between unemployment rate and labor force participation rate for men and women in Canada. The co-integration analysis vindicates the existence of a long-run relationship between these two variables. This finding leads us to doubt the pertinence of the unemployment invariance hypothesis for Canada. This is consistent with the empirical studies for Japan, Sweden and the United States, but contradicts the empirical studies for Australia, Romania and Turkey. Further, we find discouraged worker effect for women and added worker effect for men and we elaborate on the possible explanations for this seemingly contradictory finding.

Education Effects on Days Hospitalized and Days out of Work by Gender: Evidence from Turkey

Aysit Tansel and Halil İbrahim Keskin

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The strong relationship between various health indicators and education is widely documented. However, the studies that investigate the nature of causality between these variables became available only recently and provide evidence mostly from developed countries. We add to this literature by studying the causal effect of education on days hospitalized and days out of work for health reasons. We consider two educational reforms. One is the educational expansion of the early 1960s and the other is the 1997 increase in compulsory level of schooling from five to eight years. However, due to the possibility of weak instruments we do not further pursue this avenue. We focus on individuals in two cohorts namely, 1945-1965 which is an older cohort and 1980-1980 which is a younger cohort. We estimate Tobit models as well as Double Hurdle models. The results suggest that an increase in years of education causes to reduce the number of days hospitalized for both men and women unambiguously and the number of days out of work only for men while an increase in education increases the number of days out of work for a randomly selected women.

Monetary Policy Trilemma, Inflation Targetting and Global Financial Crisis

Eda Gülşen and Erdal Özmen

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We empirically investigate the validity of the monetary policy trilemma postulation for emerging market (EME) and advanced (AE) economies under different exchange rate and monetary policy regimes before and after the recent global financial crisis (GFC). Consistent with the dilemma proposition, domestic interest rates are determined by global financial conditions and the FED rate even under floating exchange rate regimes (ERR) in the long-run. The impact of the FED rates is higher in EME than AE and EME are much more sensitive to global financial cycle under managed than floating ERR. The spillover from the FED rate substantially increases after the GFC in EME with floating ERR and AE. The results from the monetary policy reaction functions based on equilibrium correction mechanism specifications suggest that domestic interest rates respond to inflation and output gaps especially under inflation targeting (IT) in the short-run. The response to inflation gap tends to be smaller in IT AE after the GFC.

Do emigrants self-select along cultural traits? Evidence from the MENA Countries

Frederic Docquier, Aysit Tansel and Riccardo Turati

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This paper empirically investigates whether emigrants from MENA countries self-select on cultural traits such as religiosity and gender-egalitarian attitudes.To do so, we use Gallup World Poll data on individual opinions and beliefs, migration aspirations,short-run migration plans, and preferred destination choices. We find that individuals who intend to emigrate to OECD, high-income countries exhibit significantly lower levels of religiosity than the rest of the population.They also share more gender-egalitarian views, although the effect only holds among the young (aged 15 to 30), among single women, and in countries with a Sunni minority. For countries mostly affected by Arab Spring, since 2011 the degree of cultural selection has decreased. Nevertheless,the aggregate effects of cultural selection should not be overestimated. Overall, self-selection along cultural traits has limited (albeit non negligible) effects on the average characteristics of the population left behind, and on the cultural distance between natives and immigrants in the OECD countries.

When should bidders learn reserve prices?

Onur Koska and Frank Stähler

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This paper discusses the role of reserve prices when the signal of each bidder is positively affiliated with the seller's signal. We distinguish three reserve price designs: a public reserve price, announced before the auction starts, a revealed reserve price, disclosed when a bid matches it, and a secret reserve price that is disclosed after the highest bid has been reached. We show that a public or a revealed reserve price are strategically equivalent, and we show that no seller will set a secret reserve price.

The Economics of Vendor Bids

Onur Koska, İlke Onur and Frank Stähler

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This study scrutinizes the implications of a vendor bid in an open ascending auction with a seller of an indivisible good and many potential buyers. The seller can set a reserve price, and both the seller and the bidders have private signals and interdependent values. We show that no strictly increasing reserve price function exists in the presence of a vendor bid. We also show that a vendor bid must be large enough to be credible, and thus vendor bids may not be used in equilibrium. The vendor will exercise her vendor bid option if and only if her private signal is large enough.

The Effects of Compulsory Schooling Laws on Teenage Marriage and Births in Turkey

Murat G. Kırdar, Meltem Dayıoğlu and İsmet Koç

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This paper estimates the impact of the extension of compulsory schooling from 5 to 8 years in Turkey—which increased women’s schooling by more than a year—on marriage and birth outcomes of teenage women. We employ a regression discontinuity design, where we compare month-year of birth cohorts of women. The increased compulsory schooling years reduce the probability of teenage marriage by age 16 and first-births by age 17 substantially. However, these effects dissapear after ages 17 and 18 for marriage and first-births, respectively. Our results indicate strong incarceration effects of the policy on marriage and birth outcomes during the newly mandated compulsory schooling years as well as human capital effects on the time to marriage. However, the human capital effects on the probability of being ever-married vanish after a couple of years the students become free to leave school.

Long Memory in Turkish Unemployment Rates

Luis A. Gil-Alana, Zeynel Abidin Özdemir and Aysit Tansel

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In this paper we have examined the unemployment rate series in Turkey by using long memory models and in particular employing fractionally integrated techniques. Our results suggest that unemployment in Turkey is highly persistent, with orders of integration equal to or higher than 1 in most cases. This implies lack of mean reversion and permanence of the shocks. We found evidence in favor of mean reversion in the case of female unemployment and this happens for all the groups of non-agricultural, rural, urban and youth unemployment series. The possibility of non-linearities are observed only in the case of female unemployment and the degree of persistence is higher in the cases of female and youth unemployment series. Important policy implications emerge from our empirical results. Labor and macroeconomic policies will most likely have long lasting effects on the unemployment rates.

Analyzing Wage Differentials by Fields of Study: Evidence from Turkey

Antonio Di Paolo and Aysit Tansel

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This paper analyzes the drivers of wage differences among college graduates who hold a degree in a different field of study. We focus on Turkey, an emerging country that is characterized by a sustained expansion of higher education. We estimate conditional wage gaps by field of study using OLS regressions. Average differentials are subsequently decomposed into the contribution of observable characteristics (endowment) and unobservable characteristics (returns). To shed light on distributional wage disparities by field of study, we provide estimates along the unconditional wage distribution by means of RIF-Regressions. Finally, we also decompose the contribution of explained and unexplained factors in accounting for wage gaps along the whole distribution. As such, this is the first work providing evidence on distributional wage differences by college major for a developing country. The results indicate the existence of important wage differences by field of study, which are partly accounted by differences in observable characteristics (especially occupation and, to a lesser extent, employment sector). These pay gaps are also heterogeneous over the unconditional distribution of wages, as is the share of wage differentials that can be attributed to differences in observable characteristics across workers with degrees in different fields of study.

Political Economy, Firm Survival and Entrepreneurship in Turkey: The Case of the Wealth Tax (1942)

Seven Ağır and Cihan Artunç

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In 1942, the Republic of Turkey promulgated a controversial tax on personal wealth to finance mobilization of the army and curb inflation. The extraordinary tax was arbitrarily assessed and the burden fell disproportionately on non-Muslim minorities. The precise transformative effect of the tax on Turkey’s commercial life is not well understood. This article assembles a new dataset of firms operating in Istanbul to show the tax led to a dramatic rise on the liquidation of enterprises with non-Muslim ownership but no effect on Muslims. At the same time, the tax caused a sharp decline in the formation of new non-Muslim firms and a commensurate increase in the number of Muslim firms. The results show that the Wealth Tax forced the dissolution of otherwise productive, older firms and contributed to the further nationalization of the economy.

An Integrated General Equilibrium Model for Evaluating Demographic, Social and Economic Impacts of Transport Policies

Özhan Yılmaz and Ebru Voyvoda

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Under the legacy of dominant transport appraisal approach, which mainly relies on traditional cost-benefit assessment (CBA) analyses, candidate policies and associated projects are evaluated in a way to take primarily aggregate information into account. Although it is practical to use these methods, working with aggregate values leaves every kind of disparities aside and individual level information is lost in aggregation. This means that we need better economic models doing more than reducing outcomes of evaluated policies to numerical aggregates and averages. This study proposes a hybrid approach to grasp the heterogeneity among different agents and to endogenise interactions among different markets. A discrete choice theory-based household residential location and transport mode choice model and a traffic equilibrium model based on Wardrop’s principles are embedded in a traditional computable general equilibrium (CGE) model representing a closed urban economy. This requires fully integrating three different models (economic model, household location and mode choice model, traffic equilibrium model) using a single mathematical framework. The proposed integrated model is tested using pseudo data of a city with four districts where connection between districts are provided through two-way roads passing through a central district. Households are categorised according to their residential location, working location, preferred commuting mode and social status. Different types of transport policies (i.e. capacity increase in private transport, public transport improvement) are evaluated and impacts of these policies on such parameters like household distribution, households’ demands on consumption goods and housing, housing prices are analysed.

Labour Market Policies and the Informal Sector: A Segmented Labour Markets Analysis

Şirin Saraçoğlu

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In this paper we develop a dynamic model of a multi-sector economy with an informal sector and segmented labour markets first to demonstrate how informal production and employment decline in transition towards the steady state, and second to analyse the impact of various labour market policies at the steady state. Our results primarily indicate that informal employment share increases with minimum wage, and decreases with reductions in the payroll taxes, moreover, reducing the tax imposed on employer is more effective in reducing the informal employment share, while reducing the tax imposed on employee is more effective in increasing consumer felicity.

Trade and Commodity Taxes as Environmental Instruments in an Open Economy

Onur Koska, Frank Stähler and Onur Yeni

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In a simple reciprocal dumping model of trade, this study scrutinizes the strategic role of trade and commodity taxes as environmental instruments when consumption of an imported product generates pollution. The results suggest that both trade and commodity taxes have important implications on countries’ integration through trade. For sufficiently small values of the marginal disutility from pollution, the country claiming responsibility for pollution prefers commodity taxes over import tariffs, and compared to the case of trade policies, free trade can be maintained for larger values of the marginal disutility from pollution when commodity taxes are used strategically as environmental instruments.

Intertemporal CGE Analysis of Income Distribution in Turkey

Onur Yakut and Ebru Voyvoda

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This study focuses on the effects of public policies on the size distribution of income in Turkey. To this end, an intertemporal dynamic equilibrium model with heterogeneous agents in a small open economy framework is constructed. This study serves several extensions to the literature via its algebraic structure and the calibration process in which various micro-level data sets are utilized. The results reveal that, in line with the previous findings of the literature, increasing budget allocations to unilateral social transfer programs has no significant effect on the size distribution of income and has adverse effects on the labor market decisions of relatively poor laborers. On the contrary, subsidizing the cost of labor has positive impacts on labor supplies and the size distribution of income improves in favor of relatively poor households.

Asymmetric Exchange Rate Policy in Inflation Targeting Developing Countries

Ahmet Benlialper, Hasan Cömert and Nadir Öcal

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In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large appreciations in their currencies. Given that appreciation helps central banks curb inflationary pressures, we ask whether central banks in developing countries have different policy stances with respect to depreciation and appreciation in order to hit their inflation targets. To that end, we analyze central banks’ interest rate decisions by estimating a nonlinear monetary policy reaction function for a set of IT developing countries using a panel threshold model. Our findings suggest that during the period under investigation (2002-2008), central banks in developing countries implementing IT tolerated appreciation by remaining inactive in case of appreciation, but fought against depreciation pressures beyond some threshold. We are unable to detect a similar asymmetric response for IT advanced countries suggesting that asymmetric policy stance is peculiar to IT developing countries. Although there is a vast literature on asymmetric responses of various central banks to changes in inflation and output, asymmetric stance with regards to exchange rate has not been analyzed yet in a rigorous way especially within the context of IT developing countries. In this sense, our study is the first in the literature and thus is expected to fill an important gap.

Determinants of Obesity in Turkey: A Quantile Regression Analysis from a Developing Country

Deniz Karaoğlan and Aysit Tansel

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This study investigates the factors that may influence the obesity in Turkey which is a developing country by implementing Quantile Regression (QR) methodology. The control factors that we consider are education, labor market outcomes, household income, age, gender, region and marital status. The analysis is conducted by using the 2008, 2010 and 2012 waves of the Turkish Health Survey (THS) prepared by the Turkish Statistical Institute (TURKSTAT). The obesity indicator in our study is the individual’s Body Mass Index (BMI). QR regression results provide robust evidence that additional years of schooling has negative effect on individual’s BMI and this effect significantly raises across different quantiles of BMI. QR results also indicate that males tend to have higher BMI at lower quantiles of BMI, whereas females have higher BMI at the top quantiles. This implies that females have higher tendency to be obese in Turkey. Our findings also imply that the positive effect of age on individual’s BMI levels raises across the quantiles at a decreasing rate. In addition, the effect of living in urban or rural areas do not significantly differ at the highest quantile distributions of BMI. Our results also reveal that the negative effect of being single on BMI increases gradually in absolute value across the quantiles of BMI implying that single individuals have less tendency to be obese or overweight compared to the married or widowed/divorced individuals. Moreover, the negative effect of being in labor force on individual’s BMI increases across the quantiles of BMI implying that an individual is more likely to be obese if he/she is out of labor force. Finally, the impact of household income on BMI is positive and significant at all quantiles.