erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

The Role of Unemployment in Wage Determination: Further Evidence on the Wage Curve in Turkey

İpek İlkkaracan (New School for Social Research, USA)
Raziye Selim (Istanbul Technical University)

Abstract

The presentatıon is based on an empirical analysis of the correlation between wages and regional unemployment rates in Turkey. Using data from the Labor Force Participation and Wage Structure Survey of 1994, conducted by the State Statistics Institute, we explore the role of regıonal unemployment rates in wage determination, controlling for a series of individual and firm characteristics. The analysis builds upon a series of recent empirical on the wage-unemployment relationship, now commonly known as “the Wage Curve”, a downward sloping curve in wage-unemployment space. These studies from more than a dozen other countries, all point towards a robust negative correlation between wages and unemployment. In each case, they find that there exists a downward sloping wage curve in wage - unemployment space. Controlling for personal, industry and regional characteristics, two identical workers are shown to receive different levels of pay given different unemployment rates in their respective regions (or industries); the higher the unemployment rate in the worker's region, the lower is her wage. As distinct from the Phillips Curve, which shows a negative correlation between the growth rate of money wages and the unemployment rate derived from estimation of macroeconomic data, these recent studies estimate microeconomic wage level equations where the local rate of unemployment enters as an independent variable with a statistically significant negative coefficient. Our initial attempts to conduct the standard wage curve analysis using data from Turkey, suggest a statistically significant negative correlation between wages and local unemployment rates. In other words, a wage curve is shown to exist also in the labor market in Turkey. This study is placed within the context of a more comprehensive study which explores the alternative non-linear specifications of the wage curve using labor market data also from the U.S.A. and in addition looks at the theoretical foundations of the wage curve phenomenon in Classical Economics.

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