Wage inequality dynamics in Turkey

Ozan Bakis and Sezgin Polat

Empirica, 2023, vol. 50, issue 3, No 3, 657-694

Abstract: Abstract This study aims to analyze wage inequality trends over the last two decades and investigate the impacts of two major policy interventions, minimum wage increases and educational expansion, in Turkey between 2002 and 2019, using Household Labor Force Surveys. We find a significant decline in wage inequality over the period analyzed, which can be explained by a combination of (i) minimum wage hikes (2004 and 2016), (ii) a stable aggregate demand curve, and (iii) relative stagnation of post-secondary graduate wages. The two minimum wage hikes led to real gains that were preserved over the years for lower-wage earners and reduced the wage gap between the upper and lower percentiles. The decomposition analysis based on DiNardo et al. (Econometrica 1996:1001–1044, 1996) shows that minimum wage hikes had a strong wage (price) effect on the wage distribution. This impact even spilled over to wage earners above the minimum wage. In an emerging economy with many low-skilled jobs and weak labor market institutions, we argue that minimum wage adjustments replace the role of central wage bargaining. In recent years, the stagnant real wages of the top deciles contributed further to the decline in inequality.

Keywords: Minimum wage; Wage inequality; Decomposition; Wage distribution; Turkey (search for similar items in EconPapers)
JEL-codes: C14 J23 J31 J38 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10663-023-09579-8

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