Turkey’s employment subsidy program under the great recession: a general equilibrium assessment

Erinc Yeldan

International Review of Applied Economics, 2017, vol. 31, issue 2, 225-254

Abstract: The objective of this paper is to provide an impact analysis of the macroeconomic consequences of the employment subsidization programs in Turkey implemented under the post-2008 crisis period. To this end, an applied general equilibrium model (of the computable general equilibrium – CGE variety) is utilized to investigate the production, incomes generation, and aggregate demand components of the domestic economy. The analysis highlights the rather limited returns to the subsidization package, and argues that much of this was due to the dis-equilibriating and fragile macroeconomic environment under the neoliberal policy framework. The massive drop of domestic savings; a severe mis-alignment in the real exchange rate causing significant appreciation of the domestic currency; rise of the external deficit and of foreign indebtedness along with a severe fall in the total productivity effort were different facets of this poor macroeconomic performance. Thus, an important message of the study is that, had the macroeconomic balances were maintained at their historical averages, and a more competitive exchange rate could have been pursued, as much as threefolds of a gain in aggregate employment could have been generated with the same intensity of the employment subsidization package, in comparison to the historically realized levels.

Date: 2017
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DOI: 10.1080/02692171.2016.1240154

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