Do Employment Subsidies Affect Skill Intensity and Capital Formation? Evidence from Turkish Manufacturing

Güneş Aşık () and Çağlar Yüncüler ()
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Güneş Aşık: Middle East Technical University
Çağlar Yüncüler: TOBB University of Economics and Technology

No 1808, Working Papers from Economic Research Forum

Abstract: This study investigates the impact of employment subsidies on the dynamics of labor markets and production technologies in Turkey's manufacturing sector, with a focus on a 2016 subsidy reform that extended a 6-percentage-point reduction in employer-side social security contributions to previously ineligible micro firms. Leveraging a difference-in-differences approach, we examine the effects of the policy on employment, capital investment, capital intensity and skill upgrading across firms of varying sizes. Our findings reveal that micro firms responded with significant employment gains, while small firms increased capital investment and capital–labor intensity in the form of tangible assets. However, the policy had no measurable effect on skill upgrading, highlighting its limits in fostering structural labor market transformation. By extending the evaluation of employment subsidies beyond job creation, this study contributes to the broader discourse on active labor market policies and their role in promoting sustainable growth and technological development in emerging economies.

Pages: 31
Date: 2025-12-20, Revised 2025-12-20
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Published by The Economic Research Forum (ERF)

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