Globalization, wage shares and income distribution in Turkey

Abstract

Globalization is often observed to result in greater labour flexibility and decreased labour bargaining power; thus, imposing a downward pressure on wages, especially in the sectors producing tradable goods. This would result then in a deterioration of the wage share and rising inequality within developing countries. In 1980s, Turkey implemented liberalization policies to promote globalization of the Turkish economy by raising trade and capital flows. Using a sectoral panel data, this paper shows that low-wage competition followed by trade liberalization reduced the wage shares in the manufacturing industry. The analysis also exhibits that the financial liberalization and rising capital flows hurt workers by increasing macroeconomic volatility, leading to financial crises that affected the functional income inequality.