Spatial wage curves for formal and informal workers in Turkey

Yusuf Soner Başkaya,Badi H. Baltagi

doi:10.1007/s43071-022-00021-y

Yusuf Soner Başkaya, Badi H. Baltagi

Open Access

https://doi.org/10.1007/s43071-022-00021-y

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Abstract

This paper estimates spatial wage curves for formal and informal workers in Turkey using individual level data from the Turkish Household Labor Force Survey provided by TURKSTAT for the period 2008–2014. Unlike previous studies on wage curves for formal and informal workers, we extend the analysis to allow for spatial effects. We also consider household characteristics that would affect the selection into formal employment, informal employment, and non-employment. We find that the spatial wage curve relation holds both for formal and informal workers in Turkey for a variety of specifications. In general, the wages of informal workers are more sensitive to the unemployment rates of the same region and other regions than formal workers. We find that accounting for the selection into formal and informal employment affects the magnitudes but not the significance of the spatial wage curves for the formal and informal workers with the latter always being larger in absolute value than that for formal workers.

Highlights

The inverse relation between individual wages and regional employment rates, i.e., the wage curve, is regarded as an empirical law in labor economics
11 Other examples of papers that use spatial weights based on socio-economic characteristics of these regions include Cohen and Morrison Paul (2004) who estimated a spatial cost-function with the elements of the weighting matrix depending on the share of the value of goods shipped from a state, Parent and Lesage (2008) who analyzed knowledge spillovers using a spatial weighting matrix based on a technological proximity index, Conley and Topa (2002) who used a socio-economic distance based on social networks to analyze the spatial patterns of unemployment in Chicago, and Figlio, Kolpin and Reid (1999) who use interstate migration flows to estimate how welfare policies of states depend on neighbor states’ welfare policies
This paper extends the literature on spatial wage curves and the informal labor markets by asking whether the spatial wage curves differ for the formal and informal workers for Turkey

Summary

Introduction

The inverse relation between individual wages and regional employment rates, i.e., the wage curve, is regarded as an empirical law in labor economics. Baltagi et al (2013) and Baltagi et al (2017) conducted a similar analysis for Turkey and Brazil, respectively All these papers consistently find that the wages of informal workers are significantly more sensitive to variations in the unemployment rates of the region than wages of their formal counterparts. We empirically estimate whether the surges in the unemployment rates in the regions that are in economic and geographic proximity have disproportional effects on the wages of formal and informal workers As another novel aspect of our analysis considering the earlier studies on the wage curves along the formality/informality divide, we model the selection into formal employment, informal employment, and non-employment explicitly.

Previous Literature

Data and Model

The Model

Construction of Spatial Weight Matrices

Standard Wage Curve Revisited

Spatial Wage Curves

Spatial Wage Curves along the Formality-Informality Divide

Informal and Formal Spatial Wage Curves Along the Gender Divide

Conclusion