The Turkish Spatial Wage Curve

Haci Karatas

doi:10.3390/econometrics5030037

Abstract

The wage curve for Turkey revisited considering the spatial spillovers of the regional unemployment rates using individual level data for a period of 2004–2013 at the 26 NUTS-2 level by employing FE-2SLS models. The unemployment elasticity of real wages is −0.07 without excluding any group of workers unlike previous studies. There is strong evidence on spatial effects of unemployment rate of contiguous regions on wage level, which is larger, in absolute value, than the effect of own-regional unemployment rate, −0.087 and −0.056, respectively. Male workers are slightly more responsive to the own-region unemployment rate than female workers. However, female workers are more responsive to the neighboring regions’ unemployment rate. Furthermore, using group-specific unemployment rates in the estimation of the wage curve for various groups, we find that unemployment elasticity of pay for female workers has become smaller and lost its significance, whereas unemployment elasticity for male workers has changed slightly. However, introducing group-specific unemployment rate results in losing significance in estimates for female workers. The findings in this paper suggest that individual wages are more responsive to the unemployment rates of the proximate regions than that of an individual’s own region. Also, the wage curve estimates are sensitive to the group-specific unemployment rates.

Highlights

The wage curve is an empirical phenomenon featuring the negative relationship between the regional unemployment rate and the real wage level
Using group-specific unemployment rates in the estimation of the wage curve for various groups, we find that unemployment elasticity of pay for female workers become smaller and loses its significance, whereas unemployment elasticity for male workers changes slightly
We present the standard wage curve estimates for the whole labor force without excluding any group of workers in Table 2 using fixed effect 2SLS (FE-2SLS) in which we take into account the endogeneity of the unemployment rates

Summary

Introduction

The wage curve is an empirical phenomenon featuring the negative relationship between the regional unemployment rate and the real wage level. Ilkkaracan et al (2013) use a longer period with regional skill level unemployment rates excluding the public sector workers They find evidence on a wage curve for males. Baltagi et al (2015) use a longer period of data that can capture the whole business cycle, investigating the differences in the spatial wage curves of formal and informal workers1 They use regional non-agricultural unemployment rates instead of the overall unemployment rate. The segmented labor markets based on worker qualifications might be even more pronounced in the developing countries such as Turkey according to Ilkkaracan et al (2013) If this is the case, using group-specific unemployment rate would be more appropriate in wage curve estimations. We use a spatially lagged regional unemployment rate in this paper

The Standard Turkish Wage Curve Revisited

The Spatial Turkish Wage Curve

Robustness Check for the Spatial Weight Matrix

Conclusions