The Beveridge curve and labour market dynamics in Turkey

Abstract

This article investigates the dynamics of unemployment and vacancy rates in Turkey during the period 1951 to 2008 by means of a Beveridge Curve (BC). The time-series analysis of unemployment and vacancies as well as two other relevant labour market variables, real wages and real labour productivity, strongly suggests inefficiency in the Turkish labour market. A stable long-run relationship between unemployment rate and vacancy rate is found for Turkey, that is, the existence of a negatively sloped BC is verified. The estimated Turkish BC reflects the structural problems and lack of flexibility in the labour market. The modified BC with real wages and labour productivity reveals that labour productivity has no significant effect on unemployment rate whereas wages have positive and significant effects on the same variable.

Keywords:

• Beveridge curve
• unemployment
• vacancies

JEL Classification:

• J60
• E24
• C32

Notes

¹ Labour market tightness is measured as the ratio of total job vacancies to total unemployed job seekers.

² A formal derivation of this specification, as well as that of a multivariate version, is given by De Francesco (1999).

³ The empirical studies point out several factors which are responsible for a shift in BC such as interest rates, female unemployment rate, the replacement ratio and the rate of separations from employment and the long-term unemployment rate. However, we include only real wages and real labour productivity due to the limitation and the availability of data.

⁴ The real labour productivity is defined as the ratio of real total value added to total employment.

⁵ Hysteresis in the labour market takes place if the equilibrium unemployment depends on unemployment history (Phelps, 1972).

⁶ The results are available upon request from the authors.

⁷ In order to check the sensitivity of results to the order used, we have tried different orderings of the Vector Error Correction (VEC) analysis and observed that the results have not changed significantly.

⁸ The efficiency wage theory postulates the link between productivity and real wages and demonstrates that higher wages may stimulate workers' productivity (Akerlof and Yellen, 1986).

⁹ The full response functions are available from the authors upon request.