The Effect of Real Wages on Employment after the Global Financial Crisis: The Case of the Turkish Manufacturing Industry

Abstract

This paper analyzes the effect of real wages on employment in the Turkish manufacturing industry after the 2008 global financial crisis. The effect was estimated for 24 manufacturing sectors using panel data analysis covering the period from 2009Q1 to 2019Q4. The panel cointegration results demonstrated a significant long-run relationship between real wages and employment, while the panel augmented mean group (AMG) estimator results indicated a significant long-run positive effect of real wages on employment. At the sectoral level, the effect was either insignificant or positive except for one sector. These findings indicate that an increase in real wages can raise employment by positively affecting the goods market and national income through the effective demand channel. That is, the manufacturing industry’s wage policies for enhancing effective demand can raise employment in Türkiye.