The Turkish Spatial Wage Curve

Abstract

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.