WAGE RIGIDITY AND INFORMALITY IN THE LABOR MARKET IN TURKEY

Seyfettin Gürsel, Gökçe Uysal ve Ayşenur Acar

International comparisons show that the formal labor market in Turkey is rather rigid regarding the wage level. This research brief analyzes the wage rigidity in the formal labor market based on the earnings of formal workers in the private sector. Using a similar methodology to that of the OECD, we calculate the ratio of minimum gross wage to median earnings to be 0.80. This is rather high ratio indicates a high wage rigidity. However, when regional labor markets are considered, the level of rigidity varies a lot. For example, while the ratio of gross minimum wage to median earnings is well below the country average in Istanbul and Ankara, it becomes close to one in number of regions, particularly in the Southeast.

A simple computation shows that the correlation between the wage rigidity and the informality is quite high, and much higher in the services than in the industry. In order to increase the competitiveness of the industry in Turkey and to accelerate economic development in less developed regions, the wage rigidity across regions should be evaluated with a view of economic rationality. Moreover, the relation between the wage rigidity and informality should be scrutinized more closely.

doc. ResearchBrief152

pdf. ResearchBrief152