Is there a virtuous cycle between wages and productivity? Turkish experience after the transition to democracy

TAYMAZ E., VOYVODA E., Yilmaz K.

World Development, cilt.175, 2024 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 175
  • Basım Tarihi: 2024
  • Doi Numarası: 10.1016/j.worlddev.2023.106474
  • Dergi Adı: World Development
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, Academic Search Premier, IBZ Online, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Business Source Elite, Business Source Premier, CAB Abstracts, EBSCO Education Source, EconLit, Gender Studies Database, Geobase, Index Islamicus, PAIS International, Political Science Complete, Social services abstracts, Sociological abstracts, Veterinary Science Database, Worldwide Political Science Abstracts
  • Anahtar Kelimeler: Democratic transition, Labor productivity, Long-run growth, Real wages, Total factor productivity, Labor unions
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

We analyze the behavior of plant-level real wages and productivity in Turkish manufacturing after the transition to democracy in 1987 and test for the direction of the causality between these two variables. The Turkish experience is almost an experimental case because successive governments after 1987 let real wages increase rapidly under the pressure of intensifying political competition. Real wages in state-owned enterprises increased by nearly 200% from 1988 to 1993, followed by a 130% increase in real wages in private manufacturing. Our analysis shows that labor and total factor productivity increased at an unprecedented rate during the same period in response to the exogenous wage hikes. Econometric estimates provide strong empirical evidence supporting the hypothesis that there is a bi-directional relationship between wages and productivity, and wage increases do not reduce surplus because the increase in productivity (value added per worker) compensates for increasing wages.