Why is the Labor Share So Low in Turkey?
The Developing Economies 53, No. 4, 2015
17 Pages Posted: 17 Apr 2016
Date Written: December 15, 2015
The labor share in the income of Turkey is confoundingly low according to official figures. By comparison, the average labor share of OECD members is two times higher than that of Turkey. Is this because labor productivity is low, or is it because imperfect competition, which amplifies profits, is overwhelmingly high in Turkey? We estimate preferences, technology parameters, and price markup in a dynamic general equilibrium model to answer this question using GMM. To our surprise, the results suggest that the crucial factor suppressing the share of labor in Turkey is high price markup, and the role of low productivity of labor is negligible. The results are robust to the use of different instrumental variables.
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