Labor Supply Elasticity of Turkish Labor Market: 2003 - 2011

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Aykac G.

EGE ACADEMIC REVIEW, vol.16, no.1, pp.13-29, 2016 (ESCI) identifier

  • Publication Type: Article / Article
  • Volume: 16 Issue: 1
  • Publication Date: 2016
  • Doi Number: 10.21121/eab.2016116582
  • Journal Indexes: Emerging Sources Citation Index (ESCI), TR DİZİN (ULAKBİM)
  • Page Numbers: pp.13-29
  • Gazi University Affiliated: Yes


This paper examines the wage elasticity of aggregated labor supply of Turkish households for the period of 2003 - 2011 employing the Lucas&Rapping (1969) Model. In their original work, nonwage income variable is excluded from the estimated model. Nonwage income variable of the theoretical model which is left out in the estimated model is reintroduced to the estimated model using a different methodology. A Pseudo panel data set is generated by aggregating household level data to form cohorts consist of sequential vigintiles by the nonwage income of the households using the Turkish Household Budget Surveys. This approach enables the cross sectional data to become a pseudo panel and hence benefits from the advantages of a panel data set. On the other hand, whether the nonwage income in Turkey being one of the determinants of the labor supply or not is tested by the statistical significance of the model. The wage elasticity of the labor supply (intensive margin) is estimated utilizing Lucas & Rapping (1969) aggregated labor supply model using the pseudo panel data. The elimination of the fixed effects of each cohort by the appropriate estimation method achieves the labor supply elasticity excluding the nonwage income effect. The study reveals the fact that the model estimated with aggregated data of households as sequential vigintiles of their nonwage income, provides a statistically significant estimation of the wage elasticity of the labor supply in Turkey. In this context, the wage elasticity of labor supply is estimated with Arellano and Bover / Blundell and Bond system GMM estimator, using the Lucas&Rapping (1969) model and it is found to be as small as 0,06.