European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

The controversy over employment policy: Low labor costs and openness, or demand policy? A sectoral analysis for Turkey

Özlem Onaran () and Nursel Aydiner-Avsar
Additional contact information
Özlem Onaran: Department of Economics, Vienna University of Economics & B.A.
Nursel Aydiner-Avsar: University of Utah

Abstract: The purpose of this paper is to test the effects of labor cost, openness, and demand side variables on employment for the case of Turkey using the panel data of private manufacturing industry at three digit level for 25 sectors for the period of 1973-2001. We use a seemingly unrelated regression (SUR) model, which allows for cross-sectoral heterogeneity. The estimation results show that higher growth is more effective in stimulating employment compared to lower labor costs. The reliance of Turkey and many developing countries on labor market flexibility and openness as the unique tools of employment policy reflects a pro-capital incomes policy bias rather than a necessity. The results confirm the Keynesian emphasis on demand-side policies to fight against unemployment.

JEL-codes: J23; E24; F16 August 2006

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