Exploring different measures of wage flexibility in a developing economy context: The case for Turkey

In this paper we use Turkish household labor force data to address a number of conceptual issues pertaining to the wage curve, an empirically derived negative relationship between the real wage level and the local unemployment rate. First, we estimate the wage curve using various definitions of the unemployment rate including discouraged and marginally attached workers, or the long-term unemployment rate to explore the most relevant measure of local labor market tension in the wage setting process. We find that broader definitions of unemployment provide a more effective reference point in measuring wage flexibility for women, whose attachment to the labor market is substantially weak in the Turkish context; while in the case of men, long-term unemployment rate yields the highest elasticity. Second, we show that particularly in the case of developing economies where labor markets are segmented by skill level, local unemployment rate disaggregated by education provide more accurate measures of the degree of group-specific wage competition. Finally, using quantile regression we show that wage responsiveness to unemployment can not be assumed to be constant along the wage distribution. In the Turkish case, we find a higher unemployment elasticity of wages around the median segment of wage distribution.