Structural Change in the Employment Effects of Sectoral Growth in Turkey

Abstract

As employment generation capacity of an economy is one of the determinants of macroeconomic performance, most of the empirical studies carried out for Turkish economy reveal that the economic growth in Turkey doesn't create the desired employment, which is known as the jobless growth phenomenon in economic theory. In this study, as two contributions to the above inference, I aim to (i) investigate the employment-generating capacity of economic growth in Turkey in terms of sectoral output and (ii) investigate the number, the exact dates and the effects on the parameters of structural breaks led by the global crisis in 2008. For this purpose, I apply Bai and Perron's approach for estimating linear regression models under structural breaks with unknown numbers and dates. In the first step of the estimation process, a single structural break demonstrating the global crisis is dated as the third quarter of 2009. Under this break date, the results of the analysis indicate that the statistically significant and high employment elasticity of the agriculture sector turns to a lower and insignificant one after the crisis; industry sector turns to be an employment-generating sector after the global crisis, but with a poor statistical evidence; the services sector has a negative and insignificant employment elasticity. The employment generation capacity of output growth is significantly high only in construction sector in both periods. The study concludes that the jobless growth phenomenon in Turkey, exhibited by many studies, seems to be a major problem of the labour market in Turkey as the sole employment-generating sector is construction, a sector of short-term contracts and activities.