How different are the wage curves for formal and informal workers? : evidence from Turkey

Abstract EN

This paper estimates wage curves for formal and informal workers using a rich individual level data for Turkey over the period 2005-2009.

The wage curve is an empirical regularity describing a negative relationship between regional unemployment rates and individuals' real wages.

While this relationship has been well documented for a number of countries including Turkey, less attention has focused on how this relationship differs for informal versus formal employment.

This is of utmost importance for less developed countries where informal employment plays a significant role in the economy.

Using the Turkish Household Labor Force Survey observed over 26 NUTS-2 regions, we find that real hourly wages of informal workers in Turkey are more sensitive to variations in regional unemployment rates than wages of formal workers.

This is true for all workers as well as for different gender and age groups.

WHAT HAPPENED TO REAL EARNINGS IN EGYPT, TO 2009 Nominal earnings in Egypt were non-responsive to the increase in inflation between February 2008 and February 2009, resulting in a 12.3 (9) percent decline in average (median) real earnings among 25 to 60 years old workers.

Indeed, the decline appears to be directly relate to the increase in inflation rather than to changes in the employment status or type or sector of employment.

Changes in earnings differ significantly by groups : (i) those with higher initial earnings (reported and predicted) suffered the largest declines in earnings ; (ii) when controlling for initial earnings, women lost considerably more than men; (iii) those who were initially in agriculture also had greater declines despite rising food prices.

This evidence is consistent with the assumption of labor market segmentation, with agriculture representing the least preferred free entry sector and differential pay being offered to the same individual working in different sectors.