Labor Markets and Productivity in the Process of Globalization: Firm Level Evidence From Turkey

Over the last 15 years, global economic integration has been accelerated by international trade and capital flows. Consequently, understanding the linkages between domestic producers’ performance, labor markets, and globalization has become an ever more pressing concern for all who are interested in economic policy. Policy makers in many developing countries, faced with a rapidly and fundamentally changing world economy, are struggling to decide which labor market and trade policies to implement. “Correct” policy intervention, if any, is linked critically to channels through which international forces influence domestic producers and workers, as well as the concomitant impact of domestic factors on the integration of the domestic economy. In this research, we focus on the Turkish economy during the period from 1983 to 1996. This period follows directly the 1980 initiation of the economic restructuring programs that accelerated the Turkish economy’s integration to the world economy. We use a plant-level data set because such data sets are most likely to shed light on linkages between globalization, labor markets, and producer performance. The plant-level data set used in this project includes all manufacturing establishments with ten or more employees and was collected by the Turkish State Institute of Statistics (SIS). This research project predates the ERF funding period. Access to the manufacturing establishments database was granted in June 1999, after three years of negotiations with the SIS, and under an official agreement. As such, this represents the first research undertaken outside of the auspices of the SIS using this data. During the June-December 1999 period, preliminary work was conducted with the data, leading to the project that was carried out here under ERF sponsorship. In the component of the research discussed in this report, we focused on distinct aspects of liberalization. This was motivated by the desire to explore and identify the most important channels through which the process of globalization has impacted the Turkish economy. This strategy enabled us to work with different aspects of the data set so as to assess the overall reliability of the data and make improvements on existing problems, including missing observations and internal inconsistencies. As such, we were able to produce high quality output and this strategy has enabled us to identify important areas for future work on related subjects.