FACULTY OF BUSINESS
ECONOMIC DEPARTMENT
PRESENTED TO: DR GRETTA SAAB
PRESNTED BY: Sarah Omran, Ahmad Maaarani
Course: Quantitative method
Project: Unemployment in Turkey
Date: 23/01/2008
INTRODUCTION:
Results of a TÜİK survey show that the unemployment rate in
Turkey is only 10 percent. However, the result of a study done by the
consultants, titled “Households in Turkey: Analysis of labor force,
income, expenses and poverty,” claims that the real unemployment rate
in Turkey is 16.9 percent. Actually, if we go back to the1996-2006
period, we can see that the number of Turkish unemployed population
has increased by 1 million to 2.4million and the down pie shows the
main repartition of unemployment through different sectors:
Figure 1: Distribution of unemployed individuals between ages of 35 and 54 by economic
Sectors at which they were employed before they lost their jobs.
Source: Household Labor Survey, Turkish Statistical Institute
In this paper, we will try to analyze the factors lying behind the
unemployment problem in turkey in a more advanced technique
shedding the light on many important econometrical as well as social
and political aspects especially in a country like turkey where there is
close correlation between economics and politics predetermined by the
planning model of national economy – 70 % of the real sector works on
state tenders. The first challenge will be the option of variables that
could really fit our model:
Let X1 stand for female unemployment
Let X2 stand for male unemployment
Let X3 stand for GDP growth
Let X4 stand for inflation
Let X5 stand for income
Let X6 stand population growth
And for sure our dependent or explained variable will be Y or "total
unemployment".
Using the SPSS for windows 11, first the enter method we will obtain
the following equation that we set it up from the beta coefficients
present in the first table, The equation for the first-step estimation, i.e.
for the unemployment choice can be written as:
Y = - 6.21 + 0.296X1 +0.712 X2 – 2.958X3 – 3.747X4 + 1.798X5
+ 2.403X6.
RESULTS V/S EXPECTATIONS AND ECONOMIC THEORY:
Total unemployment = total male unemployment + total female
unemployment
2 working forces attributing to the labor force: male and female. And
thus any increase in the in component in the right hand side equation
means an increase in the left hand side equation and any decrease will
also lead to a decrease in the total unemployment which no doubt detect
a positive relationship between total unemployment and both total male
and female one.
As the first explanatory variable, “female” has a positive and significant
coefficient , however, the second explanatory variable “male” has a
positive, significant, and HIGHER coefficient (0.712 > 0.296), which
means that the men contribution ought to be more powerful in Turkey
than women tends to be which no doubt lies behind A Gaping Gender.
The first is that females are traditionally taken to be responsible for
home production activities and hence they have a high reservation wage
and thus they tend to keep them out of the labor force. The second
reason may be the factor of discrimination against females in the
Turkish labor market and the barriers to entry and so how can they be
unemployed if they do not even exist in the labor force? Add to this,
Enrolment rates of girls continue to be considerably lower than for boys
at all levels of education with high regional disparity (91% of boys and
69% of girls are enrolled in basic education). In the south east of the
country in particular, there is a low participation rate for girls in
secondary education as well as non attendance or non enrolment in
compulsory education. There is general absence of reliable data on
relative dropout rates from all levels of education and on a regional
basis.
GDP and total unemployment:
According to the economic theory, GDP and unemployment are
inversely related, ceteris paribus. From a macroeconomic point of view,
unemployment reduces the Labor variable in the economy's production
function (L, K, and T). Any reduction in this set of variables reduces
real economic growth. A slower growth rate contributes to a lower
standard of living. Slower growth or zero growth creates social tension
and related social problems and vice versa when GDP tends to rise, this
means that the economy is performing well, as well as that
unemployment within a country with good standards should go down.
And so as for our third variable, more precisely GDP, the model came
out with a high beta of -2.958, and a very significant t test to trend the
strong inverse relationship between GDP and our explained variable.
Turkey has been recognized as a functioning market economy in 2005,
although macroeconomic imbalances remain. Foreign Direct Investment
(FDI), increased significantly in 2005 and 2006, in particular due to
large scale privatizations and acquisitions in the financial sector which
helped to stimulate growth, however it wasn’t only because of growth
that unemployment decreased a bit during this same period, In general,
the Turkish government has looked favorably on worker emigration,
despite concerns that skilled workers are being lost because it is bettereducated Turks who tend to emigrate. In 1994 an estimated 1.1 million
Turkish workers were in Western Europe, of whom about 750,000 were
in Germany. More than 200,000 were in Middle Eastern countries.
Workers in Europe usually stay abroad several years, remitting funds
to relatives in Turkey. Most eventually return with their accumulated
savings to start a small business or buy a farm. Turks working in the
Middle East, in contrast, tend to work for Turkish construction firms
and typically return after each project is completed; these workers tend
to remit a larger share of earnings to their families, and surely to release
the pressure of a weighted average of people seeking for jobs inside of
turkey.
Income, inflation rate, and total unemployment:
The view of classical economists was that if the quantity of labor
demanded and the quantity of labor supplied are brought into
equilibrium by rising and falling wage rates, there should be no
persistent unemployment above the frictional and structural amount.
The Philips curve shows that the rate of inflation and the rate of
unemployment are negatively related. Income tends to rise when
unemployment is low and vice versa. Higher unemployment lowers the
growth in money wages. The reason behind that is that workers would
press less strongly for wage increases whenever fewer alternative jobs
are available, and, in addition, firms would resist wage demands more
firmly when profits are low.
s
The empirical findings confirm the economic theory. In Turkish
economy the variances of inflation rate and the growth rate of nominal
income are higher than those of low or moderate inflation countries.
According to the above model, the greater the variance of the general
price level the less economic agents will be fooled into responding to
nominal aggregate demand changes. The theoretical model suggests that
there should be low in countries where the variability of aggregate
demand is high and in countries where the average level of inflation is
high. Therefore, we should expect to have a more vertical Phillips Curve
for the case of high inflation Turkish economy.
In a volatile price country like Turkey nominal income changes are
associated with equal price movements with negative effect on real
growth rate. These results are, of course inconsistent with the existence
of even moderately stable Phillips curves.
The income beta coefficient turned out to be equal to 1.798 illustrating
the positive relationship between higher income and unemployment.
In the last two years, increasing numbers of working people have found
themselves in a state of exhaustion and desperation. Monthly income for
an average low-income family varies between TL 200 million ($ 20) and
TL 500 million ($300). Almost half, or 48 percent, of Turkey’s
population belongs to this low-income category while their share of the
national income is only 32.5 percent. And whenever pressures are put to
solve this situation, companies tend to fire workers and so
unemployment tend to rise and vice a versa.
The limited increase in wages coupled with the sacking of thousands of
workers pulled down the welfare level of the poorest sections, who lived
mostly in the underdeveloped suburbs of the metropolitan centers.
Turkey has entered a process of rapid impoverishment, attested to by
an increase in pick pocketing, theft and prostitution, bringing Turkey to
the brink of a social explosion.
Total population, population growth and unemployment:
Uncontrolled population growth is being the hot line issue even within
the most developed countries for they know that higher total population
means lower standards of living for each individual of this population
and this was recurrent through the history of economic thought, the
MALTHAUSIAN population doctrine explained how population tend to
increase geometrically while food supply tend to increase only
algebraically. The problem however isn't just in the scarcity and food
supply but in the question whether the labor market is going to be able
to absorb the excess job seekers or not. If not, there will certainly be a
positive relationship which means the higher the total population and
population growth the higher will be the total unemployment. And so it
is no surprise that a 1% increase in total population will result in a
2.4% increase in the unemployment rate in TURKEY.
Results of this study are consistent with previous research, and
the main model found statistically significant relationship between
unemployment the dependent variable and all the other independents
ones.
In this study, multiple regression analysis was used to provide us with
the ability to objectively assess the degree and character of the
relationship between the dependent and independent variable, in
addition to their combined prediction power in relation the dependent
variable. For this statistical test, the %97.7 (R2 = 0.977) of variance in
the dependent variable (unemployment in turkey) can be predicted
from the independent variables that are included in the regression
model. Correlation between the observed and the predicted values of
dependent variable (R) is 0.975. The regression model is significant
which means that the p-value associated with this F value is small. This
means that the independent variables reliably predicted the dependent
variable.
Multicollinearity was also inspected as in the model by examining
SPSS regression analysis’s collinearity diagnostics’), as well as,
a correlation analysis and no multicollinearity was observed. Besides
that, correlation statistic was done .Although the examined output of
SPSS software indicated some slight correlation, they do not pose any
threats to the model.
Conclusion:
The most problematic aspect of Turkey’s economy is probably the
labor market. The creation of new job opportunities diverges strongly
among individual regions, and internal migration is correspondingly
high. In future years, it will not only be important to achieve high rates
of GDP growth; it will be equally important that most parts of the
country and most economic sectors participate successfully in such
growth.
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