Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243014 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2111
Publisher: 
Koç University-TÜSIAD Economic Research Forum (ERF), Istanbul
Abstract: 
We analyze the behavior of plant-level real wages and productivity in Turkish manufacturing after the transition to democracy in 1987 and test whether wages under democracy causes productivity. The Turkish experience provides almost an experimental case: real wages in manufacturing increased by 120% in the 1987-93 period due to (exogenous) political changes, together with unprecedented total factor productivity and labor productivity growth. While these observations provide support for the "democracies pay higher wages" hypothesis, they also stimulate further evaluation of the consequences of such politically-motivated 'exogenous' wage hikes on economic performance. Our analysis shows that real wage hikes during the democratic transition forced firms to increase productivity to stay competitive. The findings also help explain why countries that undergo an orderly transition from autocracy to democracy may achieve rapid productivity gains.
Subjects: 
Democratic transition
Real wages
Total factor productivity
Labor productivity
Labor unions
Efficiency wages
Long-run growth
JEL: 
D24
E24
J24
P16
Document Type: 
Working Paper

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