TÜSİAD-Koç University Economic Research Forum working paper series 1017
Using worker-level panel data for Turkey, this paper analyses the separate employment effects of increases in the social security taxes paid by employers and increases in the minimum wage between 2002 and 2005. Variation over time and among low-wage workers in the ratio of total labour costs to the gross wage gives rise to a natural experiment. Regression estimates indicate that a given increase in social security taxes has a larger negative effect on the probability of a worker remaining employed in the next quarter than an equal-sized increase in the minimum wage. Those who retain their jobs in the next quarter also experience a larger reduction in working hours when social security taxes increase than when the minimum wage rises. This is consistent with a situation in which workers increase effort in response to an increase in wages. Men, rural-dwellers and those under 30 are found to have the strongest overall disemployment effects in response to increases in labour costs.