Minimum Wage and Market Power: Case of Turkey

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Kılıç İ. E., Donduran M.

The Eighth International Conference on Economics of Turkish Economic Association, Nevşehir, Turkey, 1 - 04 September 2022

  • Publication Type: Conference Paper / Summary Text
  • City: Nevşehir
  • Country: Turkey
  • Yıldız Technical University Affiliated: Yes


Minimum wage policies create a significant contribution to firms' input costs. While in the orthodox economic theory an increase in the minimum wage implies a reduction in labour demand, it has recently been rejected by many empirical studies. Theoretical explanations for the non-declining employment with minimum wage emphasise the monopsony power and productivity increase of the firms. Firms thus absorb the increase in the labour cost by reduction in market power and/or increasing labour productivity. Turkey has one of the highest ratios of the minimum wage to the median wage among the member countries of the Organisation for Economic Co-operation and Development. With a large share of registered workers paid around the minimum wage, a sizeable increase in the minimum wage would significantly increase firms’ labour costs. This study utilises the increase in the minimum wage in 2016, considering the firm-side of the labour market in Turkey. The renewed version of the Annual Industry and Service Statistics micro data allows us to monitor all small and large firms' employment dynamics, profits, and competitiveness. Combining this data set with the recently published Company Accounts Statistics micro data, we estimate the markup, elasticity of substitution, and total factor productivity as well as the entry-exit of firms. In a difference-in-differences setting with heterogeneous intensity of treatment across firms, these estimates will then be used to investigate the market power and productivity channels through which the minimum wage and labour demand are related.