Analysis of the relationship between economic growth and unemployment in Turkey

In this study, the relationship between unemployment and economic growth in Turkey were examined empirically for the periods of 2000-2018 in terms of the Okun's Law. In the second part of the study, the relation among labor market, historical economic growth and unemployment level in Turkey is examined. In the last part of the study, we employ linear and nonlinear models whether the Okun's Law is valid in Turkey. Empirical results suggest that the relation between unemployment and economic growth is not linear and two-state Markov Switching model is found to be better characterizes the data than linear model. The first state is called as high unemployment regime and the second one is named as low unemployment regime according to Markov Switching model results. Also, we determine that the relation between unemployment and economic growth is negative and statistically significant in both regimes and these findings are consistent with theoretical expectations. These results suggest the presence of inverse relation between unemployment and economic growth in both regimes. However, we find that yearly economic growth must be at least as 14.5% and 8.3% for the high and low unemployment regimes respectively in order to reduce unemployment rate by 1%.