An analysis of wage, earnings and income inequality in Turkey

ABSTRACT AN ANALYSIS OF WAGE, EARNINGS AND INCOME INEQUALITY IN TURKEY ARSLAN, Emre Bilal M.Sc., Department of Economics Supervisor: Assist. Prof. Ozan Ekşi February 2014 The goal of this thesis is to analyze wage, income, and earnings inequalities in Turkey by using the data from Household Budget Surveys that have been available yearly since 2002. A thorough documentation of earnings and hourly wage inequalities is provided for different education and experience groups. The study then documents income inequality in Turkey. Both household and individual income data are used. The importance of household data arises from the fact that the members of a household use the same income sources, and social planners recognize this fact in calculating the well-being of their citizens. Therefore, the difference between household and individual income distributions is important to show the within-country income sharing dynamics in Turkey. Next, a decomposition of yearly incomes to earnings and non-earnings income sources is provided, together with figures showing the distribution of these income sources across households. The second part of the thesis explains the changes in income inequality in Turkey through panel regressions by using the cohort inequality indices. Briefly, this thesis aims to make a significant contribution to the literature and to create an important source of information. The most remarkable results are: the annual earning inequality differs from hourly wage inequality in Turkey. The 2001 crisis had a significant effect on inequality especially during the period of 2002-2004. Earnings are the most important source of individual income and the distribution of earnings and non-earnings does not change significantly over the years. With regard to the results obtained through panel regressions, the most influential variable that changes inequality between 2002 and 2011 is the ratio of credit to the private sector by deposit money banks and other financial institutions to GDP. This variable is used as a financial depth indicator and has an increasing effect on inequality. JEL Codes: D31 Keywords: Wage Inequality, Earnings Inequality, Income Inequality