The role inflation in the relationships between regional economic growth and unemployment: The case of Turkey

While economic growth is important for countries at every level of development, ensuring stability in growth is the main common goal. However, some economic problems such as unemployment pose a problem for the realization of this target. It is an accepted theory in the economics literature that economic growth will create employment. Under normal circumstances, a positive effect on economic growth is expected to have the same effect on employment. However, the effects of the economic developments on the labor market do not show the expected effect on employment. The basis of this situation is the opinion that the policies implemented to ensure price stability affect employment negatively. Therefore, it is revealed that inflation plays an important role between economic growth and unemployment. In this study, the role of inflation is examined practically in the relationship between unemployment and economic growth on a regional basis in Turkey. Accordingly, as of the period 2005-2019, a threshold level for inflation will be determined using the Soft Transition Panel Regression (YGPR) model and the effect of inflation on unemployment and economic growth will be analyzed if inflation is below or above the threshold level. Consequently, the estimated threshold value for the inflation rate was found to be 9.48%. While the inflation rate is below the threshold level, an increase in economic growth will reduce unemployment, while an increase in economic growth when the inflation rate is above the threshold level will not create employment.