The relationship between employment and productivity: An application on the top 500 enterprises operating in ISO

The New Classical view assumed that wages and prices are flexible in the theory of Real Business Cycles. Based on this assumption, it is expected to increase in the level of productivity and employment after given a positive technological shock. Therefore, unemployment caused by technological progress may decrease in the short and medium term. Level of employment is expected to improve again with indirect and compensatory mechanisms in the long run. It is supported that the efficiency wage applications such as unions, collective bargaining agreements, menu costs herewith the wages and prices are liable to strict application in the New Keynesian view as opposed to the Theory of Real Business Cycles in which wages are depended on flexible applications. The rigidity of prices prevents change in the level of demand and affects employment as negatively. Examining of the 500 enterprises including more than half of the total value added in Turkey industrial sector is in this sense a special manner. Data sources were taken from 57 companies which permanently take place in the top 500 enterprises registered the Istanbul Chamber of Industry between labour productivity and employment variables belong to these 57 enterprises. The validity of New Classical and New Keynesian views are being investigated by applying panel cointegration analysis and the Granger casuality test use of annual data. As a result of this study, cointegration relationship between labour productivity and employment has been identified and the conclusion of bidirectional casuality between both variables has been reached. The relationship between labour productivity and employment were found to be statistically significant and positive which lends support to the New Classical Real Business Cycles theory.