The Significance of Economic Selection to Labor Productivity Evolution in the Turkish manufacturing industries

Abstract

In this paper, we investigate the nexus between the selection effect and the overall labor productivity evolution in the Turkish manufacturing sector at the firm level. The data compiled by Turkish Statistical Institute (TSI) that classified according to NACE Rev.2 during the period from 2011 to 2015 at four-digit level is employed. We distinguished between three sets of firms. The firms that exist in both pre- and post-evolution populations (C), the firms that exist only in the pre-evolution population (X), namely the exciters and the firms that exist only in the post evolution population (N), namely the entrants. The total number of firms during this period is 65 719. The number of the firms that exist in both 2011 and 2015 is 18 528. The number of the firms those are exist only in 2011 is 21 451 and the number of the firms that exist only in 2015 is 25 740. Both single- (at whole level) and multi-level (at industry level) of the “Price equation” method had been utilized. According to the single-level Price equation, the key sources of the aggregate labor productivity evolution were firm selection effect, innovation and exit effects. However, in the multilevel decomposition the key sources were, industry selection effect, innovation and exit effects. When splitting the whole period into shorter sub periods and summing up the results, we found the tendency for selection was stronger. In the short run, developing the management skills and the productivity-boosting know-how practices may enable firms to increase their labor productivity. In the long run, a comprehensive upgrading of the business environment is vital to improve the regulations and support the strategies of innovation incentives such as increasing the expenditure on R&D activities.

Keywords

• The Price Equation
• Labor Productivity Growth
• Structural Change
• Micro Heterogeneity
• Turkish Manufacturing Industry

Thanks

Acknowledgment: We are grateful to TurkStat for providing access to the microdata set of Annual Industry and Services Statistics Database and for providing an excellent research environment

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