The impact of the 2008 crisis on top labor incomes in Turkey: A nonparametric analysis

Tumen, Semih (2013): The impact of the 2008 crisis on top labor incomes in Turkey: A nonparametric analysis. Forthcoming in: Economics Bulletin

Abstract

This paper presents a nonparametric analysis of the impact of the 2008 crisis on earnings distribution in Turkey. Using micro-level data from the Household Labor Force Survey (2004-2011), I show that the crisis has operated most visibly above the upper quartile of the earnings distribution. I present three main findings: (1) the share of the top decile -- especially the top percentile -- has increased significantly right after the crisis, (2) the top quartile (i.e., the right tail) of labor incomes in Turkey resembles, on average, a Pareto distribution with a corresponding Gini coefficient of around 0.23, and (3) following the crisis, the earnings differentials have widened above the top quartile and wildly deviated from the Pareto form. I document that the changes observed right after the crisis have mostly been temporary; that is, a normalization process has operated in the aftermath of the crisis. I argue that the health of the domestic banking system might be an important determinant of the effect of large scale financial crises on top labor incomes. A sound banking system can generate income polarization in a country, when global crises lead to asymmetric income reallocations across sectors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Earnings differentials; inequality; the 2008 crisis; Turkish Household Labor Force Survey.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

Aaberge, R. (2007). Gini's nuclear family. Journal of Economic Inequality 5, 305–322.

Atkinson, A. B. and S. Morelli (2011). Economic crises and inequality. Unpublished manuscript, University of Oxford.

Atkinson, A. B., T. Piketty, and E. Saez (2011). Top incomes in the long run of history. Journal of Economic Literature 49, 3–71.

Bell, B. and J. van Reenen (2010). Bankers pay and extreme wage inequality in the UK. Unpublished manuscript, London School of Economics.

Clark, A. E. and A. J. Oswald (1996). Satisfaction and comparison income. Journal of Public Economics 61, 359–381.

Cowell, F. A. (2011). Measuring Inequality (3rd ed.). Oxford, UK: Oxford University Press.

Fitoussi, J. P. and F. Saraceno (2010). Europe: How deep is a crisis? Policy responses and structural factors behind diverging performances. Journal of Globalization and Development 1, 1–17.

Kumhof, M. and R. Ranciere (2010). Inequality, leverage, and crises. IMF Working Paper 10/268.

Lee, S. J. and J. D. Rose (2010). Profits and balance sheet developments at U.S. commercial banks in 2009. Federal Reserve Bulletin, May 2010, A1–A37.

Morelli, S. (2011). Banking crises and stock market crashes in US: The response of top shares in historical perspective. Unpublished manuscript, Oxford University.

Philippon, T. and A. Reshef (2012). Wages and human capital in the U.S. finance industry: 1909–2006. Quarterly Journal of Economics 127, 1551–1609.

Piketty, T., E. Saez, and S. Stantcheva (2013). Optimal taxation of top labor incomes: A tale of three elasticities. American Economic Journal: Economic Policy, forthcoming.

Rajan, R. G. (2010). Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton, NJ: Princeton University Press.

Roine, J., J. Vlachos, and D. Waldenstrom (2009). The long-run determinants of inequality: What can we learn from top income data? Journal of Public Economics 93, 974–988.

Saez, E. (2001). Using elasticities to derive optimal income tax rate. Review of Economic Studies 68, 205–229.

Saez, E. (2008). Striking it richer: The evolution of top incomes in the United States. Pathways Magazine, Stanford Center for the Study of Poverty and Inequality, Winter 2008, 6–7 (updated March 2012).