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Orhan Torul

Associate Professor of Economics at Boğaziçi University

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Turkey has persistently ranked as one of the most economically unequal countries among OECD nations. While income inequality has stagnated at a high level in recent years, wealth inequality appears to be increasing and stands as the second highest globally as of 2014 (Torul and Öztunalı 2018). Understanding the sources and implications of Turkey’s high inequality has become an important priority for Turkish policymakers and a focus of academic research. This post reviews three recent studies that have explored different dimensions of inequality in Turkey using a range of methodologies. Together, these studies paint a picture of an economy with deeply entrenched inequalities across multiple distributional measures.

The first paper by Aktuğ, Kuzubaş, and Torul (2021) provides a detailed analysis of heterogeneity in labor income profiles —how income varies over the lifecycle— in Turkey. Using microdata from the Turkish Statistical Institute’s Household Labor Force Survey from 2004-2018, the authors are able to examine differences in income trajectories across education levels, gender, and public versus private sector employment. One key finding is that while the average income profile has a hump shape over the lifecycle peaking around age 50, public sector employees exhibit steadily upward-sloping income trajectories. This contrasts with a hump-shape pattern seen for private sector employees. The study highlights a significant gender pay gap, especially for less educated workers, with males earning 20% or higher incomes than females on average. This aligns with Turkey’s historically low female labor force participation rate of around 30%. For university graduates, the study reveals a tradeoff between higher average incomes but greater risk in the private sector compared to the public sector. Overall, the analysis shows that abstracting away from any of these dimensions —education, gender, sector— could lead to misleading characterizations of aggregate labor income patterns.

Building on these results, Tamkoç and Torul (2020) investigate how different measures of economic inequality —wages, income, and consumption— have evolved in Turkey from 2002 to 2016. Using microdata from the Turkish Statistical Institute, the study documents significant declines across all three inequality indicators over this period. The authors link this to Turkey’s rapid real minimum wage growth as well as falling informal employment and rising social protection spending. An interesting finding is the strongly countercyclical pattern of wage inequality, contrasting with the acyclical movements in income and consumption inequality. Turning to determinants of wages, the study shows that while education premiums have been stable, gender and experience premiums have fallen, as has residual wage inequality. Overall, the time path of inequality in Turkey resembles that of Russia most closely among the countries examined. The authors update their results using new data here.

Shifting from a focus on income to wealth, Torul and Öztunalı (2018) provide the first analysis of wealth inequality in Turkey using a heterogeneous-agent general equilibrium model. The model is calibrated to match empirical estimates of income and wealth inequality in 2014. It successfully replicates Turkey’s high wealth concentration and income inequality across several metrics. Comparison with other developed economies confirms Turkey has the highest income inequality in Europe. The simulated wealth inequality also surpasses most other countries studied, with only Russia and the United States exhibiting higher wealth concentration. An important contribution is the estimation of high welfare costs of inequality equivalent to a 25-43% permanent decline in consumption. This implies Turkey’s high inequality comes at a considerable welfare loss for Turkish citizens. Recently, Ceritoğlu, Cılasun, Küçükbayrak, and Sevinç (2022) verify a similar wealth inequality Gini of 0.773 using micro data from the Central Bank of Turkey’s Household Finance and Consumption Survey.

Synthesizing the results across these studies yields several broad conclusions. First, Turkey exhibits exceptionally high economic inequality, whether measured by income, wages, consumption or wealth, exceeding all other European countries. Second, inequality has moderated over the 2000s but remains very high in absolute terms. Rapid minimum wage growth and expanding social protection programs contributed to the decline. Third, dimensions like education, gender, sector of employment, and labor market policies are critical in shaping Turkey’s inequality. Fourth, Turkish citizens bear significant welfare costs due to high inequality. Further research is needed to better understand the evolution and implications of Turkey’s inequality but reducing it could produce substantial welfare gains.

The studies point to some priorities for Turkish policymakers concerned with mitigating inequality. Boosting educational attainment, especially among women, and fostering their entrance to the labor market can help reduce income gaps. Continued formalization of employment and increases in the minimum wage can compress the wage distribution from below. Expanding social protection measures can provide insurance against income volatility. And more progressive tax policies can curb wealth concentration at the top. Multiple policy levers are available to Turkish authorities seeking to tackle inequality and promote greater economic fairness.

While recent academic research has greatly expanded our understanding of inequality in Turkey, open questions remain. More work is needed to explicate the dynamics of Turkish wealth inequality, given the limitations of existing data. Understanding how inequality responds to macroeconomic conditions and policies merits further study as Turkey enters a new low-growth regime. Explicitly modeling distributional impacts should become integral to economic policy analysis in Turkey. On the whole, the problem of inequality deserves continued attention from both Turkish policymakers and researchers.