Firm level allocative inefficiency of labour: evidence from Turkish manufacturing firms

Official URL: http://risc01.sabanciuniv.edu/record=b1819812 (Table of Contents)

This paper quantifies misallocation of labor among firms within Turkish manufacturing sector over the period of 2006-2015. The degree of misallocation is estimated by using Petrin and Sivadasan’s (2013) gap methodology. The labor gap is defined as the difference between the value of the marginal product of labor and the marginal cost of labor. Over the period 2006-2015, the average absolute labor gap is estimated to be 3.5 thousand TL. Considering that average yearly wage is 14.9 thousand TL in our data, the labor gap is equal to 2.8 times the average monthly wage. By running a firm fixed effects regression on absolute labor gap, this paper concludes that the gaps have a significant decreasing trend over 2006-2015 period. Controlling for firm characteristics, this paper also shows that the misallocation of labor is decreasing by firm size.