Unemployment Rate Convergence in the Case of Turkey: A Regional Analysis within the Scope of Dollarization and Real Wage

Abstract

The unemployment rate is a fundamental variable in the socioeconomic comparison between regions. Hence, it is included in the focus of regional economic policies. Regional policy sets are frequently used to eliminate regional unemployment differences. This situation raises discussions about the efficiency of the employment policies and questions whether regional unemployment rates tend to converge to national averages. Especially in economies with regional development differences and the labor market does not exhibit a homogeneous structure, the regional analysis of unemployment rates is becoming more critical. This paper analyses the convergence of unemployment rates with the panel data set, which includes 26 regions of Turkey and the period 2004-2020. It is investigated if regional macroeconomic interactions in Turkey make the labor market homogeneous. Besides, the effects of dollarization and real wage on the unemployment rate change are questioned. The study's findings indicate the presence of deterministic and stochastic Beta convergence. According to the unconditional and conditional Beta convergence analysis, the change in the unemployment rate depends on the initial value of the unemployment rate. The findings also show that if dollarization and real wage growth increase, unemployment rate growth also increases. Sigma convergence analysis also confirms the presence of unemployment rate convergence.