The Evolution of Wage Inequality in Türkiye: Firm-Level Decomposition by Size, Sector, and Distribution
The Evolution of Wage Inequality in Türkiye: Firm-Level Decomposition by Size, Sector, and Distribution

Summary/Abstract: Using matched employer–employee data from Türkiye’s Entrepreneurship Information System (EIS) covering 2006–2022, this study documents a broad and sustained decline in wage inequality between 2006 and 2017, driven mainly by shrinking between-firm dispersion among large enterprises, followed by a mild reversal thereafter. Variance decompositions by firm size ad sector show that compression was concentrated among firms with 250 or more employees, where inter-firm pay gaps narrowed sharply—particularly in manufacturing, which alone accounts for nearly 70 percent of the total reduction in wage variance. While the 2016 minimum-wage hike temporarily accelerated compression, its effects proved short-lived; the long-term trend reflects structural convergence among firms rather than transitory policy shocks. Distributional evidence shows that the upper-tail gap (P90–P50) narrowed markedly, whereas the lower-tail gap (P50–P10) widened modestly, reflecting stronger wage growth among median earners. Kernel density estimates further reveal a structural reallocation of employment from both tails of the wage distribution toward the upper-middle range—particularly within large firms, where the share of top earners contracted sharply, reinforcing the observed pattern of middle-wage expansion. Collectively, the findings indicate a structural equalization of Türkiye’s wage distribution with recent years showing tentative signs of divergence. Future research should disentangle the roles of productivity, wage-setting, and worker–firm sorting in shaping these evolving patterns.

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