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

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