Application of cointegration analysis to the demand for labor by the Turkish private manufacturing sector

Abstract

In this study, the demand for labor by the Turkish private manufacturing sector is analyzed for three time periods; 1988 quailer 1-1993 quarter 4, 1988 quarter 1 - 1994 quarter 1, 1988 quarter 1-1994 quarter 2 to be able to capture the effects of the economic crisis of 1994 based on an approach treating employment as a function of output and real wage within an Enor Correction Modeling Approach. In the seaich for possible long run relationships between the vaiiables of interest, Johansen’s Maximum Likelihood procedure is applied to the first difference of variables since all the data series are integrated of order 1. A unique cointegrating relationship is found for each time period. Upon testing and rejecting the exogeneity of the real wage and output series for the demand for labor, short run models are built for each period which are consistent with theoiy but may be subject to biases due to simultaneity between the variables of interest.