Regional employment volatility in Turkey: Causes and consequences

Regional employment volatility is an undesirable phenomenon which describes a strongly fluctuating pattern of employment, thus, "instability" of a local economy. In the literature on this field, much of the attention has been paid to two main issues. First, a group studies has investigated the evolution of national economic volatility and searched for a tendency towards the moderation or amplification of economic cycles. Second, strand of scholars has analyzed the socio-economic and geographical determinants behind the cross-regional variation of volatility. However, far little attention has been devoted to understanding the causes and consequences of this phenomenon in developing countries So, aim of the present study is actually two fold. First, we analyze the cross-regional determinants of employment volatility in Turkey and decompose relative importance of the sources of employment growth shocks. Second, we examine the relationship between regional instability and economic convergence. In terms of methodology, we use a range of panel data, time series models and nonparametric tools such Random Effects Model; PANEL VAR model and Conditional Kernel Density Estimations. We adopt employment data and many other explanatory variables for NUTS-II level regions and over a period 2004-2013. Our analyses indicate three main results: First, there are huge differences across regions in employment volatility. Second, volatility of regions is mostly related to demographic and market size characteristics of the regions. So, regions which have high rate of labor market participation (with active labor force) and moderated growth rates; the ones which constitute greater market area tend to experience relatively more smoothed employment pattern and, thus, enjoy a stable economy. Moreover, we have shown that regional economic shocks are mostly driven by region specific disturbances rather than purely nationwide or sectoral shocks. Third, regional instability is found as an important barrier against the fulfillment of economic convergence.