EXAMINING THE RELATIONSHIP BETWEEN LABOR PRODUCTIVITY AND EMPLOYMENT LEVEL IN TURKEY: TRENDS AND IMPLICATIONS

Abstract

This thesis empirically examines the dynamic and long-term relationship between labor productivity and employment in Turkey from 1988 to 2023 by combining theoretical and methodological perspectives. The theoretical foundation is based on neoclassical growth theory, Keynesian and post-Keynesian demand-driven approaches, structural transformation, and technological change theory. The study is a component of a global discussion on whether growing productivity promotes inclusive employment or results in "jobless growth." Although automation and digitalization are not specifically modeled, the theoretical interpretation of the data covers their dual implications for labor markets. In order to investigate the impact of labor productivity (LP), inflation (I), gross fixed capital formation (GFCF), and the age dependency ratio (ADR) on employment, the ARDL bounds testing approach is utilized. The results are validated by robustness tests, and both short- and long-term associations are found. Labor productivity has a positive and statistically significant long-term influence on employment (β = 0.2877, p < 0.001), contrary to deterministic conceptions of productivity-induced labor displacement. Inflation has a modest positive short-run correlation with the Phillips curve, but ADR has a negative and substantial influence (-2.51, p < 0.0001), indicating demographic pressures. Without innovation and institutional reform, investment just is insufficient for the development of widespread jobs, as seen by the GFCF's apparent positive but negligible impact. The error correction term (ECT = -0.85, p < 0.000) indicates a quick adjustment process, with over 85% of disequilibria eliminated each year. Overall, the empirical findings show that productivity increase can coexist with job creation when supported by stable macroeconomic conditions and appropriate structural initiatives. In order to convert productivity improvements into long-term job growth, policy implications focus on improving labor market flexibility, encouraging sectoral diversification, encouraging human capital development, and maintaining macroeconomic stability.