The effect of the 2008 employment subsidy program in Turkey

Abstract

This study examines the effect of an employment subsidy program initiated in 2008 on labor market outcomes of women. Since one of the recent problems in Turkish labor market is low female employment rate, it is important to analyze whether employment subsidy programs are effective policy instruments to generate employment gains for female workers. Although there are many empirical studies on this subject, this is the first study in the literature that exploits the variation in the treatment effect of the program at NUTS2-level due to the presence of regionally targeted employment subsidies introduced in 2004 for workers in certain provinces until the end of 2012. Using difference-in-differences methodology, I find that the program increases the formal employment of women as wage workers while it leads to a decrease in informal employment levels and informal hourly wages of female workers through a substitution effect. The program has differential effects on female employments due to the heterogeneity in individual characteristics of women. Women aged 45 or above and women with at most primary or middle school diploma experience the highest increase in formal employment. There is also an evidence that the program has no substitution effect on formal employment of men aged 30 or above but it has a negative substitution effect on their informal employment levels and informal hourly wages.