The effects of Elders' earnings on income inequality: Evidence from Turkey

Abstract

A structural transformation occurs during the last decades and due to the changing conditions of the demographic structures of developing countries, the living standards have improved. Therefore this has led to an ageing population in Turkish economy. Based on the changing conditions, the participation of older workers in the labor market has been increased. On the other hand, the increased integration to the world economy causes inevitable distributional consequence and hence, trends in the distribution of income have received substantial attention in recent years. As income inequality becomes an important issue especially for developing countries, there exists a vast survey in the literature about income inequality. However, the importance of the older workers for the income inequality is not being questioned in these studies. According to the literature, this study seems to be the first that investigates the impacts of elders’ earnings on income inequality for Turkey. In that sense, the main focus of this study is to reveal the importance of the older workers in labor market and to investigate the impact of elders’ earnings on inequality by using counterfactual distribution of income. For the empirical examination, Income and Living Conditions Survey and conducted by TurkStat for the years 2006, 2011 and 2016 is utilized. At first, as to reveal the changes in the income inequality, results from the basic inequality measures will be implemented. The results for overall inequality level of Turkey show that inequality declined throughout the investigated years. After that, as our goal is to compare the existing distribution in each year to the distribution that would occur if older workers had no earnings, ceteris paribus we develop a hypothetical equation. In order to apply that, we calculate the counterfactual distribution for each year by setting olders' earnings equal to zero. The preliminary results show that, olders’ earnings have equalizing effect. By discriminating the impact of olders’ earnings from other sources of income, the results reveal that, olders’ earnings have a small contribution on the income inequality.