Revisiting Labor Productivity Growth in Turkey: Accounting for Relative Prices, Structural Change, and Sectoral Dynamics

Abstract

This study decomposes aggregate labor productivity growth in Turkey from 1999 to 2023 using a chain-linked gross domestic product (GDP) series with an exactly additive decomposition method. Traditionally, this growth has been decomposed into two components: productivity growth within sectors and labor reallocation across sectors. Using the chain-linked GDP series introduces a third component: changes in relative sectoral prices. Although these relative price changes cancel out at the aggregate level, they influence sectoral contributions to overall labor productivity by altering each sector's weight in total output. Incorporating them, therefore, provides a more comprehensive view of sectoral dynamics by capturing their contributions to aggregate productivity growth. On average, the contribution of structural change slightly exceeds that of the within component. However, both the magnitude and composition of contributions vary considerably across sub-periods. During crisis years, structural change contributed positively while the within-sector component was negative. In contrast, during non-crisis periods, aggregate labor productivity growth declined because the structural-change component weakened persistently and nearly vanished after 2018, despite a positive though limited within-sector component. At the sector level, construction, finance and real estate, community, personal, and government services, and transport and communication largely account for the slowdown, while manufacturing's contribution stayed steady; its composition shifted away from within productivity across periods.