Macroeconomic Shocks and Labor Supply in Emerging Countries: some Lessons from Turkey

We investigate the general equilibrium effects of minimum consumption constraints over labor supply decisions. Within a simple static model, a minimum consumption constraint modifies labor supply decisions of unskilled workers, generating the well-known added worker effect. The results of the model help to analyze the Turkish labor market where added worker effects were observed following the 2001 crisis. We investigate the asymmetric effects of the crisis, using the Household Budget Surveys that cover the period between 2002 and 2005. The substantial decrease in real wages has increased labor supply for unskilled labor, especially for women.