Unemployment flows, participation, and the natural rate of unemployment: Evidence from Turkey

Abstract

We use a parsimonious unobserved components model with flow rates to estimate a time-varying unemployment rate trend for Turkey. Our approach is grounded in the modern theory of labor market search. This trend estimate yields a level that the unemployment rate would converge to in the absence of cyclical shocks that move different flow rates away from their underlying trends. By the end of 2018, the unemployment rate trend for Turkey stood at 12 percent, gradually increasing since the end of the global recession. The key drivers of the unemployment rate trend have been rising separation and unemployment exit rate trends in the first decade of our sample period. Since 2012, these trends have stagnated somewhat, but the labor force participation rate has continued trending up.