The Impact of Capital Accumulation on the Unemployment Rate in Turkey

Reducing unemployment rate is an important macroeconomic problem in all economies. Developing policies to reduce unemployment rates are among the priorities of policymakers. In this context, with the numerous theoretical and empirical researches on unemployment, basic macroeconomic theories seem to be inadequate. The Chain Reaction Theory of Unemployment is a new and alternative theory in explaining the relationship between capital accumulation (stock) and unemployment. The theory is built on the functioning of lagged adjustment processes in the system. The interactions of these dynamic structures in the labor market are studied with multi-equation dynamic models. In addition, contrary to the mainstream literature, in theory, the cumulative increase in variables such as capital stock and workable population can be examined without any prior restrictions on the effects of unemployment. Moreover, considering the delayed adjustment processes, the effects of temporary and permanent shocks on the labor market can be focused on. In this study, in the framework of CRT for 1965-2010 period, the effect of the unemployment rate on the movement of capital stock in Turkey was examined. The findings show that capital stock is the most powerful effect on the unemployment rate among the growth variables. Furthermore, the dynamic effects of capital stock on unemployment are examined within various scenarios. After 2000, the growth rate of capital accumulation which could be realized at 7% or more per year is seen to hold the unemployment rate in single digits