Unemployment Flows, Participation, and the Natural Rate for Turkey

This paper measures flow rates into and out of unemployment for Turkey and uses them to estimate the unemployment rate trend, that is, the unemployment rate to which the economy converges in the long run. In doing so, the paper explores the role of labor force participation in determining the unemployment rate trend. We find an inverse V-shaped pattern for Turkey’s unemployment rate trend over time, currently between 8.5 percent and 9 percent, with an increasing labor market turnover. We also find that allowing an explicit role for participation changes the results substantially, initially reducing the "natural" rate but getting closer to the baseline over time. Finally, we show that this parsimonious model can be used to forecast unemployment in Turkey with relative ease and accuracy.