Turkey Labor Market Study

137 Pages·2006·2.76 MB·English

Report No. 33254-TR
Turkey
Labor Market Study
April 14, 2006
Poverty Reduction and Economic Management Unit
Europe and Central Asia Region
Document of the World Bank
TURKEY - GOVERNMENT FISCAL YEAR
January 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of March 20, 2006)
Currency Unit YTL
US$1.00 1.32 New Turkish Lira
WEIGHTS AND MEASURES
Metric System
ABBREVIATION AND ACRONYMS
ALMPs Active Labor Market Programs
BK Bag-Kur (Farmers and Self-Employed Pension Fund)
CBT Central Bank of Turkey
CEM Country Economic Memorandum
CPI Consumer Price Index
DIS Direct Income Support
ECA Europe and Central Asia
ES Emekli Sandigi (Civil Servants Pension Fund)
EU European Union
FDI Foreign Direct Investment
GDP Gross Domestic Product
GDR General Directorate of Revenues
GFS Government Financial Statistics
GNP Gross National Product
HLFS Household Labor Force Survey
IBRD International Bank for Reconstruction and Development
IMF International Monetary Fund
ISKUR Turkish Employment Organization
MOLSS Ministry of Labour and Social Security
NGO Nongovernmental Organization
OECD Organisation for Economic Co-operation and Development
PEIR Public Expenditure and Institutional Review
SIMA Statistical Information Management & Analysis
SIS State Institute of Statistics
SMEs Small and Medium Enterprises
SPO State Planning Organization
SRMP Social Risk Mitigation Project
SSK Sosyal Sigortalar Kurumu (Workers Pension Fund)
UHI Universal Health Insurance
UI Unemployment Insurance
WDI World Development Indicators
WPI Wholesale Price Index
YTL New Turkish Lira
Vice President: Shigeo Katsu
Country Director: Andrew Vorkink
Sector Director: Cheryl Gray
Sector Manager: Samuel Otoo
Task Team Leader: Mathew Verghis
Table of Contents
Executive Summary ...........................................................................................................................i
CHAPTER 1. OVERVIEW OF THE LABOR MARKET IN TURKEY ..................................1
A. Introduction ...................................................................................................................................1
B. Demographic Trends .....................................................................................................................2
C. Urbanization and Structural Change .............................................................................................7
D. Conclusion ...................................................................................................................................14
CHAPTER 2. GROWTH, MACROECONOMIC ADJUSTMENT AND LABOR MARKET
OUTCOMES ...................................................................................................................................15
A. Introduction .................................................................................................................................15
B. Growth, Productivity and Employment .......................................................................................16
C. Labor costs, wages and employment ...........................................................................................21
D. Conclusion ...................................................................................................................................31
CHAPTER 3. LABOR MARKET DYNAMICS ........................................................................33
A. Introduction .................................................................................................................................33
B. Data sources and limitations ........................................................................................................33
C. Labor Force Participation ............................................................................................................34
D. Structure of Employment ............................................................................................................42
E. Structure of Earnings ...................................................................................................................50
F. Conclusion ...................................................................................................................................59
CHAPTER 4. LABOR MARKET REGULATIONS AND INSTITUTIONS .........................61
A. Introduction .................................................................................................................................61
B. Conceptual framework ................................................................................................................62
C. Access of workers to formal social protection instruments .........................................................66
D. Protection inside the fi rm: labor market regulation .....................................................................76
E. Protection outside the fi rm: Unemployment benefi ts and ALMPs ..............................................89
F. Conclusion ...................................................................................................................................99
References .......................................................................................................................................107
APPENDIXES
Appendix A: The UISIM model......................................................................................................101
Appendix B: Results of the UI Simulations ....................................................................................102
Appendix C: Results of the Simulations with Reduced Real Interest Rates ...................................104
Appendix D: Characteristics of Unemployment Benefi t Systems, Turkey and
Transition Countries .......................................................................................................................106
TABLES:
Table 1.1: Population Growth and Shares, 1950-2050 ....................................................................5
Table 1.2: Labor Force Participation and Employment, 2004 ......................................................10
Table 1.3: Educational Attainment, 1988 and 2003 ......................................................................11
Table 1.4: Unemployment Rates for Young and Educated, 2003 .................................................11
Table 2.1: Sectoral Distribution of Employment, 1950-1990 .......................................................17
Table 2.2: Growth Accounting, 1961-2000 ...................................................................................19
Table 2.3: Labor Costs and Competitiveness ................................................................................22
Table 2.4: Correlations of Private Investment Rate ......................................................................24
Table 2.5: Employment and Output Growth in Crisis Periods ......................................................26
Table 2.6: Ratio of Minimum to Average Wage ............................................................................27
Table 3.1: Labor Force Participation Rates (LFPR), Turkey and
other OECD Countries, 2004 ......................................................................................35
Table 3.2: Trends in Mean Monthly Male and Female Earnings, Urban Wage and
Salary Workers, 1988, 1989, 1994, and 2002 ...............................................................55
Table 3.3: Percentage Change in Mean Monthly Earnings by Educational Attainment, Urban
Full-Time Workers, 1988 and 1989 to 2002 .................................................................58
Table 4.1: Risk Management Instruments for Labor Market-Related Risks .................................63
Table 4.2: Stylized Characterization of Approaches for Protection Inside or Outside fi rm ..........65
Table 4.3: Employed Labor Force by Employment Status, 2004 .................................................66
Table 4.4: Membership in Social Security Institutions, 2003 .......................................................68
Table 4.5: Correlation Coeffi cients Among Union Membership, Social Security Coverage and
Employment in a Workplace with 10 or more Employees ...........................................69
Table 4.6: Worker Access to Formal Protection Instruments, by Sex, Age,
and Education, 2002 ....................................................................................................70
Table 4.7: Average Tax Wedges for OECD Countries by Family Type and
Wage Level, 2004 ........................................................................................................71
Table 4.8: Social Inspections Carried Out by MOLSS Inspectors, 2002 ......................................73
Table 4.9: Treatment of Selected Aspects of Employment Protection Before and
After Passage of the 2003 Labor Code ........................................................................79
Table 4.10: Summary Indicators of EPL for OECD and
Selected EU Accession Countries, 2003 .....................................................................80
Table 4.11: Impacts of Employment Protection Regulations ..........................................................82
Table 4.12: Hours Worked per Week in Manufacturing ..................................................................83
Table 4.13: Legal Framework for Temporary Work Agency Employment,
OECD Countries, 2003, ...............................................................................................85
Table 4.14: Job Separations by Main Reason, 2001–04 .................................................................91
Table 4.15: Impacts of ALMPs .......................................................................................................97
Table 4.16: Expenditures by ISKUR, 2003 .....................................................................................98
FIGURES:
Figure 1.1: Turkey’s Demographic Transition, 1950-2050...............................................................2
Figure 1.2: Fertility and Dependency Rates, 1950-2050 ..................................................................2
Figure 1.3: Population Growth Rates During Demographic Transitions, 1950-2050 ......................3
Figure 1.4: Dependency Rates During Demographic Transitions, 1950-2050 .................................3
Figure 1.5: Contribution of Net Migration to Population Growth, 1970-2001 ................................4
Figure 1.6: Turkey’s Demographic Gift, 1970-2005 ........................................................................7
Figure 1.7: East Asia’s Demographic Gift, 1960-2000 .....................................................................7
Figure 1.8: Share of Urban Population, 1950-2050 ..........................................................................7
Figure 1.9: Employment Shares, 1980 ..............................................................................................8
Figure 1.10: Employment Shares, 2003 ..............................................................................................8
Figure 1.11: Gender Differences in Employment by Sector, 2004 .....................................................9
Figure 1.12: Labor Force Participation and Employment Compared to Population Growth ...........12
Figure 1.13: Employment Rates in Turkey and the EU, 2004 ..........................................................13
Figure 1.14: Turkey Unemployment Rate, 1980-2004 .....................................................................14
Figure 2.1: GDP and Employment Growth, 1981-2003 .................................................................16
Figure 2.2: Value Added and Employment Growth in Industry, 1980-2003 ..................................18
Figure 2.3: Value Added and Employment Growth in Services, 1980-2003 ..................................18
Figure 2.4: Sectoral Labor Productivity .........................................................................................20
Figure 2.5: Sectoral Employment ...................................................................................................20
Figure 2.6: Labor Productivity in Industry .....................................................................................21
Figure 2.7: Real Wages in Private Manufacturing ..........................................................................22
Figure 2.8: GDP Growth and Volatility ..........................................................................................25
Figure 2.9: Simulated Impact of an Interest Rate Cut on Unemployment and Informality ...........29
Figure 2.10: Simulated Impact of an Interest Rate Cut on Real Wages ............................................29
Figure 2.11: Simulated Impact on of a VAT Increase on Unemployment and Informality .............30
Figure 2.12: Simulated Impact of a VAT Increase on Real Wages ..................................................30
Figure 3.1: Labor Force Participation Rates, 1988–2004 ...............................................................36
Figure 3.2: Age-Participation Profi les by Location and Sex, 2002 and 1989 ................................38
Figure 3.3: Age-Participation Profi les by Education, Urban Males, 2002 and 1989 .....................39
Figure 3.4: Age-Participation Profi les by Education, Urban Females, 2002 and 1989 ..................40
Figure 3.5: Employment Shares By Sector, 1989 and 2004 ...........................................................43
Figure 3.6: Age-Social Security Coverage Profi les by Education, Urban Male Wage and Salary
Workers, 2002 and 1989 ...............................................................................................46
Figure 3.7: Age-Social Security Coverage Profi les by Education, Urban Female Wage and Salary
Workers, 2002 and 1989 ...............................................................................................47
Figure 3.8: Age-Retirement Profi les by Location and Sex, 2002 and 1994 ...................................49
Figure 3.9: Age-Earnings Profi les by Education, Male Wage and Salary Workers, 1989, 1994, and
2002 ..............................................................................................................................51
Figure 3.10: Age-Earnings Profi les by Education, Female Wage and Salary Workers, 1989, 1994,
and 2002 .......................................................................................................................52
Figure 3.11: Mean Monthly Earnings for Urban Wage and Salary Workers ....................................54
Figure 3.12: Relative Mean Monthly Earnings by Sector, Urban Full-Time Workers, 15-65 Years,
1988, 1989, 1994, and 2002 .........................................................................................56
Figure 3.13: Mean Monthly Earnings by Age Group, Urban Full-Time Workers, 15-65 years, 1988,
1989, 1994, and 2002 ...................................................................................................57
Figure 3.14: Mean Monthly Earnings by Educational Attainment and Sex, Urban Full-Time
Workers, 15–65 Years, 2002 .........................................................................................58
Figure 3.15: Percentage Change in Mean Monthly Earnings by Educational Attainment, Urban
Female Full-Time Workers, 15–65 Years, 1988 and 1989-2002 ..................................59
Figure 4.1: Approaches Used by OECD Countries to Provide Social Protection to Workers ........64
Figure 4.2: Employment Status of the Employed Labor Force Without Social Security Coverage,
2004 ..............................................................................................................................68
Figure 4.3: Job Security Cost Estimates, Turkey, Other OECD Countries, and Latin America .....82
Figure 4.4: Minimum Number of Months of Employment for Severance Pay Eligibility, by
Income Level and by Region .......................................................................................86
Figure 4.5: Multiples of Monthly Wage Paid in Severance at Selected Lengths of Service,
Severance Pay Generosity, by Income Level and by Region .......................................87
Figure 4.6: Number of UI Recipients and Amount of Benefi ts, March 2002 to April 2004 ..........90
Figure 4.7: Total and Registered Unemployment, 1993–2004 .......................................................92
Figure 4.8: Monthly Financial Performance of the UI Fund, January 2002 to June 2004 .............93
BOXES:
Box 3.1: Changes in Retirement Rules, 1988–2004 ..................................................................48
Box 4.1: Extending Coverage: Bulgaria’s Approach .................................................................74
Box 4.2: Extending Coverage: The Republic of Korea’s Approach ..........................................75
Box 4.3: The Employment Protection Continuum ......................................................................76
Box 4.4: Severance Reforms in Austria and Chile ......................................................................88
Box 4.5: Labor Market Reforms in Spain .................................................................................100
ACKNOWLEDGEMENTS
This report was prepared by a team that consisted of Mathew Verghis (team leader), Gordon
Betcherman, Robert Keyfi tz, Sibel Kulaksiz, Antoneta Manova Stavreska (all of the World
Bank), and Insan Tunali (Koc University). Nancy Morrisson edited the document and
Doreen Duff assisted with administrative arrangements and was responsible for formatting
the document.
A steering committee coordinated by ISKUR (the Turkish Employment Organization) and
including representatives from Ministry of Labour and Social Security, State Planning
Organization (SPO), Undersecretariat of Treasury, State Institute of Statistics (SIS), and
Employer and Trade Union Confederations provided guidance. The team is grateful to
the staff of ISKUR and the State Institute of Statistics, and especially to Dr. Necdet Kenar
(former Director General, ISKUR) and Enver Tasti (SIS).
The report benefi ted from simulations based on a separately disseminated macroeconomic
model prepared by Pierre-Richard Agenor (University of Manchester), Erinc Yeldan (Bilkent
University), Henning Tarp Jensen (University of Copenhagen), and Mathew Verghis, in
cooperation with the Treasury, SPO, and Central Bank of Turkey Research Departments;
and from an Unemployment Insurance Model for Turkey developed by Milan Vodopivec, in
cooperation with ISKUR staff. Professor Nurhan Sural (METU) prepared a report on labor
law in Turkey.
Very useful comments and guidance on an earlier draft were received from Samuel Otoo
(Sector Manager), Rodrigo Chaves (Lead Economist for Turkey) and Aristomene Varoudakis
(ECSPE), and the peer reviewers and participants at a review meeting. The draft has also
benefi ted from discussions in Ankara in July 2005 and subsequent written comments from
SPO, Ministry of Labour and Social Security, Treasury, ISKUR, SIS and Ministry of National
Education. Overall guidance was provided by the Country Director, Andrew Vorkink, and
the Sector Director, Cheryl Gray. The peer reviewers are Indermit Gill (EASPR), Mansoora
Rashid (SASHD), and Daron Acemogulu (MIT).

Turkey Labor Market Study
EXECUTIVE SUMMARY
Overview
1. Although this study focuses on the labor market in Turkey, forces outside the labor
market affect job creation. Thus an effective job creation strategy will require a multi-
pronged approach.
(cid:1) Sustained economic growth is necessary for job creation. A sustainable
macroeconomic framework, improvements to the investment climate, and
investment in physical and human capital are all building blocks for growth.
Rising labor productivity will provide a basis for increases in both wages and
living standards.
(cid:1) The analysis in this study suggests that well-intentioned labor regulations are
currently hindering job creation—and ultimately, economic growth. Critical
measures include action on severance pay, easing restrictions on temporary
employment, and lowering unemployment insurance premiums.
(cid:1) Labor market reforms to encourage job creation should be complemented by
measures to improve worker protection. Effective worker protection that does
not impinge on job creation suggests a shift in the focus from protecting jobs
to protecting workers. The measures proposed in this study seek to provide a
balance between the goals of creating jobs and protecting workers.
2. This study represents one element of World Bank support in creating more and better
jobs in Turkey. In addition to the analysis of labor market regulations presented in this
report, the World Bank is conducting, or will shortly conduct, research in other areas relevant
to employment, including the investment climate, the performance of the fi nancial sector,
linkages between education and employment, and tertiary education.
3. The fi ndings of this report and of the related applied research are expected to contribute
to the design of a comprehensive development program aimed at sustaining high growth in
the economy by attracting more investment and fi nancing while generating more and better
jobs.
4. The main fi ndings and conclusions of this study are described in the rest of the executive
summary. The labor market recommendations are presented at the end of the summary in a
simple matrix format.
i
Turkey Labor Market Study
The Labor Market: Some Key Facts
5. Population growth has
FigureF 1ig:u rLe a1:b Loarbo fro forrccee ppaartrictipicatiipona atniod nem apnlodym eemntp hlaos ytrmaileedn t has
outpaced employment growth trailed ppoopuplautiloant gioronw tghrowth
60000
for many years in Turkey. The
working age population grew by
50000
23 million from 1980 to 2004; Working Age
Population 15+
however, only 6 million jobs 40000
s
were created (Figure 1). As a d
n
sa30000
result, the employment rate (the u Labor Force
o
h
t
percentage of adult population
20000
that is employed) is one of the Employment
lowest in the world. In 2004, it 10000
was only 43.7 percent. Most
0
countries have employment rates 1970 1980 1988 1990 1995 2000 2001 2002 2003 2004
above 50 percent; the EU-15
Source: Bulutay (1995) for 1970-1987; SIS HLFS for 1988-2004
average was 65 percent.
6. The labor force has been increasing at a slower pace than the adult
population. The labor force is defined as the percentage of the adult population that is
either working or looking for work. One of the striking features of the labor market in
Turkey is the falling labor force participation rate (Figure 1). With a large share of the
adult population not looking for work, the unemployment rate—the gap between the
labor force and employment—does not provide a full indicator of the slack in the labor
market.
7. Low employment ra-tes
for women of prime working FigureF i2g:u Erem 2p:l oEymmpelnoty rmaetenst, rTautrekse, yT uanrkde tyh ae nEdU t-h1e5 , 2004
EU-15, 2004
age explain much of the
90
difference in employment rates Turkey EU -15
80
between Turkey and the EU.
70
As Turkey has urbanized and
60
families have moved out of
nt50
agriculture, employment rates for ce
Per40
women have fallen significantly.
30
As a result, women of prime
20
working age are employed at less
10
than half the rate in the EU-15
0
(Figure 2). A significant number Men Women Men Women Men Women Men Women
15-24 25-54 55-64 15-64
of women who are not working
Age
Source: OECD Employment Outlook, 2005
are not looking for employment,
a principal reason for the low labor force participation rates. The differences for men are
less significant.
8. Older workers are dropping out of the labor force. By age 55, participation in
the labor market drops considerably in both Turkey and the EU (Figure 2). The OECD
employment rate for the 55–64 age-group is 51 percent, significantly higher than EU
ii