Report No. 70130-TR Turkey Managing Labor Markets Through The Economic Cycle March 15, 2013 Human Development Sector Unit Europe and Central Asia Region Document of the World Bank TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE laborENG ic.indd 1 16.05.2013 11:55 CURRENCY EQUIVALENTS (Exchange Rate Effective February 22, 2013) CURRENCY = TL U$1.00 = 1.77904 TL WEIGHTS AND MEASURES: Metric System ACRONYMS AND ABBREVIATIONS ALMP Active Labor Market Programs CCT Conditional Cash Transfer CAD Current Account Deficit CGF Credit Guarantee Fund ECA Europe and Central Asia EPL Employment Protection Legislation GCP Green Card Program GDP Gross Domestic Product GMI Guaranteed Minimum Income HBS Household Budget Survey IMF International Monetary Fund ISAIS Integrated Social Assistance Information System ISKUR Turkish Employment Agency KOSGEB Small and Medium Enterprises Development Organization LFS Labor Force Survey MoD Ministry of Development MoFSP Ministry of Family and Social Policies MoNE Ministry of National Education NEET Not in employment, education, or training NES National Employment Strategy OECD Organization for Economic Cooperation and Development PAYGO Pay-as-you-go PMT Proxy-means Test SILC Survey of Income and Living Conditions SME Small and Medium Enterprises SSP Social Support Program STW Short-time work scheme TOBB Union of Chambers and Commodity Exchanges of Turkey TUIK Turkish Statistical Institute UA Unemployment Assistance UB Unemployment benefits UI Unemployment Insurance UIF Unemployment Insurance Fund UIISA Unemployment Insurance Individual Savings Accounts UMEM Specialized Vocational Course Centers Project WAP Working-age population Vice President: Philippe H. Le Houerou Country Director: Martin Raiser Sector Director: Ana Revenga Sector Manager: Roberta Gatti Task Team Leader: Cristobal Ridao-Cano laborENG ic.indd 2 16.05.2013 11:55 ACKNOWLEDGEMENTS This is a joint study by the World Bank (WB) and the Ministry of Development (MoD). This report was prepared by a team comprising Cristobal Ridao-Cano (WB), Victoria Levin (WB), A. Levent Yener (WB), Gökhan Güder (MoD), Müşerref Küçükbayrak (MoD), Ahmet Tozlu (MoD), Sinem Çapar Diriöz (MoD), Mehmet Tarık Eraslan (MoD), Yalın Kılıç (MoD), Eser Pirgan (MoD) and Raif Can (MoD). Helpful inputs were provided by E. Emrah Hatunoğlu (MoD), Elif Oznur Kan (Çankaya University, Turkey) and Elif Yükseker (WB). Overall guidance was provided by Martin Raiser (Country Director for Turkey, WB), Ulrich Zachau (former Country Director for Turkey, WB), Roberta Gatti (Sector Manager, Human Development Economics, Europe and Central Asia, WB), Jesko Hentschel (former Sector Manager, Human Development Economics, Europe and Central Asia, WB), and Ana Revenga (Director, Human Development, Europe and Central Asia, WB). The report greatly benefited from the comments provided by Gökçe Uysal (Bahçeşehir University), Hakan Ercan (Middle East Technical University), David Newhouse (WB), Carolina Sanchez-Paramo (WB) and Herwig Immervoll (WB). laborENG ic.indd 3 16.05.2013 11:55 laborENG ic.indd 4 16.05.2013 11:55 CONTENTS OVERVIEW 5 1. Pre-crisis labor market trends and the jobs challenge in Turkey 17 2. Labor markets through the global crisis and recovery 27 3. Policy measures and labor market institutions during the business cycle 45 4. Options to strengthen the management of labor markets through the cycle 63 5. Options to enhance productive employment 69 TABLES Table 1: The economy was hit hard by the crisis, affecting households mainly through reduced labor incomes, but overall impact on jobs was relatively mild 29 Table 2: Formal wage workers lost jobs but got higher earnings; informal workers got smaller paychecks 32 Table 3: Average changes in labor market indicators, before and after the crisis 41 Table 4: Employment-related crisis measures: 2008, 2009, 2010; beneficiaries and expenditures (total and as a % of GDP) 51 Table 5: Social assistance: expenditures and beneficiaries 52 Table a1: Labor market transitions and crisis impacts 81 Table a2: Household per capita real income and crisis impacts 83 Table a3: The impact of the crisis across different types of workers 84 Table a4: Degree of recovery for different types of workers 86 FIGURES Figure 1: Activity rates have been stubbornly low over time 18 Figure 2: Recent trends in leading labor market indicators, 2006-2011 19 Figure 3: The long (and for women never ending) transition to work for youth 22 Figure 4: High job informality contributes to low labor productivity 23 Figure 5: A static labor market before the crisis 24 Figure 6: A number of structural factors behind long term challenges 25 Figure 7: Increasing dominance of wage employment, particularly in services 31 Figure 8: Growth in earnings despite sharp declines in labor productivity and GDP 36 Figure 9: The binding minimum wage 37 Figure 10: The minimum wage increased significantly during the crisis to reach the highest level relative to median wages in the OECD 51 Figure 11: Distribution of policies in OECD and middle and low income countries 57 Figure 12: Coverage of unemployment benefits and response during the crisis in OECD 61 laborENG ic.indd 5 16.05.2013 11:55 laborENG ic.indd 6 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 7 challenge in Turkey; (ii) aggregate and distributional impacts of the recent crisis, and subsequent recovery, on the labor market; and (iii) recent policy measures and existing labor market institutions in the context of observed labor market outcomes. Based on this analysis and a comparison with selected countries from around the world, the study suggests The Turkish economy options to improve the responsiveness OVERVIEW was hit hard by the of policies to future crises and to adjust global economic crisis, but recovered the policy mix through the economic fast and strong. The economy had cycle. Finally, the study links policies to already started to slow down in 2007, manage labor markets through the cycle but the global financial events of late with measures to address the longer- 2008 led to a sharp contraction starting term, structural jobs challenge in Turkey. in the last quarter of 2008 until growth resumed in the last quarter of 2009. The The jobs challenge in Turkey: recovery was rapid, with growth reaching Putting more human capital to use 9 percent in 2010 and 8.5 percent in and making it more productive 2011. Turkey was among the 10 percent hardest-hit countries in 2009, but it Despite a remarkable upturn after was also one of the quickest to bounce the crisis, the Turkish labor market back. With the crisis in the Eurozone continues to be characterized by and tighter monetary policies, growth persistently low employment rates has slowed over the past year and is —particularly among women and expected to be around 3 percent in 2012 youth—and low labor productivity. before reverting to about 5 percent over Since 2009, employment growth has the medium term. averaged 5.5 percent per annum, a very high rate by any standard, and over a This study looks at how the labor third of newly created jobs have gone to market fared during the recent women. Nonetheless, still less than half downturn and recovery and informs of the working-age population (15-64 year policies to manage labor markets olds) was employed as of mid-2012 and through the economic cycle and the employment rate among working-age address the jobs challenge in Turkey. women was under 30 percent; the lowest The study investigates: (i) pre-crisis labor in the OECD. Moreover, the employment market trends and the structural jobs rate today is lower than it was in 1990, laborENG ic.indd 7 16.05.2013 11:55 despite the long-term upward trend in operations cited by Turkish firms.2 The real GDP. About 35 percent of youth (15- large supply of young and low-skilled 24 year olds), mostly women, are neither workers and the decreasing demand for working nor attending school — the low-skilled workers will thus continue to highest share of inactive youth among make it challenging to increase formal OECD countries. Job informality (defined employment and reduce unemployment as jobs without social security benefits) in the non-agricultural sector. affected 42 percent of workers in 2011 (28 percent excluding the agricultural There is ample room for policies to sector), contributing to Turkey’s lower enhance productive employment in labor productivity compared with the Turkey, and a large return from taking OECD and other peer countries. immediate action. Decisive policy action to enhance productive employment — Ongoing structural transformations putting more human capit al to use and the large ‘stock’ of low-skilled and making it more productive — is workers are behind the jobs challenge needed today to take advantage of in Turkey. Continued urbanization and the demographic window in Turkey. labor shedding in agriculture, along Increasing female employment, in w i t h t h e i n c r e a s e i n t h e wo r k i n g - particular, could boost economic growth age population (WAP), will continue and reduce poverty. to increase the number of (mostly) young and low-skilled workers looking Labor markets through the recent for non-agricultural jobs. Although the cycle young are becoming more educated and skilled, 1 half of the WAP still have • The Turkish economy was hit hard by less than basic education, accounting the crisis, which affected households for 64 percent of the jobless and 65 mainly through reduced labor incomes— percent of the informal. As firms strive but recovery was fast and strong. to stay competitive in a global market, the ‘skills bar’ in formal non-agricultural • The crisis had a relatively mild overall sectors will continue to increase. For impact on jobs, mainly through increased instance, skills are already the third unemployment. most important constraint to business 1- Turkey has virtually achieved universal pri- mary education and increased net secondary school enrollment to 67 percent, while at the same time recording an impressive half a year of school gain in PISA scores between 2003 2- Business Environment and Enterprise and 2009 (World Bank, forthcoming). Performance Survey (BEEPS) for 2008. laborENG ic.indd 8 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 9 • The increase in unemployment was • Overall Turkey’s labor market weathered explained by increased unemployment the storm well relative to other middle duration and job losses, but the effect on income countries. Unlike in Turkey, total employment was partly attenuated formal-sector earnings fell in most by increased activity rates within the countries. household (the added-worker effect), and— employment recovered fast and strong. Policies during the business cycle • Jobs losses hit formal employees, To what extent were the obser ved while the informal sector ser ved as overall and distributional impacts of the a c u s h i o n fo r j o b l o s e r s a n d n ew crisis and recovery on the labor market entrants (mostly going to informal self- due to policies? Surely policies have employment, including unpaid family some explanatory power, but exactly labor in agriculture) — but formal wage how much is hard to tell. The study sector jobs recovered strong after the reviews policy measures taken during crisis. the business cycle and existing labor market institutions against the observed • The increase in minimum wages drove impacts. The focus of the analysis is up formal sector and total earnings on employment and social protection during the crisis, while informal workers policies. got smaller paychecks—earnings growth slowed with the recovery but earnings • The crisis was preceded by a labor inequality was further increased. mark et reform that reduced non- wage labor costs and set the basis • Job losses hit men in urban areas, for expanding active labor market w h i l e wo m e n , yo u t h a n d t h e l ow programs (ALMP). The across-the- educated saw lower earnings—women board reduction in non-wage labor gained jobs through the business cycle costs is likely to have prevented some while wage inequalities rose. layoffs during the crisis and encouraged hiring during recovery, possibly being a • The increase in earnings offset the major contributor to the rapid pace of negative impact of the crisis on wage employment growth after the crisis. employment, making the wage bill grow during the crisis (albeit at a lower rate • But Turkey entered the crisis with than before the crisis) and increase its stringent labor market regulations and share in GDP , as self-employment income limited protection for the unemployed. (mostly informal) and profits took most of Given the fall in formal employment, the hit from the crisis. stringent regulations are unlikely to laborENG ic.indd 9 16.05.2013 11:55 have saved many jobs during the crisis, • Unemployment insurance (UI) but may constrain job creation during provided limited income protection recovery and in the longer term. The for the unemployed during the crisis. unemployment insurance (UI) provided N o ch a n g e s we r e m a d e t o t h e U I limited support to job losers before the scheme in response to the crisis, and crisis due to strict qualification rules and thus while coverage of UI increased low benefits. during the crisis, it provided limited support to job losers. • The Government introduced a crisis- response package in 2009, including • The increase in minimum wages employment-related measures such may have protected the income as: (i) expanded short-time work scheme of low-wage earners in the formal (STW); (ii) expanded vocational training sector, but possibly at the expense of for the unemployed; (iii) introduction of job losses. The increase in minimum a public works program; (iv) expanded wages drove up earnings in the formal support to SMEs; (v) time-bound sector and did not reduce earnings measures (e.g. subsidies for hiring new inequality in this sector. The minimum female and young entrants; reductions in wage in 2009 was 71 percent of the consumption taxes for hard-hit sectors). median wage, the highest level in the Although not explicitly part of the crisis- OECD, and it is binding. This may have response package, statutory minimum made firms resort to layoffs to adjust to wages were increased substantially in the crisis more than they would have 2009. And there was also some response otherwise. to the crisis in terms of increased spending on social assistance programs. • The Green Card Program (GCP) contributed to protecting healthcare • The focus of crisis-response measures utilization among poor informal- on protecting the jobs of formal sector sector families during the crisis. workers was an appropriate response Although the benefit expansion to the disproportional reduction in was already planned as part of the formal employment, although coverage Universal Health Insurance Law, a of the STW scheme remained low. And decision was made to implement it the increased support to the unemployed during the crisis. The scale-up of an (from a very low base) through ALMP already high-performing program to allowed more job seekers to preserve p o o r i n fo r m a l h o u s e h o l d s , w h o s e and upgrade their skills at a time when incomes declined significantly during the opportunity cost of training them was the crisis, contributed to protecting lower. healthcare utilization. laborENG ic.indd 10 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 11 • Other social assistance programs impact of the crisis and policy responses provided more limited income in Turkey and around the world, the study protection to those affected by the suggests (i) general lessons for improving crisis. Targeted transfer programs could the responsiveness of labor and social have played a greater role in mitigating protection policies to future crises the negative impacts of the crisis on and adjusting the policy mix through households, particularly given that (i) the the economic cycle; and (ii) options to coverage of unemployment insurance is strengthen income protection policies in low and limited to formal workers, and (ii) Turkey. part of the adjustment took place through reduced informal income. Improving the responsiveness to future crises and adjusting the policy mix through the cycle • A number of policy measures introduced after the crisis will increase To be most cost-effective, the policy responsiveness to future crises and response to a crisis needs to be timely contribute to job creation. These policy (when needed), address the nature of the measures include: (i) efforts to further adjustment (e.g. jobs versus earnings), expand and improve ALMP; (ii) some well-targeted to those who need support, changes related to flexible contracting and temporary (for as long as support is and the extension of hiring subsidies; needed). How? Mostly by being prepared (iii) preparation of a new National and then making temporary adjustments Employment Strategy, which will include as needed and only introducing new a focus on making labor markets more programs as a last resort: flexible while increasing the protection of workers; and (iv) measures to improve • Articulation of policies and institutions. the effectiveness and responsiveness Gradually converging to a system that of social assist ance, including the brings together social insurance, social introduction of a new Integrated Social assistance, ALMP and labor regulations. Assistance Information System (ISAIS). • Increasing reliance on social insurance, Options to strengthen the including UI, will reduce reliance on management of labor markets discretionary measures, and allow social through the cycle transfers to be allocated to the most vulnerable. Crises are rarely fully predictable, but there are measures Turkey can take to • Making labor markets more flexible. be better prepared for and responsive Giving firms more flexibilit y in the to them. Based on the analysis of the management of human resources is laborENG ic.indd 11 16.05.2013 11:55 likely to encourage job reallocation during workers and their families and maximize crises and job creation during recoveries. job creation during the recovery. To this end, the policy mix needs to be adjusted • Good information and analysis. While t h r o u g h t h e e c o n o m i c c yc l e — t h e it is impossible to predict the exact availability of timely information is crucial, magnitude and nature of the impact of a focusing on policies aimed at stabilizing crisis, early analysis of likely labor market employment and providing income impacts and an assessment of existing protection to workers during downturns, policies and institutions as well as the and eventually switching to policies that available fiscal space can inform the facilitate job creation and activate the policy mix and help improve targeting in jobless as the economy starts recovering. response to a crisis. Strengthening income protection • Increasing reliance on well-designed policies in Turkey pre-existing programs. While good information and analysis can help inform Income protection policies aim to the right policy response, the best policy complement self-insurance against ‘insurance’ against a crisis is to have a unemployment or a fall in earnings. good inventory of pre-existing programs A well-articulated income protection that can be scaled up and adjusted as system would ideally rely first and needed. foremost on unemployment insurance (UI), complemented with unemployment • Making temporary adjustments as assistance (UA) for jobseekers that needed and linking them to labor market do not qualify for UI but have formal conditions. Pre-existing programs, even if sector attachment, public works for well-designed, may need to be adjusted other jobseekers without formal sector to better respond to the crisis, e.g. the attachment, and cash transfers not tied to extension of the UI coverage period. To job status to protect the incomes of the avoid possible moral hazard, however, most vulnerable. The following discussion these adjustments need to be made focuses on UI and UA: temporary by tying them to labor market conditions through a pre-defined rule and • Unemployment insurance: coverage eventually by accompanying them with and activation. Increasing protection activation measures. through UI goes hand in hand with reducing severance obligations. One To manage labor markets effectively option is to introduce pre-funded through the cycle, policies should aim severance pay accounts, while increasing to minimize the impact of the crisis on benefits and relaxing the eligibility criteria laborENG ic.indd 12 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 13 for UI. An alternative approach is to prospects with policies that address reduce severance pay without changing the structural jobs challenge outlined the system, while expanding UI and earlier. The Government is well aware replacing the current pay-as-you-go of this and has made employment (PAYGO) system with Unemployment a top policy priority. A new National Insurance Individual Savings Accounts Employment Strategy is expected to (UIISA). Under the current (PAYGO) be approved in the first half of 2013, system, benefits can be set up to decline covering measures to improve labor with the length of the unemployment market flexibilit y and securit y, the spell to provide incentives for job relevance of education to market needs, search. And the existing links between the employability of vulnerable groups the receipt of UI and activation — job (including youth and women) and the search and work requirements as well link bet ween social protection and as (targeted) participation in ALMP — employment. The study builds on the could be further strengthened. Activation analysis of labor market performance conditions could be temporarily switched during the cycle to draw inference on off during downturns and an automatic key policy priorities to enhance long-term ex t e n s i o n o f t h e e l i g i b i l i t y p e r i o d productive employment—which need to switched on. be corroborated with further research. • Unemployment assistance: targeted Enhancing productive employment in complement to UI. The expansion of the Turkey would involve: current UI system can be accompanied by the introduction of a UA program for • Building the skills for work, jobseekers that do not, or no longer, entrepreneurship and innovation. In qualify for UI, with preference given to addition to skills, policies to boost those who have had some formal sector firm growth and innovation are crucial attachment. To make these programs to increasing labor productivit y in cost-effective, they would need to be Turkey. This study focuses on the skills targeted (on the basis of means or proxy- dimension of competitiveness. means), time-bound (as UI) and tied to the same activation measures as UI. • Improving the enabling environment— labor market, investment climate and Options to enhance productive innovation—for skills to be productively employment used. Policies that improve the business c l i m a t e a r e e s s e n t i a l fo r f i r m s t o B e y o n d t h e c r i s i s , Tu r k e y c o u l d grow and generate employment. And dramatically enhance its growth innovation policies are key to putting new laborENG ic.indd 13 16.05.2013 11:55 ideas to use. In this study the focus is on in activating low-skilled workers into policies that improve the functioning of productive employment in a cost- the labor market. effective manner by: Skills are central to enhancing productive • Reorienting services towards low- employment in Turkey—upgrading the skilled workers, particularly young skills of low-skilled workers, as part of females. an activation package, is crucial over the medium term. The low level of skills • Designing employment support of the WAP , the increasing demand for services to address multiple barriers to skills, and the demographic dividend productive employment (in partnership make skills central to the jobs agenda. with other public agencies), focusing Skills are best acquired the first time first on more cost-effective services around, but Turkey also needs to enhance (employment services), complementing the skills of existing workers in order to vocational training with life skills training, accelerate labor productivity growth. recognizing women’s mobilit y and A large segment of the WAP is hard to time constraints by complementing employ productively and the low level employment support with targeted of skills is the main barrier. Low-skilled childcare subsidies. workers face other barriers to productive jobs, including information, access to • Reorganizing service delivery around capital and mobility, and the availability the new job and vocational counselors of programs to overcome these barriers t o ( 1) do a n i n it i al a ss e s s me n t o f is also limited in Turkey. And often their employability and profiling jobseekers precarious job status is reinforced by i n t o d i ffe r e n t g r o u p s ; ( 2 ) d i r e c t disincentives for formal employment built jobseekers to the most cost-effective in social benefits. package of services, focusing the bulk of resources on the hard-to-employ; and The Turkish Employment Agency (3) monitor progress, linking the receipt (ISKUR) plays a key role in activating of benefits to progress towards finding low-skilled workers into productive employment. employment. ISKUR has come a long way since 2008, increasing the • Designing the selection and coverage and qualit y of vocational contracting of pri vate provider s training, introducing job and vocational of employment support services counselors and linking social assistance to provide the right incentives and receipts to registration in ISKUR. Going compensation for helping low-skilled for ward, ISKUR could play a key role workers find and keep productive jobs. laborENG ic.indd 14 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 15 Functioning labor mark ets are • Effective enforcement and essential for individuals to find and awareness-raising are already accept good jobs and for employers r e d u c i n g j o b i n f o r m a l i t y, b u t to find and recruit employees with the incentives need to be strengthened. right skills. Achieving this objective will Job informality is interrelated with other require moving towards more flexible, forms of informality like tax evasion. efficient and secure labor markets. Ongoing enforcement and awareness- Severance pay and UI have already been raising measures are already reducing job discussed above, so here we focus on informality. But these instruments do not flexible contracting, enforcement of labor affect the incentives for firms (particularly laws and awareness-raising to reduce SMEs) to employ informal workers and informality, and employment services. for workers to be employed informally. The 2008 across-the-board reduction in • More flexible contracting mainly employers’ social security contributions involves relaxing the rules of existing is likely to have reduced informality by flexible contracts. Regarding fixed/ decreasing the ‘tax’ on formal jobs. temporar y contracts, the following Evidence from Mexico suggests that ch a n g e s c o u l d b e c o n s i d e r e d : ( i ) moving towards a general revenue- opening up fixed-term contracts to all financed universal social security system job activities and allowing temporary could make job informality negligible employment agencies to operate in (by eliminating the tax on formal jobs all sectors/occupations; (ii) allowing and the ‘subsidy’ to informal jobs) in a several unconditional renewals of fixed- budget-neutral way (by reducing evasion term and temporary contracts; and (iii) of VAT and direct taxes). This process, extending the probation period to at however, requires careful thinking least the OECD average (4 months). about what benefits to delink from Recent legislative changes enabled part- contributions and how. Another option to time workers to pay their unpaid social strengthen incentives is to tie access to security contributions retroactively. public contracts or support to SMEs to However, there are still disincentives for employing workers formally. workers to take on part-time jobs: while part-time workers contribute for days worked, a full-time worker gets credited 7 days a week, becoming eligible for a pension proportionally much faster. The contributory week could be redefined to make it more proportional to days worked. laborENG ic.indd 15 16.05.2013 11:55 laborENG ic.indd 16 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I 17 1. PRE-CRISIS LABOR MARKET TRENDS AND THE JOBS CHALLENGE IN TURKEY Putting more human capital to use and making it more productive is crucial for growth 1. The performance of the labor market after the crisis has been remarkable, but employment rates have remained stubbornly low. Employment has been growing at an outstanding 5.5 percent per annum since the last quarter of 2009. Despite this remarkable upturn, the share of the population 15 years of age or older working was only 45.2 percent by the second quarter of 2012 (seasonally- adjusted), down from 52 percent in 1990, making it the lowest employment rate in the OECD (19 percentage points below the OECD average) 3 (Figure 1 and Figure 2). This downward trend is in sharp contrast with the long-term upward trend in real GDP and largely unaffected by crisis and recovery episodes, except for the recent post-crisis period when the employment-to-growth elasticity increased to 0.72 (from 0.34 between the first quarter of 2005 and the third quarter of 2008). Unemployment rates have increased somewhat from around 8 percent in 1988 to 9 percent by the 3- The comparison with the OECD average is done defining employment in the working- age population (15-64 year olds) in 2010: 46 percent for Turkey and 65 percent for the OECD average. laborENG ic.indd 17 16.05.2013 11:55 FIGURE 1 Activity rates have been stubbornly low over time (Long-term trends in labor market outcomes: 1990-2011) 60 50 40 30 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Labor force participation rate Unemployment rate (UR) Non-agricultural UR Youth UR Employment rate (ER) Female ER Source: TUIK and authors’ calculations. second quarter of 2012 (seasonally- 26 percent of women 15 years of age adjusted), 4 increasing during crisis and older were working on average periods and decreasing afterwards. during the first 7 months of 2012, down from 31 percent in 1990, making it by 2. Employment rates are particularly far the lowest employment rate in the low among women and youth. Despite OECD. 5 The youth unemployment rate the remarkable 8.1 percent average (15-24 year olds) has consistently been annual growth in female employment double the overall figure, being in general after the crisis (more on this later), only 5- The comparison with the OECD average 4- When defined relative to the working-age is calculated defining employment in the population, the figures for Turkey and the working-age population (15-64 year olds) in OECD are 12.1 percent and 8.8 percent in 2010, 2010: 26 percent for Turkey and 57 percent for respectively. the OECD average. laborENG ic.indd 18 16.05.2013 11:55 TÜRKİYE: EKONOMİK DALGALANMA BOYUNCA İŞGÜCÜ PİYASALARININ YÖNETİMİ I 19 FIGURE 2 Recent trends in leading labor market indicators, 2006-2012 Seasonally - Adjusted Labor Force Paticipation Rate in Turkey, January 2005 - July 2012 51.0 Labor Force / Non- Institutionalized 15+ Population 50.0 49.0 Levels 48.0 47.0 46.0 LABOR FORCE PARTICIPATION 45.0 44.0 43.0 2005 2006 2007 2008 2009 2010 2011 2012 Changes in Labor Force Participation Rate in Turkey (Same month previous year), January 2006 - July 2012 3.0 Change from same month of previous year (percentage points) 2,5 2.0 Year-on-year changes 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 laborENG ic.indd 19 16.05.2013 11:55 FIGURE 2 (Continued) Recent trends in leading labor market indicators, 2006-2012 Seasonally - Adjusted Employment Rate in Turkey, January 2005 - July 2012 46.0 Number Employed / Non-Institutionalized 15+population 45.0 44.0 43.0 Levels 42.0 41.0 40.0 39.0 38.0 EMPLOYMENT RATE 37.0 2005 2006 2007 2008 2009 2010 2011 2012 Changes in Employment Rate in Turkey (Same month previous year), January 2006 - July 2012 Change from same month of previous year (percentage points) 51.0 50.0 Year-on-year changes 49.0 48.0 47.0 46.0 45.0 44.0 43.0 laborENG ic.indd 20 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I 21 FIGURE 2 (Continued) Recent trends in leading labor market indicators, 2006-2012 Seasonally - Adjusted Unemployment Rate in Turkey, January 2005 - July 2012 16.0 14.0 12.0 Number Unemployed / Labor force 10.0 Levels 8.0 6.0 4.0 UNEMPLOYMENT RATE 2.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 Changes in Unemployment Rate in Turkey (Same month previous year), January 2006 - July 2012 6.0 Change from same month of previous year (percentage points) 5.0 4.0 Year-on-year changes 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 Source: TUIK (Labor Force Survey data) and authors’ calculations. laborENG ic.indd 21 16.05.2013 11:55 FIGURE 3 The long transition to work for youth (Distribution of activities in 2010, by age and gender) MEN WOMEN 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 15-19 20-24 25-29 30-34 15-19 20-24 25-29 30-34 School only School and work Work only No school or work Source: TUIK (Labor Force Survey data) and authors’ calculations. more sensitive to the business cycle. the processes of urbanization and Even more importantly, about 35 percent agricultural shedding have been the of youth were neither in employment m a i n d r i ve r s o f t h e d e c l i n e i n j o b nor in education or training (NEET), the informality, although there are many largest share among OECD countries informal workers in non-agricultural (Figure 3). This is mainly driven by idle sectors (28 percent). And informality young females (45 percent). And while affects women disproportionally: 58 the share of idle men peaks at ages 20- percent of employed women work in the 24 to then come down (as the share of informal sector (unpaid family worker in working men increases), the share of idle agriculture is the main category). High women increases through life—indeed, job informality contributes to low labor most women do not make the transition productivity in Turkey, which is about 40 from school to work. percent of the productivity level in the US, similar to Poland and below South 3. Job informality has come down Korea, countries that started from a remark ably, but it remains high, lower base (Figure 4).6 contributing to low levels of labor productivity. Job informality (defined as jobs without social security benefits) 6- There is a significant wage gap between informal and formal workers even after among 15-64 year old workers has controlling for their characteristics. These come down remarkably from when differences are likely to be caused, at it was first measured in 20 05 (48 least in part, by productivity differentials between these sectors. There are also large percent), but it still affects 42 percent differences in total factor productivity (TFP) of workers in 2011 (Figure 4). Most between formal and informal firms even after informal workers are in agriculture— controlling for firms’ and entrepreneurs’ characteristics (World Bank 2009a). laborENG ic.indd 22 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I 23 FIGURE 4 High job informality contributes to low labor productivity 60% Job informality: declining but remains high Labor productivity: increasing but remains low 50 50% 45 40 48.2% 40% 30 47.0% 45.4% 43.5% 43.8% 40.6% 42.1% 25 30% 20 29.8% 20% 15 29.4% 27.4% 24.2% 23.9% 23.3% 22.6% 10 10% 5 0% 0 2009 2010 2011 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 Total Non agricultural employees Turkey Poland South Korea Source: TUIK (Labor Force Survey), OECD and authors’ calculations. Labor productivity is measured relative to the US. 4. The labor market was rather static 5. Structural transformations and the prior to the global crisis despite large ‘stock’ of low-skilled workers are rapid growth. Figure 2 shows the behind the jobs challenge in Turkey. absence of any trend in employment Continued urbanization and shedding and unemployment during the pre-crisis of labor in agriculture, along with the period. The analysis of labor market increase in the working-age population transitions confirms this static picture: (WAP), will continue to increase the about 90 percent of workers that were number of (mostly) young and low-skilled employed in a given year remained workers looking for non-agricultural employed the next year (Figure 5). About jobs (Figure 6). It is important to note, half of the unemployed remain jobless however, the stalling of agricultural the next year, and about 90 percent shedding since 2006, which is explained of the inactive remained inactive. If by higher food prices and the added- anything, there seemed to be a declining worker effect during the crisis (more on flow from unemployment and inactivity this later). Although youth are becoming to employment before the crisis. There more educated and skilled,7 half of the was also very limited movement across WAP still have less than basic education, t ypes of employment and sectors. accounting for 64 percent of the jobless There was, however, some movement and 65 percent of the informal. As firms into services from other sectors and a sizable flow from informal to formal 7- Turkey has virtually achieved universal wage employment, suggesting that the primary education and increased net secondary school enrollment to 67 percent, informal sector is not necessarily a dead while at the same time recording an end for everybody (see Table A1 for all impressive half a year of school gain in PISA labor transitions). scores between 2003 and 2009 (World Bank, forthcoming). laborENG ic.indd 23 16.05.2013 11:55 FIGURE 5 A static labor market before the crisis, with some flows from informal to formal jobs Most employed people remained so, with Informality is not a dead end for all informal decreasing flows into employment salaried workers 100 70.0 90 80 60.0 70 50.0 60 50 40.0 40 30.0 30 20 20.0 10 10.0 0 E U OLF E U OLF OLF U OLF 0.0 From E in previous From U in previous From OLF in previous FS IS FSE ISE U OLF year to year to year to From IS to 2007 2008 2009 Source: TUIK (Survey of Income and Living Conditions) and authors’ calculations (also see Tansel and Oznur-Kan 2011). E: Employed; U: Unemployed; OLF: Out of the labor force; FS: Formal salaried; IS: Informal salaried; FSE: Formal self-employed; ISE: Informal self-employed. strive to stay competitive in a global market, working women (35 percent), jobs they lose the ‘skills bar’ in formal non-agricultural access to as rural families move to cities or sectors will continue to increase—skills are away from agriculture while facing limited already the third most important constraint job opportunities in the non-agricultural cited by Turkish firms.8 The large supply sector. Indeed, urbanization and agricultural of young and low-skilled workers and the shedding are the main drivers of the decline decreasing demand for low-skilled workers in female employment over the last two will thus continue to make it challenging to decades (despite increased education, increase formal employment and reduce reduced fertility and delayed marriage), unemployment in the non-agricultural while low education is the main explanatory sector. factor for low female employment in urban areas (World Bank 2010a). The decline 6 . Wo m e n w i l l c o n t i n u e t o b e in female employment rates came to a disadvantaged in the labor market, standstill in 2005, and while the increase but the downward trend in female during the crisis may well be due to an employment may be reversing. Although added-worker effect (more on this later), the gender gap in education has been the remarkable increase thereafter may be significantly reduced, today’s stock of indicating a change in the trend. Indeed, working-age women are less educated other countries have gone through a similar than men. Unpaid agricultural family work experience, as forces driving up female is still the main economic activity for employment end up offsetting the effects of urbanization and agricultural shedding 8- Business Environment and Enterprise (World Bank 2011b). Performance Survey (BEEPS) for 2008. laborENG ic.indd 24 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I 25 FIGURE 6 A number of structural factors behind long-term challenges Increasing working-age population Growing urbanization until 2020 90 1.00 65+ 80 84 81 70 78 0.80 74 70 60 65 15-64 59 0.60 50 40 44 0.40 30 0.20 20 <15 10 0.00 0 2010 2020 2030 2040 2050 1980 1990 2000 2010 2020 2030 2040 2050 Agricultural shedding Large ‘stock’ of low-skilled workers 50 45 60 40 50 56 52 35 40 30 43 25 30 20 20 23 22 15 19 19 16 16 10 12 10 10 8 0 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Less than basic Basic Secondary College Total Men Women Source: TUIK (Labor Force Survey), UN (urbanization, population projections) and authors’ calculations. 7. There is ample room for policies to the share of women who work full enhance productive employment in time by just 6 percentage points could Turkey, and a large return from taking increase income by 7 percent and immediate action. Decisive policy action reduce poverty by 15 percent (World to enhance productive employment— Bank 2010a). Section 5 discusses some putting more human capit al to use policy options to enhance productive and making it more productive—is employment in Turkey. needed today to take advantage of the demographic window. Increasing female employment could boost economic growth and reduce poverty: increasing laborENG ic.indd 25 16.05.2013 11:55 laborENG ic.indd 26 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 27 2. LABOR MARKETS THROUGH THE GLOBAL CRISIS AND RECOVERY Data and methodology 1. The analysis of the impact of the crisis on labor market outcomes is based on the comparison of growth rates during the crisis with growth rates before the crisis. 9 Comparing growth rates rather than levels makes it possible to isolate the impact of the crisis from prior trends in labor market outcomes. In particular, the impact of the crisis on a given labor market indicator is calculated as the difference between the average growth rate of that indicator during the crisis (i.e. year-on- year changes) and its average growth rate before the crisis. The pre-crisis period goes from the first quarter of 2006 until the third quarter of 2008. Extending the pre-crisis period to 2006 mitigates the influence of the rapid increases in food and fuel prices in 2007 and 2008— the Turkish economy started to slow down in 2007 . GDP growth rates turned negative from the last quarter of 2008 until the third quarter of 2009, defining the crisis period. Thus the post-crisis period starts in the last quarter of 2009. The study also looks at the degree of recovery from the crisis by looking at how much of the pre- crisis levels of labor market outcomes has been recovered post-crisis (i.e. the ratio of the level of a given labor market 9- The methodology used in this study follows closely Khanna et al. (2011) and Cho and Newhouse (2011). laborENG ic.indd 27 16.05.2013 11:55 indicator in the last available quarter and and presented in Table 1. Table 1 also the average pre-crisis level). includes the impacts of the crisis on GDP , household income and the transition 2. The study also looks at the rates bet ween basic labor market differential impact of the crisis across states: employment, unemployment and types of workers. Worker characteristics inactivity.10 GDP data comes from TUIK include gender, age (youth, 15-24 year while data on household income and olds, versus working-age adults, 25- labor transitions come from the Survey of 64 year olds), education (secondar y Income and Living Conditions (SILC), an education or more versus less than annual nationally representative rotating secondary education) and location (urban panel survey of households for 2006- versus rural). A quasi-panel of 16 cells 2010. The analysis for different types combining the four worker characteristics of employment and sectors is based is constructed. Crisis impacts are then on quarterly LFS data and presented in calculated for each cell using the above Table 2. Table A1 includes impacts on methodology. Finally, these impacts transitions across sectors. Results for are regressed on binary indicators for different types of workers are in Table A3 each characteristic. This methodology (crisis impacts) and Table A4 (degree of provides estimates of the impact of the recovery). crisis on, for example, the employment rate of men relative to women holding T h e Tu rk i s h e c o n o my wa s h i t other characteristics constant. The hard by the crisis, which affected differential degree of recovery is analyzed households mainly through by regressing the recovery ratios for reduced labor incomes, but each cell on binary indicators for each recovery was fast and strong characteristic. These regression results are complemented with estimates of crisis 4. The Turkish economy was hit hard impacts (recovery ratios) for each group by the global economic crisis, but of workers (e.g. men versus women) to recovered fast and strong. The economy help interpret the direction of the impacts had already started to slow down in 2007, (recovery ratios) for each group. but the global financial events of late 2008 led to a sharp contraction starting 3. The main source of data for the in the last quarter of 2008 until growth analysis in this study is the Labor resumed in the last quarter of 2009. Force Survey (LFS). The impact analysis As a result of the crisis, GDP growth for employment rates, labor force 10- LFS only includes information on earnings, participation rates and unemployment while SILC includes information on labor rates is based on LFS monthly figures income (from earnings and self-employment) as well as other sources of income. laborENG ic.indd 28 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 29 TABLE 1 The crisis hit the Turkish economy hard, and affected households mainly through reduced labor incomes, but the overall impact on jobs was relatively mild, and recovery was fast and strong (Impact of the crisis and degree of recovery: GDP, household income, leading labor market indicators and labor transitions) GDP HI HLI LFPR ER UR EE EU EOLF UE UU UOLF OLFE OLFU OLFOLF Levels Pre-crisis 46,1 41,6 10,3 88,5 3,8 7,7 46,5 29,0 24,5 9,3 2,9 87,8 Crisis 47,6 41,0 13,8 88,5 5,3 6,3 40,6 36,4 23,0 7,3 3,4 89,3 Post-crisis 49,3 44,0 10,7 -- -- -- -- -- -- -- -- -- Changes Pre-crisis 5,2 3,8 2,2 0,0 0,0 -0,1 1,1 0,2 -1,3 -3,6 2,1 1,5 -2,5 0,4 2,1 Crisis -8,1 -0,4 -1,2 1,2 -0,6 3,4 -0,6 1,3 -0,7 -4,1 6,4 -2,2 -0,8 0,3 0,5 Post-crisis 7,7 -- -- 0,8 1,6 -1,9 -- -- -- -- -- -- -- -- -- Outcomes Crisis -13,3 -4,2 -3,4 1,2 -0,6 3,5 -1,7 1,0 0,6 -0,5 4,2 -3,7 1,7 -0,1 -1,6 impact Degree of 1,15 -- -- 1,08 1,09 0,87 -- -- -- -- -- -- -- -- -- recovery Source: TUIK data and authors’ calculations. Latest post-crisis quarterly data is for the second quarter of 2012. Latest post-crisis monthly data is July 2012 (labor force participation rate (LFPR), the employment rate (ER) and the unemployment rate (UR)). Impacts are in percentage points; degree of recovery is ratio of latest quarter to pre-crisis average level. HI: per capita household disposable income (real) (SILC), HLI: per capita household disposable labor income (real). Labor transitions are relative to the previous year. EE is the transition from employed to employed; EU: from employed to unemployed; EOLF: from employed to out of the labor force. The analysis of labor transitions is based on the 2006-2009 panel of households, where the pre-crisis trend is the difference between transition rates from 2007 to 2008 and transition rates from 2006 and 2007, while the crisis trend is the difference between transitions from 2008-2009 and transitions from 2007-2008 (see Tables A1 and A2 in the annex for all transition rates). The analysis of household income is based on the full sample of households for 2006-2010. Income refers to total annual income in the year prior to the survey. In this case we can use 2008 as part of the crisis period (2008-2009), while 2005 is added to the pre-crisis period (2005-2007) to make results more robust (see Table A3 for growth rates of household income and impacts). In both cases, results must be interpreted with caution as they are based on annual data. deviated from its pre-crisis trend (5.2 most creditworthy borrowers. Growth percent) by 13.3 percentage points (Table resumed rapidly after the crisis, reaching 1). Turkey was hit essentially through 9 percent in 2010 and 8.5 percent in two channels: exports and financial 2011. Turkey was among the 10 percent flows into the banking sector. Exports hardest-hit countries in 2009, but it was were concentrated in globally hard-hit also one of the quickest to bounce back. sectors such as automotive vehicles, Following the crisis in the Eurozone, consumer durables, and capital goods growth slowed down in the second half and machinery. As a result of reduced of 2011, and it is expected to be around 3 financial flows to the banking sector, the percent in 2012 before reverting to about banking system cut lending to all but the 5 percent growth over the medium term. laborENG ic.indd 29 16.05.2013 11:55 5. The crisis affected households mainly percent by July 2012 (Figure 2). Overall it through reduced labor incomes. The is estimated that the crisis increased the aggregate GDP shock translated into a pre-crisis unemployment rate trend by less than proportional income shock at the 3.5 percentage points (Table 1). Although household level. In particular, household the crisis increased the flow of people per capita income remained basically from employment to unemployment (job unchanged during the crisis, but since it losses), the main source of the rise in had been growing at almost 4 percent unemployment was the increased share before the crisis, the crisis reduced the pre- of people that remained unemployed crisis trend in household income per capita (longer unemployment duration). The by 4.2 percentage points. And the main unemployment rate came back down to transmission mechanism of the crisis to average pre-crisis level by February 2011, households was through the labor market. about 17 months after the crisis hit Turkey. In particular, household labor income per And the unemployment rate for the second capita went from a positive trend before quarter of 2012 is already 13 percent lower the crisis to a 1.2 percent drop, resulting in than the average pre-crisis level.11 Rapid a crisis impact estimate of -3.4 percentage growth has fueled this sharp decline in points. The rest of this section tries to unemployment to pre-crisis levels, but the identify the sources of this reduction in slowdown from the second half of 2011 labor incomes and how it was distributed may make it difficult to bring unemployment across types of employment, sectors and significantly below pre-crisis levels. types of workers. 7. The added-worker effect minimized Increased unemployment duration the negative impact of the crisis on and job losses were attenuated employment, which recovered quickly by the added-worker effect— to improve upon pre-crisis levels. The employment recovered fast employment rate fell from around 42 and strong percent right before the crisis to 40.3 percent in April 2009. But it rebounded 6. Increased unemployment duration quickly, reaching the average pre-crisis and job losses fueled a sharp rise level by September 2009 and continuing in unemployment during the crisis, to increase to reach 45.3 percent by coming down gradually as growth the second quarter of 2012. The crisis resumed to reach pre-crisis levels. The reduced the employment trend by seasonally-adjusted unemployment rate just 0.6 percentage points. This small started increasing in September 2008, 11- The decline in unemployment after the peaking in April 2009 at 14.9 percent and crisis also appears to be more the result of the falling gradually since then to reach 9.1 reduction in the stock of unemployed rather than increased hiring of new entrants. laborENG ic.indd 30 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 31 FIGURE 7 Increasing dominance of wage employment, particularly in services (Sector shares in total employment, %) The increasing dominance of wage Slow tertiarization of employment— 70 employment 60 agricultural employment is still important 60 50 50 40 40 30 30 20 20 10 10 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011 Wage Employer Self-Empl Unpaid Agriculture Industry Construction Services Source: TUIK (Labor Force Survey) impact on employment despite the rise in Jobs losses hit formal employees, unemployment is explained by the increase while the informal sector served in the flow from inactivity to employment as a cushion—formal wage jobs during the crisis, as additional households recovered strongly after the crisis members managed to find jobs in response to the crisis (added-worker effect). The 8 . Job losses during the crisis labor force participation rate grew by over were concentrated in formal wage 1 percentage point during the crisis, and employment, which also saw the most of these new entrants found their way greatest growth after the crisis— into employment, as the transitions from the informal sector served as a inactivity to employment increased by 1.7 cushion. Prior to the crisis, formal percentage points (Table 1). The employment wage employment (as a percentage rate in the second quarter of 2012 is already of the WAP) was slowly increasing 9 percent higher than the average pre-crisis in Turkey, while all other t y pe s o f level. The strong recovery of employment employment were slowing decreasing is explained by both rising labor force (Figure 7). The crisis reversed this participation and falling unemployment.12 d y n a m i c ( Ta b l e 2 ) : t h e t r e n d i n formal wage employment fell by 1.6 12- Changes in the employment rate are de- percentage points, while other types composed into changes in the unemployment rate and changes in the labor force participa- of employment were little affected by tion rate following Cho and Newhouse (2011). the crisis—the trend in informal self- This analysis reveals that the increase in labor employment and unpaid family labor force participation rates explains 54 percent of the post-crisis trend in employment rates, increased slightly. Most formal wage while the decrease in the unemployment rate sector job losers, however, went into explains the other 46 percent. laborENG ic.indd 31 16.05.2013 11:55 TABLE 2 Formal wage workers lost jobs but got higher earnings; informal workers got smaller paychecks (Crisis impact and degree of recovery: sectors of employment, earnings and working hours) Pre-crisis Crisis Crisis Pre-crisis Q4 2010 Degree of trend trend impact level recovery Employment (relative to WAP) Wage employed 0,6 -0,9 -1,5 27,5 29,4 1,07 Self-employed -0,5 0,1 0,5 9,0 8,7 0,96 Unpaid family workers -0,1 0,2 0,3 5,7 5,9 1,05 Informal employed -0,8 -0,3 0,5 19,8 19,4 0,98 Formal employed 0,9 -0,4 -1,3 24,9 27,2 1,09 Formal wage employment 1,2 -0,4 -1,6 19,5 21,8 1,12 Informal wage employment -0,5 -0,4 0,1 8,0 7,6 0,95 Formal self-employment -0,2 -0,1 0,1 3,3 2,9 0,90 Informal self-employment -0,2 0,2 0,4 5,8 5,8 1,00 Employed in agriculture -0,2 0,3 0,4 10 10,9 1,09 Employed in manufacturing 0,1 -0,7 -0,8 9,1 9,1 1,01 Employed in construction 0,0 -0,1 -0,1 2,7 3,2 1,19 Employed in services 0,1 -0,1 -0,2 22,5 22,7 1,01 Real average monthly earnings All employees 3,2 4,8 1,5 543,2 580,0 1,07 Formal employees 1,4 4,7 3,3 621,2 651,7 1,05 Informal employees 3,2 -1,3 -4,5 331,7 334,3 1,01 Employees in agriculture 5,0 1,3 -3,7 270,7 298,8 1,10 Employees in manufacturing 2,8 1,6 -1,2 476,2 481,5 1,01 Employees in construction 5,3 2,2 -3,1 464,8 493,1 1,06 Employees in services 3,0 5,6 2,7 591,7 646,9 1,09 Average hours worked All workers -1,8 -2,8 -1,0 49,1 47,5 0,97 Formal workers -1,0 -1,9 -0,9 50,8 50,4 0,99 Informal workers -3,2 -4,3 -1,1 46,6 43,3 0,93 Workers in agriculture -2,7 -4,2 -1,5 38,6 37,0 0,96 Workers in manufacturing -0,9 -2,9 -2,1 52,2 51,7 0,99 Workers in construction -1,8 -3,5 -1,6 51,8 51,9 1,00 Workers in services -1,9 -1,8 0,2 51,8 50,1 0,97 Real wage bill All employees 7,3 3,3 -4,0 1,20 Formal employees 9,4 4,5 -4,9 1,00 Informal employees -1,9 -5,7 -3,8 1,24 Household labor income 2,2 -1,2 -3,4 -- -- -- Household wage labor income 6,1 1,0 -5,0 -- -- -- Household self-employed income 0,1 -4,5 -4,6 -- -- -- Labor productivity 4,6 -5,6 -10,3 473,5 497,5 1,05 Source: TUIK and authors’ calculations. All based on quarterly Labor Force Survey except for household-level variables, which are from SILC. Crisis impacts are in percentage points. laborENG ic.indd 32 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 33 informal wage employment rather 9. Job losses were concentrated in than into joblessness (Table A1). This manufacturing, while agricultural boost to informal wage employment employment increased, serving as a was offset by a reduced flow from cushion—agricultural jobs continued informal to formal wage employment increasing after the crisis. Before the that instead went to informal self- crisis, agriculture was mostly shedding employment and inactivity. And most workers, although that trend started ‘added’ workers went to informal self- changing right before the crisis (Figure employment (including unpaid family 7). And employment in manufacturing labor) (Table A1). Thus the informal and services was increasing. The crisis sector served as cushion for job losers hit manufacturing jobs, while agricultural and new entrants. The recover y of employment increased (Table 2). The formal wage employment has been lack of movement across sectors before impressive—formal wage employment the crisis was exacerbated during the wa s a l r e a d y 12 p e r c e n t a b ove i t s crisis. Thus the increase in agricultural average pre-crisis level by the fourth employment was mostly due to new quarter of 2010. entrants and in the form of informal self- employment (including unpaid family labor). Employment has been growing in Box: The crisis and high food prices are behind the stalling of agricultural shedding since 2007. One of the salient structural transformations of the Turkish economy since the 1990s is the decrease in the share of agriculture in total employment and output, as the non-agricultural sector becomes more attractive and productivity increases in agriculture push labor out of agriculture. While agricultural subsidies have slowed down this process, the downward trend in agricultural employment continued until 2007: the share of agricultural employment halved from 46 percent in 1990 to 23.5 percent in 2007 , while the number of agricultural workers declined from 9 million to 6 million during the same period. In parallel, the share of agriculture in GDP decreased from 17 .5 percent to 7.6 percent. Since 2007 , however, this trend has been reversed: agricultural employment increased by 26 percent between 2007 and 2011 and its share in total employment reached 25.5 percent in 2011. The increase has been larger for unpaid family labor and women. During the same period agricultural output increased by 17 percent in real terms and the share of agriculture in GDP increased to 7 .9 percent in 2011. Why has agricultural employment been growing since 2007? First, the process of agricultural shedding is far more complete, so the recent surge in agricultural employment is unlikely to indicate a structural shift.Turkish farms are still mostly family-owned, small and fragmented. Wage earners are only 10 percent of total employment and unpaid family workers are the main employment category (47 percent in 2011). Labor productivity is very low and there is still abundance of (mostly) low-skilled labor, which makes the employment-to-output elasticity very low—and agricultural output has indeed increased since 2007 . laborENG ic.indd 33 16.05.2013 11:55 One explanation for the surge in agricultural employment is higher agricultural prices, which has made the sector more profitable and thus attractive for investments that have in turn generated employment. The figure below shows that until 2007 changes in agricultural prices in Turkey were closely aligned with world food prices and general producer prices. In 2007 , world food prices shot up while Turkey’s agricultural prices increased more modestly but faster than general producer prices. Around mid-2008 world food prices plunged while Turkey’s agricultural prices decreased more marginally. By the end of 2009 world food prices started shooting up and Turkey’ agricultural prices followed the same course this time (and well above the trend in general producer prices). Thus the trend in agricultural prices could explain some of the increase in agricultural employment in 2007 and could have had a lot to do with the increases after the crisis. Gürsel and İmamoglu (2011) make use of regional variation in agricultural employment between 2004 and 2010 to show that indeed changes in agricultural prices are a significant predictor of changes in agricultural employment. Increasing relative agricultural Increasing relative wages in prices make agriculture a more agriculture make it a more attractive profitable sector sector for low-skilled workers 250 1.40 200 1.20 150 1.00 100 0.80 50 0.60 0.40 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.20 0.00 FAO food price index (2002-04=100) 2002 2003 2004 2005 2006 2007 2008 2009 2010 General producer index (Turkey) (2003=100) Agricultural producer index (Turkey) (2003=100) Ratio of agricultural wages to minimum wages Source: TUIK data. Agricultural wages refer to permanent male workers in agricultural enterprises (survey of salary structure). The other explanation is increased attractiveness of agricultural jobs relative to non- agricultural jobs, particularly during the crisis. Agricultural employment served as a cushion against the crisis. The increase in agricultural employment mostly came in the form of unpaid family labor that came from inactivity (added-worker effect). Agriculture could have also become a more attractive sector for low-skilled salaried workers as a result of the increase in the relative labor demand for low-skilled workers in agriculture. One way to see that is by looking at the levels and trends of agricultural wages versus minimum wages. Indeed, the figure above shows that agricultural wages were below minimum wages and started growing faster than minimum wages from 2004, reaching the same level in 2006, increasing thereafter to peak at a level 24 percent higher than minimum wages in 2008 and staying around that level, but still growing, since then. So the increase in relative wages in agriculture could have contributed to the increase in agricultural employment since 2007 . Gürsel and İmamoglu (2011) find that changes in non-agricultural wages for low-skilled workers do explain changes in agricultural employment in 2004-10. Source: Hatunoğlu, E. Emrah (2011) (background paper this report); Gürsel, Seyfettin and Z. İmamoğlu (2011). laborENG ic.indd 34 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 35 all sectors after the crisis, particularly a 1 percentage point increase in wages in construction and agriculture. By the (monthly earnings per hour), as working fourth quarter of 2010, manufacturing hours, on a downward trend before the e m p l oy m e n t h a d r e c ove r e d t o i t s crisis, declined even faster during the pre-crisis level, while employment in crisis (labor hoarding). construction and agriculture was 19 and 9 percent, respectively, above pre- 11. The reduction in household labor crisis levels. The relative stability of income was driven by household agricultural employment since 2007 members not finding or losing jobs is explained by a combination of the and lower self-employment income. cushioning function of agriculture As noted earlier, the crisis affected during the crisis and improved households mainly through reduced agricultural terms of trade (Box). labor income. This reduction is partly explained by increased unemployment The increase in minimum wages duration and job losses. Earnings drove up formal (and total) of informal employees declined but earnings, while informal workers overall earnings increased. SILC data got smaller paychecks—earnings show that household income from growth slowed with recovery but wage employment did increase by inequality increased further. 1.0 percent during the crisis but this increase was smaller than the pre-crisis 10 . D e s p i t e t h e s e v e r e n e ga t i v e trend, resulting in a negative impact of demand shock, monthly earnings 5 percentage points (Table A2). Self- grew even faster than before the employment income, on the other crisis, which was driven by higher hand, had a slight positive trend before wages, as the trend in working hours the crisis and dropped significantly declined. Despite the severe negative during the crisis, resulting in a negative demand shock, average real monthly impact of 4.6 percentage points (Table earnings grew slightly faster during the A2). Thus, although self-employment crisis than before the crisis, resulting was not affected during the crisis and in a 1.5 percentage point increase in even increased slightly, income from the growth rate of earnings. And this self-employment declined significantly. was not just the result of the drop in Since most self-employment is informal inflation (which was only 0.7 percentage (about 66 percent in 2011), the result points) but also the increase in the reinforces the negative impact of the growth rate of nominal earnings (0.9 crisis on informal earnings to yield a percentage points). The increase in the significant decline in total informal growth rate of earnings is explained by income. laborENG ic.indd 35 16.05.2013 11:55 12. The growth in earnings contrasts (the product of earnings and wage with the decline in labor productivity employment) grew but at a lower rate and GDP, indicating an increase in than before the crisis (consistent with the wage share and a disproportional the results on household labor income), negati ve impact on profits. As a increasing its share in GDP, as self- result of the downward adjustment in employment income and, particularly, hours and employment (both of which profits took most of the hit from the were relatively small), the downward crisis. adjustment in labor productivity (GDP per hour worked) growth (10.3 percentage 13. The formal wage sector was hit points) was smaller than the impact on hard by job losses but real earnings GDP growth. Labor productivity was grew even faster than before the growing faster than earnings before crisis—particularly in services— the crisis (Figure 8). During the crisis, while informal earnings fell sharply. however, labor productivity declined The overall impact on earnings masks while earnings increased (even faster s i g n i f i c a n t d i ffe r e n c e s by t y p e o f than before the crisis). The wage bill e m p l oy m e n t a n d s e c t o r. E a r n i n g s FIGURE 8 Growth in earnings despite sharp declines in labor productivity and GDP (Year-on-year changes in real GDP, labor productivity and earnings, 2006-2011) 20 15 10 5 0 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 -5 -10 -15 GDP Labor productivity Earnings -20 Source: TUIK and authors’ calculations. Labor productivity: GDP into the product of total employment and average annual working hours. Earnings: monthly earnings. laborENG ic.indd 36 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 37 FIGURE 9 The binding minimum wage (Formal Earnings in Manufacturing and Services and Minimum Wage, 2008) 1.5 Net Minimum Wage in 2008 (in 2003 prices) 1 Manufacturing Services ,5 0 2 4 6 8 10 Log formal Earnings in 2008 (in 2003 prices) Source: TUIK (Labor Force Survey) and authors’ calculations. increased in the formal sector but sector earnings was driven by higher declined in the informal sector. Thus, the wages (earnings per hour), as working labor market adjustment to the demand hours decreased. The decline in informal shock was through employment in the sector earnings was the result of reduced formal wage sector and through earnings wages and working hours. in the informal wage sector. While the crisis had the same negative impact on 14. The increase in minimum wages the growth of the wage bill of formal and drove up formal sector earnings during informal workers (1.8 percentage points), the crisis but did not reduce earnings the growth was still positive among inequality in that sector. Formal sector formal workers but negative among wages continued to increase during informal workers. And while earnings the crisis because of the 2.6 percent increased across all sectors during the increase in the minimum wage between crisis, the only sector in which the trend 2008 and 2009. The minimum wage is in earnings increased during the crisis binding in Turkey, as it is a floor to formal was services. The increase in formal sector wages and monthly earnings are laborENG ic.indd 37 16.05.2013 11:55 bunched around it (Figure 9). 13 Thus, resulting in a negative adjustment in increases in the minimum wage can informal earnings after the crisis, and affect average earnings, both directly a further widening of the earnings gap (increased earnings for minimum wage between formal and informal workers. earners) and indirectly (by anchoring By December 2010, formal earnings were all wages at a higher new level). But significantly above pre-crisis levels while the minimum wage appears to be informal earnings were about the same more binding for manufacturing than level. for services. Wages increased more in services than other sectors because of Job losses hit men in urban areas, the differential impact of the crisis across while women, youth and the low sectors: manufacturing output dropped educated saw lower earnings— by 19 percent while services declined by women gained jobs through 10 percent. Despite the sharp increase the business cycle while wage in minimum wages during the crisis, inequalities increased earnings inequality, as measured by Gini coefficient, in formal wage employment 16. Men suffered greater job losses increased. than women, particularly formal manufacturing jobs—women 15. Earnings growth slowed down in gained relative to men in terms of the recovery period, while the earnings employment through the business gap between formal and informal cycle. Controlling for age, education level workers was reinforced. Increases in and location, the crisis did have a larger real wages after the crisis were offset by impact on men’s employment relative to proportional reductions in working hours. women’s (Table A3). In fact, as a result of The lack of earnings growth contrasts the crisis female employment increased with the growth in labor productivity slightly while male employment during the post-crisis period, which decreased relative to the absence of any was already above pre-crisis levels by pre-crisis trend. This mainly reflects the December 2010, indicating that the loss larger flow of women out of inactivity in competitiveness during the crisis was into employment (added-worker effect) only temporary. The increase in wages relative to men rather than a differential was smaller among informal workers, impact on unemployment. The negative i m p a c t o n m a l e e m p l oy m e n t wa s 13- In contrast, while the minimum wage represents a ceiling for informal wages, most concentrated in formal manufacturing informal wages are significantly below the jobs. Male and female employment minimum wage. And the increase in minimum grew at similar rates during the recovery wages during the crisis had little effect on period, resulting in women gaining informal wages, which declined sharply. laborENG ic.indd 38 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 39 relative to men in terms of employment to respective pre-crisis trends. This was through the business cycle (Table A4). partly due to youth being hit harder by This is due to the relative gains in labor job losses in manufacturing than adults. force participation because the female Although youth unemployment came unemployment rate has recovered more down faster than that of adults during slowly than men’s. recovery, youth labor force participation did not change, resulting in a slower 17. But women lost to men in terms recovery of youth employment relative of earnings during the crisis, although to adult employment. This lack of change female earnings caught up during in youth activity rates is mostly due to the recovery. Female earnings were some youth postponing entry and going growing faster than male earnings prior back to school, as the joblessness rate to the crisis. During the crisis, however, (share of youth neither working, nor the trend of male earnings adjusted attending school) decreased significantly slightly upwards while the trend for among youth during recovery after having female earnings adjusted downwards. increased during the crisis. This was basically due to smaller relative i n c r e a s e s i n fo r m a l e a r n i n g s a n d , 19. Youth lost to adults mostly in particularly, greater relative declines in terms of earnings and that difference informal earnings. The relative gains in has been amplified after the crisis. earnings for men were more apparent Prior to the crisis, earnings of youth in manufacturing. And these gains can were growing even faster than those of be attributed to the dynamics of hours adults. The crisis saw earnings of adult worked by men relative to women, as workers increase (although at the same women’s hours were cut much more than rate as before the crisis), while earnings men’s in all sectors except agriculture. of young workers remained unchanged, Female earnings grew faster than men’s thus experiencing a sharp decline relative during the recovery period and by the to its pre-crisis trend. The increase in the last quarter of 2010, real earnings of both earnings gap between youth and adults men and women exceeded pre-crisis during the crisis was due to a smaller averages by about 1 percent. relative increase in formal earnings among youth and, especially, a larger 18. The crisis had a larger toll on youth relative decline in informal earnings (3.3 unemployment—youth employment percent). These disparities are mainly recovered more slowly, as some ex p l a i n e d by wa g e d y n a m i c s . Th e young people went back to school. increased earnings premium on work Yo u t h u n e m p l oy m e n t r o s e a l m o s t experience appears to be amplified after twice as fast as that of adults relative the crisis, as youth earnings have been laborENG ic.indd 39 16.05.2013 11:55 subject to large cuts (both formal and 21. Job losses were concentrated in informal) while adult earnings have urban areas, while rural residents remained unchanged. were able to resort to agriculture as a cushion against the crisis. Urban 20. Earnings inequality between workers were disproportionally affected high and low educated workers by job losses: the employment rate in increased during the crisis and was urban areas decreased by 1.2 percentage reinforced later. Before the crisis, points during the crisis while the rural earnings of workers with less than employment rate remained unchanged secondar y education (low educated thanks to the increase in agricultural workers) were growing faster than employment. Unemployment increased e a r n i n g s o f wo r ke r s w i t h a t l e a s t in both areas, although by almost twice secondary education (high educated as much in urban areas than in rural areas. workers). Low educated workers lost Both urban and rural areas benefited from to high educated workers in terms the increase in employment and the of earnings during the crisis, as their decline in unemployment after the crisis. earnings stalled while high educated The growth of agricultural employment workers saw their paychecks increase after the crisis continues to boost rural even above the pre-crisis trend. High employment above pre-crisis levels. educated workers enjoyed large increase in formal earnings and Overall Turkey’s labor market even benefited from higher informal weathered the storm well relative earnings, while low educated workers to other countries did not experience in any change in formal earnings and saw their informal 22. In most other upper middle earnings reduced. These differences income countries the crisis also had were mainly driven by differences a relatively small overall impact on in wage rates. While low educated jobs. Evidence from up to 44 middle workers have caught up with high income countries using the same basic educated workers in terms of informal methodology as in this study (Khanna earnings, as high educated workers et al. 2011; Cho and Newhouse, 2011) lost what they gained during the crisis, shows that despite large contractions the gap has been amplified for formal of GDP as a result of the crisis, earnings, as low educated workers e m p l oy m e n t , u n e m p l oy m e n t a n d , have seen their earnings reduced. particularly, labor force participation were relatively little affected on average laborENG ic.indd 40 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 41 TABLE 3 In middle income countries the crisis had a relatively small impact on jobs and a large impact on earnings growth Number of Pre-crisis Crisis Difference countries GDP growth 28 7.3 -2.4 -9.7 Wage bill growth 28 9.4 1.1 -8.3 Employment growth 28 1.8 -0.2 -2.0 Earnings growth 28 7.3 1.3 -6.0 Hours worked growth 14 1.7 -5.2 -6.9 Real wage growth 14 6.5 7.2 0.7 Nominal wage growth 14 12.9 12.2 -0.7 CPI growth 14 7.0 6.0 -1.0 Unemployment rate 28 9.0 9.7 0.7 Labor force participation rate 24 53.0 53.3 0.3 Source: Khanna et al. 2011. The pre-crisis period is an average of year on year changes over eight quarters from Q3 2006 to Q3 2008. The crisis period is an average between Q4 2008 and Q3 2009. (Table 3).14 There was, however, variation the shock than employment, while there across countries according to the severity was a negligible impact on activity rates. of the GDP shock, the structure of the This is because (1) part of the impact on economy (e.g. relative size of export and unemployment came from those who manufacturing sectors) and the nature of remained unemployed as a result of the labor market institutions. crisis (as in Turkey); (2) most of those who remained and became jobless a 23. In most cases people who result of the crisis stayed attached to remained or became unemployed the labor force looking for a job (as in as a result of the crisis stayed Turkey); and (3) the added-worker effect attached to the labor force. In general, was weak, unlike in Turkey where it unemployment was more sensitive to was significant, although most of this new employment was of low quality 14- These studies are necessarily constrained (informal self-employment, including by the data available to make a homogenous analysis of 44 countries. The present study for unpaid family labor). Although the same Turkey thus extends the analysis in a number type of analysis is not available for OECD of dimensions, including the analysis of the countries, the impact of the crisis on impact of the crisis on different forms of infor- mal employment, informal earnings, earnings jobs in OECD countries was also mainly inequality and transitions across different reflected in increases in unemployment. labor market states and sectors. laborENG ic.indd 41 16.05.2013 11:55 The fall in real GDP was larger than the is mostly explained by men being increase in unemployment in all but 6 disproportionally represented in wage OECD countries (e.g. the US and Spain), employment and manufacturing. Unlike and employment was only 1.8 percent Turkey, however, it is not explained by lower in the fourth quarter of 2010 than the added-worker effect among women. three years earlier (OECD 2011). As in Turkey, the differences by level of education were small. Relative to most 24. As in Turkey, wage employment other countries, in Turkey the crisis and manufacturing jobs were did have a significantly larger impact particularly affected by job losses. o n u r b a n u n e m p l oy m e n t . D e s p i t e The relatively small overall impact on the relatively small overall impact on jobs masks significant differences by employment in OECD countries, youth, sector, with wage employment and men, low-skilled workers and temporary manufacturing jobs being more affected workers were hit especially hard (OECD as a result of their relatively larger 2011). exposure to trade shocks. For example, while employment growth fell in industry 26. Unlik e Turk ey, formal-sector by 3.3 percentage points, it increased in earnings growth was reduced in most agriculture by 1.5 percentage points and countries.15 As in Turkey, in most other remained unchanged in services. As in middle income countries real earnings Turkey, job losses in one sector were not growth started declining in the first absorbed by other sectors but instead quarter of 2008, as increases in food and translated into higher unemployment. fuel prices skyrocketed. However, while in most other middle income countries 25. The impact on jobs was also larger nominal earnings growth declined for youth and men in most countries. during the crisis, it increased slightly in In most countries young people were Turkey. In fact, the fall in earnings growth disproportionally affected by job losses explains most of the decline in wage bill and increased unemployment relative growth during the crisis in most other to adults. The differential impact (which middle income countries. The fall in was only significant in manufacturing in Turkey) happened within the same 15- Data on earnings for these countries come sectors, suggesting firms tended to from establishment surveys and thus mainly prefer dismissing youth over adults, refer to formal sector employees. Khanna et al. (2011) use the wage bill, the product of total perhaps as a result of youth’s lower employment and (essentially formal) earnings, firm-specific skills and more flexible to look at labor market adjustment borne by contractual arrangements. The larger workers and how much of this adjustment is due to changes in employment and earnings. impact on men relative to women laborENG ic.indd 42 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 43 earnings growth was entirely explained in minimum wages in real terms of 1 by the sharp drop in the growth of hours percentage points or more in 2009. 17 (significantly larger than in Turkey), as The Global Wage Report 2010 finds no real wages increased slightly thanks clear relationship between minimum to declining inflation. The reduction of wages and the incidence of low pay or positive growth in real earnings in 2009 is earnings inequality (often the objectives also observed for 80 out of 115 countries of minimum wage policies). In Turkey, analyzed in the Global Wage Report the increase in real minimum wages in 2010 (ILO 2010a).16 An ILO survey of 54 2009 did not prevent an increase in the countries across the income spectrum incidence of low pay or an increase in also shows that labor hoarding was a earnings inequality, even among formal common labor market adjustment to employees. the crisis (ILO 2009). OECD countries relied much more on labor hoarding than 28. In most countries the share of the layoffs, and the decline in hours tended wage bill in GDP also increased during to be more proportional to the fall in GDP the crisis. The slowdown in earnings (OECD 2011). growth was generally smaller than the decline in labor productivity and GDP 27. About half of the countries with growth. In most countries the wage m i n i m u m w a g e s a l s o ch o s e t o bill share in GDP increased and profits increase it during the crisis. About half took a disproportional hit from the crisis. of the 108 countries in the ILO sample Previous crises have also witnessed increased the statutory minimum wage smaller adjustments in earnings relative in 2009 (including Turkey, Brazil, Russia to labor productivit y and GDP and and the majority of advanced countries), increases in the wage bill share. And in while in the other half minimum wages most cases, recovery periods tended to were left unchanged (ILO 2010a). As a reverse this dynamic. result of changes in statutory minimum wages and/or declining inflation, most 29. In most ECA and OECD countries advanced countries and half of countries labor market recovery lagged behind i n E u r o p e a n d C e n t r a l As i a ( E C A ) economic growth—Turkey has fared (including Turkey) experienced increases relatively well. Most countries in ECA started growing by the second and third 16- There is, of course, variation across quarters of 2009, while real GDP in the regions: growth declined but remained OECD area has been growing since the positive in Asia and Latin America, it was slightly positive in advanced countries and 17- The ECA region encompasses the significantly negative in some countries of transition countries of Eastern Europe, the Europe and Central Asia like Latvia, Lithuania, Balkans, the Commonwealth of Independent Serbia and Ukraine. States, and Turkey. laborENG ic.indd 43 16.05.2013 11:55 first quarter of 2009. In Turkey, one of the 30. And in a number of these hardest hit countries, recovery only started countries, particularly in Europe, at the end of 2009, but once it started it e m p l o y m e n t f i g u r e s a r e g e tt i n g was among the most vigorous, quickly worse due to the economic slowdown recovering its pre-crisis level. In most ECA starting in the second half of 2011. Even and OECD countries, however, growth was when, on average, labor markets in the not vigorous enough to re-employ many of OECD were slowly recovering, countries those workers that were laid off during the like Spain, Greece, Portugal and Ireland crisis. Among ECA countries, employment (the last three experiencing ‘bailouts’ by growth has been weak even in countries the EU and the IMF that prompted harsh with high GDP growth, except in Turkey and fiscal consolidations) were experiencing Kazakhstan where rapid GDP growth has stagnant or increasing unemployment. been accompanied by strong employment Following the spread of the sovereign growth leading to higher employment debt crisis to other countries of the rates and lower unemployment rates than Eurozone like Spain and Italy in August before the crisis. The unemployment rate of 2011, growth has slowed down in the in the OECD had only come down by 0.6 OECD, particularly in the Eurozone, and percentage points by the third quarter of some countries in this area have entered 2011 from its high of 8.7 percent in the into negative territory in 2012. Turkey’s fourth quarter of 2009. Turkey, Germany growth slowed down in the second and Chile are the only OECD countries half of 2011 and is expected to reach 3 where unemployment is already below pre- percent in 2012, as exports to the EU and crisis levels. foreign capital are reduced. laborENG ic.indd 44 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 45 3. POLICY MEASURES AND LABOR MARKET INSTITUTIONS DURING THE ECONOMIC CYCLE 1. To what extent were the observed overall and distributional impacts of the crisis and recovery on the labor market due to policies? Surely policies have some explanatory power but exactly how much is hard to tell because of the lack of a credible counterfactual, i.e. what would have happened in the absence of these policies. This section looks at this question, but rather than attempting to evaluate the impact of policies, the focus is rather on making a constructive assessment of policy measures taken during the business cycle and existing labor market institutions against the observed impacts. The (reasonable) assumption is that while policies may have had an effect, this effect was not strong enough to change the sign of the observed impacts. The focus of the analysis is on employment and social protection policies. The last part of this section benchmarks Turkey’s crisis- response policies against those taken by other countries. A framework for employment and social protection policies through the economic cycle 1) Policies to create or protect jobs (i.e. stimulate demand) a. Create jobs: subsidies to firms for new hires (e.g. reductions in social laborENG ic.indd 45 16.05.2013 11:55 security contributions, often targeted a. Benefits tied to employment: in-work to disadvantaged groups like youth benefits (e.g. tax credits or lump-sum and women), support to SMEs and the payments) for low-paid workers; minimum self-employed (e.g. access to finance, wages; partial withdrawal from individual advisor y ser vices, and preferential savings accounts for unemployment or treatment in public tenders), and public pensions. works.18 b. Benefits for the jobless: unemployment b . Pr o t e c t j o b s : s h o r t - t i m e wo r k insurance (including automatic or ad-hoc schemes, under which firms or workers extensions of benefit receipt period during receive a subsidy for a temporar y crises) and unemployment assistance (e.g. r e d u c t i o n i n h o u r s p e r w o r k e r, for jobseekers who do not, or no longer, encouraging work sharing rather than qualify for unemployment insurance). layoffs. Labor regulations governing severance payments and labor contracts c. Benefits not tied to job status: social are not tied to the business cycle but assistance, such as cash and in-kind they can affect how labor markets adjust transfers. These benefits are typically to it. High severance pay makes it more targeted to the chronic poor, but can costly for firms to fire workers. More also be used to address the increasing flexible contracts in terms of wages and/ social needs arising from crises by, for or hours reduce the need for firms to fire example, relaxing eligibility criteria (and workers. thus expanding coverage) and increasing benefits. 2) Policies to support job search and upgrade skills. This group of policies A recap of results aims to address individual’s barriers to employment in terms of information • The Turkish economy was hit hard by and skills: employment services (job the crisis, which affected households intermediation and counseling, job search mainly through reduced labor incomes— assistance) and skills training. recovery was fast and strong. 3) Policies to protect income. These • The crisis had a relatively small overall programs aim to complement self- impact on jobs, mainly through increased insurance against unemployment or a fall unemployment. in earnings: • The increase in unemployment was explained by increased unemployment 18- Public works programs also have an inco- duration and job losses, but the me-protection role, particularly during crises. laborENG ic.indd 46 16.05.2013 11:55 TÜRKİYE: EKONOMİK DALGALANMA BOYUNCA İŞGÜCÜ PİYASALARININ YÖNETİMİ III 47 e ffe c t o n t o t a l e m p l o y m e n t w a s Turkey’s policies through the partly attenuated by the added-worker economic cycle effect—employment recovered fast and strong. 2. T h e c r i s i s wa s p r e c e d e d by a labor market reform that reduced • Jobs losses hit formal employees, non-wage labor costs and set the while the informal sector ser ved as basis for expanding acti ve labor a c u s h i o n fo r j o b l o s e r s a n d n ew mark et programs (ALMP). In May entrants (mostly going to informal self- 2008 the first employment package employment, including unpaid family was introduced, but measures were labor in agriculture—formal wage jobs implemented in October of that year, recovered strong after the crisis. coinciding with the beginning of the r e c e s s i o n . Th e m a i n e l e m e n t s o f • The increase in minimum wages t h e r e fo r m we r e ( 1) r e d uc t i o n s i n d r ove u p fo r m a l s e c t o r a n d t o t a l employers’ social security contributions earnings, while informal workers got (across-the-board 5 percentage points smaller paychecks—earnings came to reduction and further temporar y a stall with recovery but inequality was r e d u c t i o n s fo r h i r i n g n ew fe m a l e reinforced. a n d yo u n g e n tra n ts in to th e la b o r market), bringing Turkey’s tax wedge • Th e d e c l i n e i n h o u s e h o l d l a b o r (35 percent) to the OECD average; 19 i n c o m e s wa s d r i ve n by i n c r e a s e d and (2) the opening of ALMP to all unemployment duration, job losses registered unemployed (funding from among formal employees as well as the Unemployment Insurance Fund, reduced wages and self-employment UIF, was increased and the beneficiary income among informal workers. base was extended to all registered unemployed—previously only UI • Job losses hit men in urban areas beneficiaries qualified), thus facilitating d i s p r o p o r t i o n a l l y, w h i l e w o m e n , the expansion of these programs from yo u t h a n d t h e l ow e d u c a t e d s aw a low base—30,70 0 beneficiaries, lower earnings—women gained jobs almost all of them vocational trainees, through the business cycle while wage in 2008, representing 3.8 percent of inequalities increased. registered unemployed (1.2 percent of all unemployed). 19- The tax wedge is the share of taxes and social security contributions in total labor costs. laborENG ic.indd 47 16.05.2013 11:55 3. The across-the-board reduction obligations. 20 Restrictions on fixed/ in non-wage labor costs is likely to temporar y contracting result in a 74 have prevented some layoffs during percent job informality rate among workers the crisis and encouraged hiring employed on temporary/fixed basis (almost during recovery. Although not a crisis- half of all workers in Turkey) (Labor Force response measure, the across-the- Survey, 2010). There are disincentives board cut in employers’ social security for workers and employers to take on contributions was introduced at the part-time jobs, resulting in only 3 percent outset of the crisis, reducing labor of formal workers being part-time. The costs for firms at a time when their 2008 reform increased unemployment revenues were declining. Along with benefits by 11 percent (17 percent the t argeted subsidy for new hires among minimum-wage earners) by tying (which has been extended ever since), payments to gross rather than net wages. it is likely to have contributed to job But the combination of large numbers of creation (the original purpose of the informal workers, strict qualification rules reform) during recover y by reducing and low benefits limit the effectiveness hiring costs. A study simulates that the of unemployment insurance to protect impact on employment of the across- workers during economic downturns and t h e - b o a r d r e d u c t i o n ( 1. 2 5 p e r c e n t beyond. In September 2008, only 17.3 increase) may be limited relative to its percent of registered unemployed (5.3 budgetar y cost (World Bank 2009b) percent of all unemployed) were receiving because part of the reduction is unemployment benefits. translated into higher wages. The same study shows that reductions targeted 5. Stringent EPL is unlikely to have at low-wage earners (e.g. youth and been a major factor in safeguarding women) are more cost-effective. jobs during the crisis, but is likely to pose a constraint to job creation. Strict 4 . Turk ey entered the crisis with EPL tends to reduce job flows through the stringent labor market regulations business cycle (hiring during upturns and and limited protection for the firing during downturns) (Micco and Pages unemployed. The 20 08 reform did 2004). If severance obligations or restrictive not touch the employment protection working arrangements had been a major legislation (EPL), which remains among the most restrictive in the OECD. 20- Workers qualify after one year of service, This rigidity stems from restrictions/ with payment of one monthly wage per year of service for qualifying separations (including disincentives to flexible contracting separations for economic reasons, just cause (part-time, fixed-term and temporary discharge cases, and retirements), and no contracts) and generous severance ceiling on the number of years of service but on the amount paid per year. laborENG ic.indd 48 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 49 deterrent for layoffs during the crisis, there workers need to meet the same strict would have been a relatively larger impact conditions as for unemployment insurance. on employment not subject to these A negligible number of workers benefited obligations or restrictions. Job losses, from this program before 2009, when it however, were concentrated among formal reached 190,233 people. wage sector workers, for which severance payments apply. Most job losers went to 2) Expansion of vocational training. The the informal wage employment, which was coverage of vocational training provided not affected by the crisis. And there was by the Turkish Employment Agency some adjustment in average working hours (ISKUR) increased from 30,000 people in both in the formal and informal sectors. 2008 to 167,000 in 2009 (21 percent of Even within the formal sector, the crisis did registered unemployed, 6.4 percent of total not have a disproportional impact on youth unemployed). In addition to building skills, employment (generally more flexible), the program also provided a daily stipend except in manufacturing. of 15TL to trainees (about half of the minimum wage in 2009), which increased 6. The Government introduced a crisis- to 20TL in 2012. response package in 2009, including employment-related measures. The 3) Public works. The Public Works program authorities’ response to the global crisis was introduced in 2009. To be eligible, covered four areas: monetary policy, the beneficiary had to register at ISKUR banking liquidity measures, fiscal stimulus, and not receive any other similar public and employment. The bulk of the measures support. Payments were made equal came in May 2009 and accounted for about to the minimum wage for 6 months (it 2.2 percent of GDP in 2009 (ILO 2010b), was extended to 9 months in 2012). The although this figure is reduced to less program benefited 45,500 people in 2009. than 1 percent of GDP if only crisis-related discretionary measures are included. 4) Support to SMEs. SMEs account Employment-related crisis measures fo r m o s t e m p l oy m e n t i n Tu r key. 2 1 included (Table 4): The government increased funding to Turkey’s Small and Medium Enterprises 1) Short-time work scheme. Payments Development Organization (KOSGEB) by increased by 50 percent and benefit receipt period extended from 3 months to 6 21- SMEs (firms with less than 250 workers) months (February 2009). The program was account for 92 percent of employment. Small firms (less than 50 workers) account for 79 initiated in 2005 to partially compensate percent, while firms with less than 10 workers workers in firms going through difficulties are the single most important category (59 for reduced working hours. To be eligible, percent). laborENG ic.indd 49 16.05.2013 11:55 48 percent to support credit subsidies, 2009, well beyond inflation (6.3 percent), grants and technical support programs, resulting in a 2.6 percent increase in real extended this support to SMEs in the terms (Figure 10), in sharp contrast with service sector, and expanded the Credit the decline in labor productivity.23 But the Guarantee Fund (CGF) by 1 billion TL increase in the statutory minimum wage to leverage credit resources for SMEs. was not exceptional to the crisis: it was Credit flowed quickly back into the slightly larger than in previous years but system at lower interest rates, partly smaller than in later years. The minimum thanks to early liquidit y measures, wage reached 71 percent of the median reducing the cost of credit subsidies and wage of full-time workers in 2009, the resulting in actual KOSGEB expenditures highest among OECD countries. And being lower in 2009 relative to 2008 as shown earlier, the minimum wage is despite the significant increase in binding in Turkey. beneficiaries.22 8. There was also some response to 5) Time-bound measures. Subsidies for the crisis in terms of social assistance hiring new female and young entrants programs. Overall, social assistance were extended until July 2010. Subsidies beneficiaries and spending displayed for hiring UI beneficiaries (employers’ a countercyclical behavior, increasing social security contributions paid by substantially in 2009 by 33 percent the UIF for remainder of UI benefit and decreasing slightly in 2010 (Table eligibility period) were introduced until 5). The increase in spending in 2009 the end of 2010. In an effort to reduce led to a sharp increase in the share of layoffs in hard-hit sectors, reductions social assistance in GDP from 1 percent in consumption taxes were introduced to 1.4 percent. However, most of this until September 2009 in sectors like increase was not in response to the automotive, electronics and household crisis. About half of the increase in appliances. spending is explained by the increase in Green Card Program (GCP) benefits, 7. Although not explicitly part of the following the implementation of the crisis-response package, statutory 2008 Social Security and Universal minimum wages were increased substantially in 2009. The statutory 23- The national minimum wage is set by minimum wage for workers 16 years of the tripartite Minimum Wage Determination age and older increased by 9 percent in Commission, composed of government and confederation representatives of employers 22- There was also some delay in the alloca- and workers’ unions. The minimum wage is tion of new grants and credit subsidies as a set twice per year (January and July). A lower result of the extension of support to SMEs in level is set for workers younger than 16 years the service sector. of age. laborENG ic.indd 50 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 51 TABLE 4 Key employment-related crisis measures (Main programs and totals) 2008 2009 2010 Benef. Million Benef. Million Benef. Million (x1000) TL (x1000) TL (x1000) TL Vocational training 31 35 167 193 157 242 Public works 45 111 42 138 Short-term work scheme 190 163 27 39 Incentives for new hires 16 66 137 KOSGEB support to SMEs 51 186 74 167 73 203 Source: ISKUR, KOSGEB and Ministry of Labor and Social Security. FIGURE 10 The minimum wage increased significantly during the crisis to reach the highest level relative to median wages in the OECD Increasing minimum wages during The highest relative minimum the crisis and beyond wage in the OECD (Growth rates of minimum wages in 2003 prices) (ratio of national minimum wage to median wage) 5 80 71 70 4 61 59 60 54 54 52 51 51 49 48 48 47 3 46 46 45 45 50 44 44 43 42 41 41 37 36 36 2 40 30 1 20 0 10 2005 2006 2007 2008 2009 2010 2011 0 Czech R. Japan USA Korea Estonia Luxembourg Canada Lithuania Spain Poland Slovak R. Romania UK Netherlands Hungary Greece Slovenia Belgium Ireland Latvia Portugal Australia N. Zealand France Turkey -1 -2 Source: TUIK and OECD (National Labor Force Surveys). laborENG ic.indd 51 16.05.2013 11:55 TABLE 5 Social assistance: Expenditures and beneficiaries (Main programs and totals) 2007 2008 2009 2010 Benef. Million Benef. Million Benef. Million Benef. Million (x1000) TL (x1000) TL (x1000) TL (x1000) TL Social Assistance DG 1,413 1,797 2,379 2,033 CCT 2,756 321 2,978 409 2,882 483 3,002 341(1) Food assistance 140 2,106 218 2,063 379 862 92 Green Card 9,355 3,913 9,338 4,031 9,647 5,506 9,452 4,951 Non-contributory 1,245 1,620 1,266 2,019 1,321 2,367 1,364 2,562 pensions Home care subsidy 0,4 0,5 1,3 400 205 959 285 1,567 Coal assistance 436 594 557 Municipalities 436 519 485 453 Social assistance, total 8,066 11,159 9,815 14,834 13,019 14,018 12,998 Total/GDP (%) 0,96 1,03 1,37 1,18 Source: Ministry of Development and Ministry of Family and Social Policy. Social pensions include non-contributory pensions for the elderly and disabled. (1) CCT expenditures decreased in 2010 due to the introduction of the new Integrated Social Assistance Information System (ISAIS- benefits were discontinued temporarily for 1 million beneficiaries until data could be verified. Health Insurance Law. 24 Overall social 9. The Social Support Program (SSP) assistance programs were protected also helped to meet the increased during the crisis and in some cases social needs arising from the crisis in expanded in response to the crisis. the South East region of Turkey. Social Support Program (SSP) was introduced in May 20 08 to complement other government programs under the South 24- The Green Card Program has been Eastern Anatolia Project (GAP) aimed providing health insurance coverage to low- at raising the living standards of people income families not covered by social security. As a result of the 2008 Universal Health living in South East region of Turkey. Insurance Law, benefits of Green Card holders SSP includes specific interventions to have been aligned with those for beneficiaries increase the employability and living of contributory systems. In January 2012 the program was integrated with contributory standards of disadvantaged groups. health insurance program under a single general health insurance. laborENG ic.indd 52 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 53 Assessment of policies against 11. Also appropriate was the increased observed crisis impacts support to the unemployed through Active Labor Market Programs (ALMP). 10. The focus of crisis-response The expansion of ISKUR vocational measures on protecting the jobs of training allowed more unemployed formal employees was appropriate to people to preserve and upgrade their the nature of labor market adjustments skills at a time when the opportunity to the crisis. The changes to the short- cost of training was lower, increasing time work scheme gave firms greater their chances of finding more and better capacit y to adjust to the shock via jobs when labor demand recovered. working hours rather than workers. And The program also provided income it did so in the formal wage sector, which support through the stipend. The public was hit the hardest. However, despite works program provided temporar y the changes introduced to the scheme employment and income support to the in response to the crisis, the coverage registered unemployed. Despite the remained low (82,439 at its peak in June significant expansion of ALMP during 2009, accounting for only 1 percent of the crisis (particularly vocational training), registered workers), which may have coverage remained low (27 percent of resulted in a limited overall impact on registered unemployed, 8 percent of employment. In the automotive industry, unemployed). The typical delays of setting one of the hardest-hit sectors, jobs up a new program like the public works rather than average working hours was made the actual number of beneficiaries the main labor adjustment to the crisis smaller than originally anticipated. By (Taymaz 2011). Efforts to support SMEs setting benefits equal to the minimum through grants and interest subsidies are wage, the program may have created also likely to have protected jobs, both competition between people really in formal and, to a lesser extent, informal.25 need and workers earning less than the minimum wage. 25- SMEs account for 99.5 percent of informal workers, with the percentage of job 12. Unemployment insurance informality increasing as firms get smaller. The provided limited income protection for typical SME receiving public support tends to the unemployed. There were no changes employ about 100 workers and it is less likely made to unemployment insurance during to employ informal workers than similarly- sized firms. An evaluation of WB-funded credit the crisis in terms of eligibility, benefits lines to SMEs between 2006 and 2008 (World or the duration of the benefit receipt Bank 2011c) shows that receiving the loan period. As a result, although UI coverage is associated with a 13 percent increase in employment. Because of the controls they are among the unemployed increased from subject to, however, these firms are less likely 5.3 in September 2008 to 9.4 percent in to employ informal workers. laborENG ic.indd 53 16.05.2013 11:55 June 2009, it remained very low. Thus already planned as part of the Universal unemployment insurance provided little Health Insurance Law, a decision was ‘automatic’ protection to those who had made to implement it during the crisis been unemployed prior to the crisis and despite the much reduced fiscal space. remained jobless as a result of the crisis The GCP is targeted to poor households as well as those who lost their jobs as a w i t h o u t s o c i a l s e c u r i t y c ove r a g e , result of the crisis. i.e. the poor households engaged in informal activity, which are the poorest 13. The increase in minimum wages households. In fact, the GCP was among may have protected the income of the best performing social assistance low-wage earners in the formal sector, programs in ECA at the outset of the but possibly at the expense of job crisis: in 2008, 48 percent of households losses. The increase in minimum wages in the poorest quintile of the population drove up earnings in the formal sector. (in terms of per capit a household Interestingly, however, the increase in c o n s u m p t i o n ex p e n d i tu r e s ) we r e earnings was higher at higher levels of covered, and 71 percent of all Green earnings, i.e. earnings inequality in the Card beneficiaries were in the poorest formal sector increased despite higher quintile of the population. Coverage minimum wages—overall earnings of the poorest quintile increased to inequality also rose as informal earnings 52 percent in 2009. The scale-up of an declined. As most workers were already already high-performing program to poor earning the minimum wage, the ability informal households, whose incomes of firms to adjust wages downwards declined significantly during the crisis, in response to higher minimum wages contributed to protecting health utilization was limited, resulting in higher average (Aran 2012). earnings. The latter combined with limited scope to maneuver in adjusting 15. Other social assistance program hours possibly made firms resort to provided more limited income layoffs to adjust to the crisis more than protection to those affected by the they would have otherwise without the crisis. Transfer programs are potentially minimum wage increase. But there is no effective tools to mitigate the negative evidence to suggest low earners were impacts of the crisis on households, significantly more affected by layoffs. particularly when the coverage of unemployment insurance is low and part 14. The GCP contributed to protecting of the adjustment takes place through healthcare utilization among poor reduced informal income, as in Turkey. informal families during the crisis. Expenditures under the Social Assistance Although the expansion of benefits was DG increased by 32 percent in 2009. laborENG ic.indd 54 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 55 CCT expenditures increased but the Unions of Chambers and Commodity number of beneficiaries did not change. Exchanges of Turkey (TOBB) to provide The increase in spending responded to vocational training in vocational and the annual increase in the benefit level. technical high schools and internships at Without any discretionary measure (e.g. TOBB businesses. The national vocational a temporary increase in the eligibility qualification system, which links curricula threshold), the lack of change in the and qualifications in vocational fields with number of beneficiaries is not surprising occupational needs, continues to be given that the CCT makes use of a proxy- developed. And training providers are now means test to determine eligibility, and selected on the basis of specific quality proxies are unlikely to change much and performance criteria, not just cost. in the short run, even in the face of a shock. This is because the CCT program 17. Some changes related to the STW in Turkey, like similar CCTs around the scheme, flexible contracting and world, is primarily designed to address targeted subsidies for new hires have long-term poverty rather than short- been introduced. A number of changes term income shocks. As discussed later, to the STW scheme have increased its however, there are a number of design coverage and payments and reduced features that can make these programs processing time, including the extension more responsive to shocks. of the benefit receipt period to 12 months and the enlarged scope of the scheme Post-crisis labor and social to include sectoral and regional crises. protection policies In February 2011 legislative changes were introduced to extend the scope 16. Efforts to expand and improve of the incentives introduced in 2008. ALMP after the crisis are likely to For example, the incentives for hiring contribute to job creation. The main women and youth were extended until role of ALMP is to help create jobs 2015, and social security contributions during recovery periods and beyond by for self-employed women were reduced. addressing barriers to employment (e.g. The Law also enabled part-time workers information and skills). The coverage of to pay their unpaid social securit y ALMP has continued to expand, mainly contributions retroactively, and to be vocational training—250,000 trainees eligible for unemployment insurance. in 2011. As part of this effort, UMEM And it reduced possible disincentives for (Specialized Vocational Course Centers Green Card holders to look for jobs in the Project) was introduced in 2010. UMEM formal sector by ‘freezing’ (rather than is a partnership between ISKUR, Ministry taking away) the Green Card while the of National Education (MoNE) and the person works in the formal sector. laborENG ic.indd 55 16.05.2013 11:55 18. The Government has been general health insurance system. ISAIS will preparing a new National Employment enhance responsiveness to future crises Strategy, which will include a focus on by allowing a much faster, streamlined making labor markets more flexible and objective application process, while increasing the protection of including an automatic determination of workers. A comprehensive National eligibility from within the system, and by Employment Strategy (NES) is in the paying beneficiaries directly.26 An action making, covering measures to improve plan to strengthen the link between labor market flexibility and security, the social assistance and employment was relevance of education to market needs, introduced in 2010, including the registration and the employability of vulnerable of social assistance beneficiaries that are groups (including youth and women) and able to work in ISKUR. the link between social protection and employment. The NES will complement Benchmarking of crisis-response the new Industry Strategy—dealing with policies around the world27 the investment climate and innovation policy aspects of employment. Other 20. Most countries adopted some kind employment-related measures, including of policy response to the crisis—the KOSGEB’s increased support to SMEs in magnitude and nature of response 2010 (9 new programs were added), will were driven by fiscal space, readiness also contribute to job creation, but access and severity of the crisis. Around the to long-term financing continues to be a world, governments were more active challenge. in protecting jobs, training workers, and expanding safety nets than in previous 19. Significant steps are being taken crises. These policies were roughly divided to improve the effectiveness of social among these 3 types of interventions: labor assistance, including measures to make demand, income protection, and job search it more responsive to future crises. After the June 2011 election, the Government 26- Under the new system, applications for combined responsibility for all central assistance can be done at any point during the year and are processed automatically the government social assistance benefits same day with single ID document. Under under the new Ministry of Family and the previous system, applications for the Social Policies (MoFSP). A new Integrated CCT could only be done between August Social Assistance Information System and October, it would require more than 6 documents from other public institutions (ISAIS) has been developed, while common and it would take between 2 and 3 months to mechanisms are being developed to target process. benefits more effectively. ISAIS is also 27- This section draws from Robalino et al. used to determine contribution to the new (forthcoming), Isik-Dikmelik (forthcoming), and OECD (2011). laborENG ic.indd 56 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 57 FIGURE 11 Distribution of Policies in OECD and Middle and Low Income Countries OECD Cash transfers Extended level or duration of UB Early retirement or social pensions Additional social protection measures Subsidized health insurance In-kind transfers (including food subsidies) Income protection Training Job search Skills certification Intermediation Counseling Job search and training Credit and support to SMEs Public works Public jobs Wage subsidy (for new entrants) -- Work sharing Reduction of non-wage labor costs Job subsidies Support labor demand 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% NON OECD Cash transfers Extended level or duration of UB Early retirement or social pensions Additional social protection measures Subsidized health insurance In-kind transfers (including food subsidies) Income protection Training Job search Skills certification Intermediation Counseling Job search and training Credit and support to SMEs Public works Public jobs Wage subsidy (for new entrants) -- Work sharing Reduction of non-wage labor costs Job subsidies Support labor demand 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Source: ILO-WB Inventory of Policy Responses. laborENG ic.indd 57 16.05.2013 11:55 and skills training. The policy mix within OECD countries), interventions were each of these categories differed across mostly directed at formal sector workers. OECD and non-OECD countries (Figure In countries like Turkey, however, informal 11). While there are no accurate data on all workers did experience a significant programs, estimates suggest that in most reduction in income. The rest of this section cases crisis-response budgets did not tries to draw some lessons from selected exceed one percent of GDP . For example, interventions to support labor demand and expenditures on ALMP in OECD and ECA protect incomes. countries ranged between 0.01 and 0.5 percent of GDP—0.13 percent in Turkey. Support to labor demand Overall, the magnitude of the response and the choice of policies were more a 22. Short-time work schemes (STW) reflection of the available fiscal space, the were the most common type of support types of institutions and programs that to labor demand in OECD countries— were already in place and the severity of a n d th e y h a v e b e e n e ffe c ti v e i n the GDP shock, rather than an assessment protecting jobs. Most OECD countries of the nature of labor market adjustments— already had STW or partial unemployment Turkey was no different. schemes before the crisis. These programs are meant to preserve jobs and provide 21. In general, interventions tended income support for workers experiencing to focus on protecting jobs and the reduced hours in firms subject to unemployed—mostly benefiting formal temporary shocks to demand. Many of sector workers—rather than providing these countries, including Turkey, extended income support to workers. In non-OECD the coverage or generosity of STW countries, around 60 percent of the policy schemes (as in Turkey) or relaxed eligibility interventions consisted of support to labor or the administrative requirements to demand (excluding public works), job search encourage take-up. The take-up was much assistance and training, and the extension larger in countries with well-established of unemployment benefits—interventions STW programs relative to countries with to avoid dismissals in the formal sector or new schemes. The increase in take-up to protect those who lost formal sector was particularly large in countries like jobs. This is in sharp contract with the Germany and Italy, where the average finding that in most of these countries monthly number of beneficiaries reached the main labor market adjustment to the more than 3 percent of employees (0.4 crisis was through reduced earnings. With percent in Turkey). Hijzen and Venn (2011) the exception of cash transfer programs find a positive impact of STW schemes on and public works (which only represented employment during the crisis, particularly in about 25 percent of interventions in non- Germany and Japan. The main challenge of laborENG ic.indd 58 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 59 STW schemes is to ensure that the subsidy percent of interventions in developing does not become quasi-permanent, thus c o u n t r i e s . Pu b l i c wo r k s p r o g r a m s preventing the necessary reallocation of provide temporary employment at low jobs that are no longer competitive.28 wage rates on labor-intensive projects. One good feature of these programs 23. Outside the OECD, support to labor during downturns is self-selection (thus demand was mainly channeled through not involving administrative decisions SMEs. SMEs were not only affected by for program entry or exit). When wages reduced sales, but also limited access to are sufficiently low (i.e. no higher than financing and high borrowing costs. Most the market wage for unskilled labor) countries intervened to support SMEs and the work is labor intensive, then through a variety of instruments, including poor people are likely to participate and access to finance, advisory services, and benefit from the program (Del Ninno et preferential treatment in public tenders. al. 2009). 29 Despite the self-selection For example, Mexico’s stimulus package feature, it is not easy to set up and required at least 20 percent of government implement a new program during a purchases to be made from SMEs. crisis, as the experience in countries Because of the stricter control they are like Turkey shows. Programs that have subject to, most beneficiary SMEs are succeeded in protecting the poor more likely to be in the formal sector or during a crisis tend to be programs have lower incidence of job informality than that were already in place and were other SMEs. However, some countries, just expanded during the crisis, like particularly in ECA, have also supported Argentina’s Jefes de Hogar (Galasso the self-employed, which are more likely and Ravallion 2004). These programs to be informal. In the Czech Republic, for often maintain a list of projects that are example, the number of recipients of ready to be implemented and scaled up entrepreneurship grants increased from when needed while ensuring resources 12,800 in 2008 to 20,200 in 2009. are allocated to building infrastructure or maintaining assets with the highest 2 4 . Pu b l i c w o r k s c o n t r i b u t e d t o value to the community. mitigating the impact of reduced incomes among the poor, particularly in 29- In May 1999, the Republic of Korea countries with existing programs. Public launched a public works program for the works programs accounted for about 10 unemployed not covered by unemployment benefits. Around 2.5 times more people benefited from the public works compared 28- The significant reduction in take-up in with unemployment insurance. The wage Turkey in 2010 despite the extension of the be- had to be adjusted downward several times nefit to 12 months suggests that STW scheme as some workers were leaving their jobs to works as a mechanism to protect jobs during receive the higher wages in the program. temporary shocks. laborENG ic.indd 59 16.05.2013 11:55 Income protection 12). France and Japan made it easier for temporary irregular workers to access 25. The coverage of unemployment unemployment insurance. In Latvia, insurance was limited at the outset the contribution period before a worker of the crisis except in rich OECD could claim benefits was decreased. countries. Few developing countries The duration of unemployment benefits have unemployment insurance (UI) and was increased in countries like the USA, even when they do coverage tends to Canada, Latvia, Poland, and Romania. be very limited, as eligibility is linked to Benefit levels were increased in countries formal sector employment. In rich OECD like Greece and Italy. countries, UI is the first and main tier of automatic support to the jobless during 27. To be cost-effective, adjustments in downturns. Many of these countries the level and, particularly, the duration also have unemployment assistance of benefits need to be temporary (UA), which typically takes the form of and tied to labor market conditions. temporary support to the unemployed UB are effective tools to protect the who do not meet minimum eligibility jobless during a downturn. And there conditions for UI or have exhausted their is a rationale for extending the duration UI benefits (Figure 12). of benefits during downturns when unemployment spells are t ypically 26. Unemployment benefits were longer. Extensions also support an the first line of response to the crisis, other wise weak aggregate demand, but they provided limited protection thus acting as an economic stabilizer. to the jobless except in rich OECD However, longer benefit periods can countries—temporary changes in the induce benefit recipients to delay their duration and level of benefits made it t r a n s i t i o n i n t o e m p l oy m e n t w h e n more effective. In OECD countries, the labor market conditions improve. 30 To increase in the number of beneficiaries mitigate this negative impact, benefit was on average about 60 percent of extensions should be temporary and the increase in the total number of linked to labor market conditions. In unemployed (OECD 2011). The degree to which unemployment benefit programs responded to the crisis depended on 30- For example, Aaronson et al. (2010) estimate that the significant benefit extension initial conditions (i.e. qualifying rules and in the US (from 26 weeks in 2007 to 99 weeks benefits of UI as well as existence of in 2009) accounts for 10-15 percent of the total UA) and the adjustments made during increase in average unemployment duration since July 2008, which translates into a 0.7 the crisis to eligibility rules as well as percentage point rise in unemployment. the level and duration of benefits (Figure laborENG ic.indd 60 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 61 FIGURE 12 Coverage of unemployment benefits and response during the crisis in the OECD Coverage of unemployment benefits Change in the number of UB recipients as a before the crisis (%) percentage of the change in the number of unemployed (%) 120 160 100 140 80 120 60 100 40 80 20 60 0 40 Mexico Slovak Rep. Turkey Poland China Japan Israel Italy Estonia New Zealand Korea USA Czech Rep. Canada Hungary Iceland UK Luxembourg Ireland France Sweden Finland Denmark Australia Netherlands Spain Austria Germany 20 0 SWE MEX CHL TUR EST SVK JPN LUX GRC NZL POL ITA DNK HUN ISR AUS ESP FRA CAN CZE USA PRT BEL GBR CHE SVN NLD KOR NOR AUT FIN IRL Uemployment Insurance Unemployment Assistance Source: OECD. Right-hand side figure refers to beneficiaries and unemployed during the first year of the crisis. general, automatically linking extensions and receipt of UB more generally, to to labor market conditions through a activation measures like job search and rule is preferable to ad-hoc/discretionary work requirements during the downturn adjustments during crises in terms of is likely to limit its effectiveness as a timeliness, temporariness and overall crisis-response measure. There is still, cost-effectiveness (Woodbury and Rubin however, room to set benefits in the 1997). The specification of an automatic extended period (and the UB receipt rule is not without challenges in practice, period more generally) to decline with the most important of which is to limit the length of the unemployment spell the extent of automatic adjustment in a to provide incentives for job search. And typically fiscally-constrained environment it may be desirable to link benefits to (OECD 2011).31 participation in ALMP such as job search assistance and skills training for those 2 8 . E v e n t u a l l y, u n e m p l o y m e n t who need such support. As labor market benefits could be linked to activation conditions improve, linking benefit measures as labor market conditions receipt to activation measures like job improve. Linking benefit extensions, search and work requirements is key to ensuring the unemployed transition back 31- Canada provides a good example of into employment (Almeida et al. 2012). linking both eligibility and benefit duration to local labor market conditions while limiting the automatic variation in benefit duration to a pre-defined range (OECD 2011). laborENG ic.indd 61 16.05.2013 11:55 Alternatively, Unemployment Insurance data from management information Individual Savings Accounts (UIISA), systems were able to respond better.32 implemented in countries like Chile and Tight and low eligibility thresholds of Brazil, automatically provide an incentive Guranteed Minimum Income (GMI) for job search without the need for close schemes, the most common last-resort monitoring (Reyes-Hartley et al. 2010). social assistance program in ECA, has limited its responsiveness to the crisis.33 29. Along with public works, social However, the regular indexation of the assistance, particularly cash transfers, eligibility threshold for Serbia’s Material are lik ely to have been the most Support Program allowed the program to effective policy response to protect expand significantly during the crisis. CCT the incomes of poor and vulnerable. programs are also not typically designed Transfer programs have been a more to address short-term income shocks, common crisis-response measure in but a number of countries introduced developing countries, where the first changes to make CCT more responsive. and main tier of support (UI) is often not Brazil and Mexico temporarily added available or limited. Transfer programs beneficiaries to programs with already have also been appropriate policy large coverage and increased benefit responses to the crisis in developing levels. Brazil’s Bolsa Familia expanded countries, where the main adjustment coverage by raising the benefit eligibility was through reduced labor incomes, threshold and revising the targeting especially when informal workers formula to account for variations in were particularly hit, as in Turkey. In household income, a permanent all cases social assistance has been change that will allow greater automatic less responsive to the crisis than UB, responsiveness to future crises (Fiszbein but a number of factors improved the et al. 2011). responsiveness of these programs. 30. Pre-crisis preparedness and the 32- The latter is a proxy for administrative capacity as well as the ability to monitor and adjustment of program parameters manage social assistance programs. improved the responsi veness of 33- GMI schemes tailor benefits to each social assistance programs to the household according to the difference crisis. In the ECA region, pre-crisis between their observed incomes and some preparedness mattered (Isik-Dikmelik, guaranteed minimum income level, which is typically fixed and thus has been eroded fo r t h c o m i n g ) : c o u n t r i e s w i t h p r e - over time due to inflation, resulting in very existing social assistance programs that narrowly-targeted programs. GMI schemes are had greater coverage of the poor and also inflexible because to increase coverage via an increase in the threshold, governments vulnerable and with readily available usually have to increase benefits for all recipients. laborENG ic.indd 62 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 63 4. OPTIONS TO STRENGTHEN THE MANAGEMENT OF LABOR MARKETS THROUGH THE CYCLE 1. Crises are rarely fully predictable, but there are measures Turkey can take to be better prepared for and responsive to them. This section makes use of the analysis of the impact of the crisis and policy responses in Turkey as well as lessons from international experience to suggest (i) some guiding principles to improve the responsiveness to future crises in a cost-effective way; (ii) ways to adjust the policy mix through the economic cycle; and (iii) options to strengthen income protection policies in Turkey. Section 5 links policies to manage labor markets through the cycle with policies to address the longer-term, structural jobs challenge in Turkey. Improving the responsiveness to future crises 2. To be most cost-effective, the policy response to a crisis needs to be timely (when needed), address the nature of the adjustment (e.g. jobs versus earnings), well-targeted to those who need support and temporary (for as long as support is needed). How? Mostly by being prepared and then making temporary adjustments as needed and only introducing new programs as a last resort: laborENG ic.indd 63 16.05.2013 11:55 1) Articulation of policies and institutions. for different types of workers) against Gradually converging to a system that an assessment of existing policies and coordinates social insurance, social institutions and the available fiscal space assistance, ALMP and labor regulations. can inform the policy mix and targeting in Well-articulated systems are not only response to the crisis. This analysis can more effective overall but also more be updated as new information comes responsive to crises (World Bank 2012a). in, so that policies can be adjusted accordingly. 2) Increasing reliance on social insurance. Gradually increasing the coverage of 5) Increasing reliance on well-designed social insurance, including unemployment pre-existing programs. While good insurance, will reduce reliance on information and analysis can help inform discretionary transfers during downturns, the right policy response, the best policy and allow limited fiscal resources to be ‘insurance’ against a crisis is to have a allocated to protecting the incomes of the good inventory of pre-existing programs most vulnerable. that can be scaled up and adjusted as needed. This involves, for example, 3) Making labor markets more flexible. having social assistance programs with Giving firms more flexibility in the good coverage and targeting of the poor management of human resources and and vulnerable that can be ‘adjusted’ to encouraging job creation. For example, a crisis situation. It also involves having more flexible contracts in terms of wages programs like public works that can be and/or hours reduce the need for firms to ‘switched’ on and off as needed. And pre- fire workers during downturns. This can existing programs need to be designed be complemented with STW incentives to respond flexibly to temporary shocks, to prevent layoffs. High severance pay e.g. by adjusting the targeting formula reduces job flows but at the expense to account for variations in income and of inefficiencies. Reducing severance having a streamlined and automated pay while increasing coverage of UI will system for processing applications for encourage job creation during upturns social assistance. and increase worker protection during downturns. 6) Making temporary adjustments as needed and linking them to labor market 4) Good information and analysis. conditions. Pre-existing programs, even While it is impossible to predict the exact if well-designed, may need to be adjusted magnitude and nature of the impact of a to better respond to the crisis, e.g. the crisis, early analysis on probable labor market extension of UB period. In some cases, impacts and adjustments (overall as well as it may even be necessary to discontinue laborENG ic.indd 64 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 65 some of the ‘conditions’ attached to a 4. During downturns, the focus could benefit to quickly increase coverage of be on protecting workers who are most this benefit during a crisis (e.g. activation at risk of losing their jobs or seeing conditions). These adjustments, however, their earnings fall. Unemployment should be temporary to avoid possible benefits, cash transfers and public works moral hazard. And the best way to ensure are the main policy instruments to protect temporariness is by tying them to labor incomes. Temporary short-time work market conditions through a pre-defined schemes can encourage work sharing rule and eventually accompanying them rather than layoffs during a downturn, with activation measures as labor although the benefit is limited to formal demand picks up. More generally, ex employment. Support to SMEs and ante planning of policy responses to a the self-employed, particularly through downturn leads to more cost-effective access to finance, can also help protect interventions. And while making policy jobs. Policies that facilitate job search interventions (including adjustments) are less effective when labor demand automatic increases responsiveness, it is low. Skills training for the jobless can may also be desirable to set limits to the help preserve skills and re-skill those in automatic variation to avoid excessive need to switch sectors/careers, although fiscal pressure. the impact of these programs is greater when labor demand is high. Adjusting the policy mix through the economic cycle 5. During recovery, the policy mix would focus on activating individuals 3. To manage labor markets effectively and facilitating job creation. As labor through the cycle, policies should market conditions improve, the receipt aim to minimize the impact of the of UB or welfare transfers can be linked crisis on workers and their families to activation measures like job search and maximize the impact of recovery and work requirements as well as on job creation. To this end, the policy participation in ALMP (e.g. job search mix needs to be adjusted through the assistance and skills training) for those economic cycle—the availability of timely who need such support. Targeted wage information is crucial, focusing on policies subsidies for new hires can help increase aimed at stabilizing employment and employment among vulnerable groups providing income protection to workers over and above the displacement of other during downturns, and eventually workers. Support to SMEs and the self- switching to policies that facilitate job employed could be continued during the creation and activate the jobless as the upturn for as long as access to finance economy starts recovering. continues to be a key binding constraint. laborENG ic.indd 65 16.05.2013 11:55 Strengthening income protection sector have access to it.34 An alternative policies in Turkey approach is to reduce severance pay without changing the system, while 6. This section more specific options expanding UI and replacing the current to strengthen income protection PAYGO system with Unemployment policies in Turkey. These policies aim Insurance Individual Savings Accounts to complement self-insurance against (UIISA) as in Chile and Brazil. The unemployment or a fall in earnings. As proceeds from UIISA could be topped up mentioned above, a well-articulated by a general revenue-financed solidarity income protection system would component to ensure a minimum ideally rely first and foremost on UI, benefit, as in Chile. UIISA delink access complemented with unemployment to UI from social security contributions, assistance (UA) for jobseekers that do reducing the ‘tax’ on job formality and not qualify for UI, public works for other thus reducing job informality. It also links jobseekers, and cash transfers not tied benefits directly to contributions, with a to job status to protect the incomes well-targeted subsidy for those who do of the most vulnerable. The following not reach the minimum benefit. Partial discussion focuses on UB, UA and the withdrawals would allow workers to cope cash transfers. with reduced earnings. And it provides a strong incentive to look for a job. 7. Unemployment insurance: coverage and activation. Large numbers of 2) Linking UI to activation measures. informal workers, strict qualification rules Under the current PAYGO system, and low benefits limit the effectiveness benefits can be set up to decline with of the current unemployment insurance the length of the unemployment spell system in protecting workers. to provide incentives for job search. And the existing links between the receipt 1) Increasing protection through UI of UB and activation—job search and goes hand in hand with reduced work requirements as well as (targeted) severance obligations. One option participation in ALMP—could be further is to introduce pre-funded severance strengthened in practice (such links accounts (to make it more efficient and already exist in the law). Activation ensure workers are actually paid), as conditions could be temporarily switched in Austria, while increasing benefits off during downturns and an automatic and relaxing the eligibility criteria for 34- Küçükbayrak (2012) shows that reducing UI, so that more workers in the formal the minimum period of contribution to be eligible for UI would not significantly affect the finances of the Unemployment Insurance Fund. laborENG ic.indd 66 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 67 extension of receipt period (which is less be used to protect the incomes of the than one year on average) switched on. poor during crises. And initial coverage and responsiveness are crucial to making 8. Unemployment assistance: targeted these transfers an effective crisis- complement to UI. The expansion of the response policy. The following policy current UI system can be accompanied options refer to Turkey’s CCT program, by the introduction of a UA program for but the same basic principles could jobseekers that do not, or no longer, apply to other transfers to the poor. The qualify for UI, with preference given to CCT program is selected as an example those who have had some formal sector because it is the benefit of last resort attachment. To make these programs for the poor, its overall good design and cost-effective they would need to be performance are well documented and targeted (on the basis of means or proxy- some of the best international examples means), time-bounded (as UI) and tied to of crisis-responsive safety nets come the same activation measures as UI. from CCT programs.35 9. Cash transfers to the poor: coverage, responsiveness to crises and activation. As noted earlier, significant 35- The 2007 evaluation of the program (Ahmed et al. 2007) shows that 62 percent steps are being taken to improve the and 78 percent of beneficiaries of education effectiveness of social assistance, and health benefits, respectively, belong to including measures to make it more the poorest quintile of the population, which is very high by international standards. And responsive to future crises (e.g. ISAIS) the benefits are conditional on investments and link it to activation. Cash transfers in the health and education of children from are typically targeted to the chronic poor poor families, which has resulted in significant improvements in those areas, particularly irrespective of work status but can also among girls. laborENG ic.indd 67 16.05.2013 11:55 1) Increasing the coverage of poor will assistance programs. This revision could make the CCT a more effective safety be accompanied by an increase in the net. The CCT program may have grown cutoff point of the PMT distribution that to be too narrowly targeted. Although determines eligibility so as to increase there is no information on the coverage coverage. of the poor, if we assume that 70 percent of the beneficiaries are in the poorest 2) Increasing flexibility to better quintile, then the CCT is estimated to respond to idiosyncratic shocks. The benefit 19 percent of the 20 percent CCT program would continue focusing poorest households. This is in contrast on reducing chronic poverty, but small with similar programs like Bolsa Familia changes can make it more responsive in Brazil and Oportunidades in Mexico to shocks. One option is to modify the where the coverage of the poorest PMT formula to account for variations in quintile is 48 percent and 54 percent, household income, as in Brazil. Another respectively. The proxy-means test (PMT) option is to raise the eligibility threshold used for Turkey CCT is currently being during crises, as a number of countries revised and extended to other social did during the recent crisis. laborENG ic.indd 68 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 69 5. OPTIONS TO ENHANCE PRODUCTIVE EMPLOYMENT 1. Clearly, many of the policies to manage labor markets through the cycle, particularly skills training and policies to improve the functioning of the labor market, also address the long-term labor market challenges outlined in Section 1. The Government is well aware of these challenges and has made employment a top policy priority with important initiatives such as those outlined in Section 3. And a new National Employment Strategy is in the making. The aim of this section is to build on these initiatives and provide additional options to enhance productive employment in Turkey—putting more human capital to use and making it more productive, while recognizing that more work is needed to refine these options. 2. More research is needed on the barriers to the creation of and access to productive employment to help refine the policy options below and come up with others. The report notes the stalling of agricultural labor shedding since 2006, which is explained by a combination of higher food prices and the added-worker effect during the crisis. And subsidies to agriculture have slowed down agricultural labor shedding over the long run. A more general question, however, is the extent to which there are barriers to the reallocation of labor (and capit al) from less productive laborENG ic.indd 69 16.05.2013 11:55 sectors to more productive sectors short-term external financing makes the (including within agriculture). Another economy more exposed to global shocks. area that deserves further work is female The concomitant appreciation of the employment, which seems to be trending TL has led to a loss of competitiveness up after two decades of decline, possibly of traditional Turkish exports, while indicating a structural shift. Policies that modern manufacturing sectors with high help to activate women into productive import content, such as automobiles employment will boost growth. And more and consumer durables, have benefited work is needed on the sources of and from this appreciation, substituting factors behind job creation after the crisis. domestic intermediate goods for foreign intermediate goods, thus reducing labor 3. Employment-related policies need demand in the formal wage sector to build on a stable macroeconomic (Yeldan 2010). environment—macro policies have largely achieved that but reliance 4. Thus, while rapid economic growth on external financing remains a is behind the impressive rates of job challenge. Turkey’s economy was creation after the crisis, reliance on growing fast before the crisis, it was short-term capital inflows to finance then hit hard by the global crisis but this growth puts into question the recovered fast and strong. Underlying sustainability of those gains, particularly these changes are movements in the given the uncertainties created by the current account deficit (CAD), which was crisis in the eurozone, and calls for policy growing fast before the crisis, declined action to address the high CAD and during the crisis, shot up thereafter to enhance productive employment through reach 10 percent of GDP in 2011, and it employment-related policies, which are is now expected to decline to 7.3 percent the focus of the rest of this section. in 2012. And CAD is largely financed by short-term capital inflows. Underlying A two-pillar policy framework to the persistently high CAD are structural enhance productive employment factors like export competitiveness, in Turkey energy imports and domestic savings.36 But expansionary fiscal and monetary 1) Building the skills for work, policies (at least until the end of 2010) entrepreneurship and innovation. have contributed to it. High reliance on Policies to boost firm growth and innovation are crucial to increasing labor 36- A recent report examines the factors productivity in Turkey (World Bank 2009c, underlying the low and declining levels of do- mestic savings in Turkey and provides options 2010b). However, this study focuses on for boosting domestic savings (World Bank the skills dimension of competitiveness. 2012b). laborENG ic.indd 70 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 71 2) Improving the enabling environment market returns of technical, cognitive and for skills to be productively used. behavioral skills in Turkey to help inform Policies that improve the business future policy. climate (e.g. by reducing the regulatory burden) are essential for firms to grow 6. Improving skills starts with a strong and generate employment. Innovation foundation and getting the basic skills policies (e.g. promoting the collaboration right for everybody, and then building between universities and firms) are key job-relevant skills through secondary to putting new ideas to use (World Bank and higher education. The ongoing 2009c, 2010b). Here we focus on policies expansion of preschool education to improve the functioning of the labor (universal enrollment of 5 year olds by market. 2014) will improve school readiness and subsequent learning achievement. Turkey Building the skills for work, has near-universal primary education and entrepreneurship and innovation the new primary education curriculum already yielded improved PISA scores.37 5. Skills are central to enhancing There are ongoing reforms to improve productive employment in Turkey. the quality and relevance of secondary Skills are at the core of improving education. The main challenge in higher individuals’ chances of finding a good education is to ensure the qualit y job in the formal sector and being of the rapidly expanding sector. But productive at that job, developing new further reforms are needed to ensure ideas and helping to use existing ones, that curricula emphasize the full skills and becoming a successful entrepreneur. set (including innovation skills) and to The required skill set includes basic strengthen quality assurance systems, cognitive skills (e.g. numeracy, literacy), teacher quality, school financing and technical skills and, increasingly—as service delivery (World Bank 2011a and countries move up in the value-added forthcoming). Improving the quality of chain—higher-level cognitive skills (e.g. education through the school cycle is the problem solving, communication) and most cost-effective measure to enhance behavioral skills (e.g. perseverance, productive employment over the long run. self-discipline, teamwork). In Turkey, the low level of skills of the WAP , the 37- Turkey’s results in the Program for Inter- increasing demand for skills, and the national Student Assessment (PISA)—which demographic dividend make the skills evaluates 15 year olds’ abilities to apply basic skills—improved remarkably between 2006 agenda particularly relevant (see Section and 2009, although the average 15 year old 1). More information, however, is needed in Turkey is still about one full school year on the supply, demand by firms and labor behind the average OECD student (World Bank forthcoming). laborENG ic.indd 71 16.05.2013 11:55 7. Building job-relevant skills is also coverage. Low-skilled workers also face about providing opportunities for skills barriers to productive jobs other than upgrading through the working life. skills, including information, access to The 2009 lifelong learning strategy and capital and mobility, and the availability the expansion and quality improvement of programs to address these barriers of ISKUR vocational training are positive is still limited in Turkey. And often their steps, but more efforts are needed to precarious job status is reinforced by ensure lifelong learning opportunities disincentives for formal employment built are available to those who need them, in social benefits. Recent reforms are, irrespective of whether they have a job however, starting to address this problem or not. The role of government in lifelong by linking social assistance receipt to learning can be more focused on setting registration in ISKUR, opening up social standards (e.g. skills certification), assistance to formal sector workers and ensuring quality and providing targeted reducing the disincentives to formal funding, as in Chile. employment for Green Card holders. 8. Upgrading the skills of the 9. Activation programs can be vulnerable—as part of an activation designed in a cost-effective way— p a ck a g e — i s c r u c i a l t o e n h a n c e targeting low-skilled youth and women producti ve employment over the can have a large payoff. Activating the medium term. Skills are best acquired vulnerable into productive employment in the first time around and reforms to a cost-effective manner involves (i) good improve skills while in school are most targeting and profiling (right package to cost-effective. But the impact of these the right people), (ii) a comprehensive reforms will only materialize in the long approach to activation (a package of run, while the large share of the WAP programs/services to address multiple that do not have the basic skills to barriers to productive employment), and find a job or to get out of informal/low- (iii) linking the receipt of social benefits productivity jobs (i.e. the vulnerable) to activation. And targeting low-skilled limits Turkey’s growth potential. The youth and women, the t wo groups skills building needs of these low-skilled disproportionally affected by the jobs people are largely underserved: about challenge, could have a large payoff: 74 percent of ISKUR trainees have at least secondary education,38 and second 1) Youth. Activation programs are more chance education programs have limited cost-effective for youth than for adults (Betcherman et al. 2007) and the overall 38- This is because courses are designed for these people and providers have an incentive impact is larger while the demographic to select them for training (World Bank, forth- window is open. More than one third coming). laborENG ic.indd 72 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 73 of youth are neither working nor going MoFSP . And good public information on to school—60 percent among 20-24 the programs is essential to attract the year olds with less than secondar y right people to the program. education. Inspired by the experiences in the UK and the US, Jovenes programs Providing the enabling labor in several Latin American countries market for skills to be productively target disadvantaged out-of-school used youth (typically 15-29 year olds with less than secondar y education) and 11. Functioning labor markets are provide a package of services: incentives essential, in addition to skills, for to complete secondar y education, individuals to find and accept good vocational training, socio-emotional skills jobs and for employers to find and training, employment services and job recruit skilled employees. Employers internships. These programs have had need the flexibility to manage their large impacts on formal employment human resources, and workers need exceeding program costs. to be able to move freely bet ween j o b s a n d r e g i o n s . Ach i ev i n g t h i s 2) Women. Women account for most of objective will require moving towards the jobless and most working women are more flexible, efficient and secure informal—the low level of education and labor markets by avoiding high labor skills is a key underlying factor. Activation costs, restrictive contracting, and high programs can be designed to recognize severance payments, while revamping women’s mobility and time constraints. income protection systems for workers The Argentina Jovenes program, for a n d e m p l oy m e n t s e r v i c e s t o h e l p example, provides extra subsidies match skills to jobs. The employment for mothers and transport expenses, protection legislation in Turkey is one yielding a higher impact on earnings of the most restrictive in the OECD, and employment among women than resulting from restrictions/disincentives men. The Government could consider to flexible contracting and generous the experience of Jovenes programs to severance obligations. And support to develop Turkey-specific schemes that workers through UI and employment build on existing ISKUR programs. services has been limited. Severance pay and UI have already been 10 . I n t r o d u c i n g s u ch p r o g r a m s discussed above, so here we focus would require reorienting ISKUR on flexible contracting, enforcement services towards the vulnerable (see of labor laws and awareness-raising paragraph 15). It would also involve close to reduce informalit y and enhance collaboration between ISKUR, MoNE and employment services. laborENG ic.indd 73 16.05.2013 11:55 12. More flexible contracting mainly credited 30 days a month, becoming involves reducing barriers to existing eligible for a pension proportionally much flexible contracts . The restrictions on faster. The contributory week could be fixed/temporary contracting result in a redefined to make it more proportional to 74 percent job informality rate among days worked. workers employed on a temporar y/ fixed basis (almost half of all workers 1 3 . Effecti ve enforcement and in Turkey). To avoid this situation, the awareness-raising are already following changes could be considered: reducing job informality, but incentives (i) opening up fixed-term contracts to need to be addressed. Job informality all job activities and allowing temporary is interrelated with other forms of employment agencies to operate in all informalit y like t ax evasion (World sectors/occupations; (ii) allowing several Bank 2009a). Ongoing enforcement unconditional renewals of fixed-term and and awareness-raising have already temporary contracts; and (iii) extending contributed to the 7.3 percent increase in the probation period to at least the OECD the number of SSI contributors in 2010 average (4 months). The recent legislative and 2011. But these instruments do not changes enabled part-time workers affect the incentives for firms (particularly to pay their unpaid social securit y SMEs) to employ informal workers and contributions retroactively. However, for workers to be employed informally. there are still disincentives for workers to The 2008 across-the-board reduction in take on part-time jobs, resulting in only employers’ social security contributions 3 percent of formal workers being part- is likely to have reduced informality by time: while part-time workers contribute decreasing the ‘tax’ on formal jobs. for days worked, a full-time worker gets Evidence from Mexico suggests that laborENG ic.indd 74 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 75 moving towards a general revenue- a s s e s s m e n t a n d a ft e r s u b j e c t i n g financed universal social security system the individual to a ‘market test’, (ii) could make job informality negligible monitor progress (UI is conditional on (by eliminating the ‘tax’ on formal jobs that), and (iii) provide job counseling. and the ‘subsidy’ to informal jobs) in a ISKUR introduced job and vocational budget-neutral way (by reducing evasion counselors in 2012, which are expected of VAT and direct taxes). This process, to reach 4,000 by the end of 2012, however, requires careful thinking advising jobseekers on occupation and about what benefits to delink from training. 39 And job counselors are part contributions and how. Another option to of a larger system change that ISKUR strengthen incentives is to tie access to is considering, including changes in the public contracts or support to SMEs to services provided to different groups employing workers formally. of jobseekers. Under such a system j o b s e e ke r s d e e m e d t o h ave g o o d 14. Making employment services chances of finding employment only get front and center of activation efforts. minimal services (e.g. information on job ISKUR is working to expand employment vacancies), focusing instead the attention services (job placement, counseling, job on monitoring their individual actions to search assistance), which are currently find employment. Individuals who have ver y limited. International evidence the hardest time finding employment get shows that employment services are the bulk of activation services, including more cost-effective than other activation follow-up support from job consultants.  measures and an effective screening d ev i c e fo r i d e n t i f y i n g i n d i v i d u a l s who require additional services (e.g. vocational training). 15. Making activation policies cost- effecti ve also requires making jobseekers more responsible and getting the right services to the right people. A good example is UK’s Jobcenter Plus, which centers around job counselors who (i) agree with each jobseeker on an individual plan—including individual actions to find employment and participation in specific activation programs, based on an employability 39- The plan is also to provide counseling services to employers. laborENG ic.indd 75 16.05.2013 11:55 laborENG ic.indd 76 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE RFR 77 REFERENCES Aaronson, D., B. Mazumder and S. Green Card Health Program,� in PhD Schechter (2010), “What is Behind the thesis, Oxford University. Rise in Long-Term Unemployment?,� Economic Perspectives, Federal Reserve Betcherman, Gordon, M. Godfrey, S. Bank of Chicago, second quarter. Puerto, F. Rother and A. Stavreska, 2007, Global Inventory of Interventions to A h m e d , U, M . A d a t o , A . K u d a t , Support Young Workers Synthesis Report, D. Gilligan, T. Roopnarine, and R. World Bank. 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Yeldan, Erinç, 2010, “A Macroeconomic Assessment of the Effects of Fiscal Stimulus Measures on Employment and Labour Markets� , in Crisis and Turkey: Impact Analysis of Crisis Response Measures, ILO Office for Turkey. laborENG ic.indd 80 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN 81 TABLE A1 Labor market transitions and crisis impacts (main) Transitions from the previous year to Trends and crisis impact 2007 2008 2009 Pre-Crisis trend Crisis trend Crisis impact FS to FS 89,3 90,2 83,8 1,0 -6,5 -7,4 FS to IS 2,8 1,9 4,7 -0,9 2,8 3,8 FS to FSE 0,4 0,5 0,5 0,1 0,0 -0,1 FS to ISE 0,9 0,9 1,7 0,0 0,9 0,8 FS to U 2,7 3,5 6,1 0,9 2,6 1,7 FS to OLF 4,1 3,0 3,2 -1,0 0,2 1,2 IS to FS 12,9 15,4 8,6 2,5 -6,8 -9,3 IS to IS 57,7 58,5 59,0 0,7 0,5 -0,2 IS to FSE 0,8 0,9 0,8 0,1 -0,2 -0,2 IS to ISE 7,0 5,4 7,9 -1,6 2,5 4,2 IS to U 9,4 10,2 11,7 0,9 1,5 0,6 IS to OLF 12,2 9,6 12,0 -2,6 2,4 4,9 FSE to FS 3,3 4,7 2,4 1,4 -2,3 -3,7 FSE to IS 2,6 0,8 2,0 -1,8 1,2 3,0 FSE to FSE 78,8 82,6 77,8 3,8 -4,8 -8,5 FSE to ISE 12,0 6,5 13,3 -5,5 6,7 12,2 FSE to U 0,9 1,4 1,3 0,5 -0,1 -0,6 FSE to OLF 2,4 4,1 3,3 1,7 -0,8 -2,4 ISE to FS 1,3 1,6 1,1 0,3 -0,5 -0,8 ISE to IS 4,0 3,3 2,3 -0,7 -0,9 -0,2 ISE to FSE 4,5 3,7 1,5 -0,8 -2,2 -1,4 ISE to ISE 77,3 79,8 85,8 2,4 6,0 3,6 ISE to U 2,0 1,4 1,5 -0,6 0,1 0,7 ISE to OLF 10,9 10,3 7,8 -0,6 -2,5 -1,9 U to FS 15,2 15,0 14,9 -0,3 -0,1 0,2 U to IS 26,4 21,8 17,8 -4,5 -4,0 0,5 U to FSE 0,7 1,1 0,8 0,3 -0,2 -0,6 U to ISE 6,0 6,9 7,0 0,9 0,2 -0,8 U to U 27,9 30,0 36,4 2,1 6,4 4,2 U to OLF 23,8 25,3 23,0 1,5 -2,2 -3,7 OLF to FS 1,7 1,8 1,3 0,1 -0,5 -0,6 OLF to IS 3,3 2,8 2,4 -0,4 -0,4 0,1 OLF to FSE 0,2 0,2 0,1 -0,1 0,0 0,0 OLF to ISE 5,4 3,3 3,5 -2,0 0,1 2,2 OLF to U 2,7 3,1 3,4 0,4 0,3 -0,1 OLF to OLF 86,7 88,8 89,3 2,1 0,5 -1,6 Source: TUIK (Survey of Income and Living Conditions) and authors’ calculations (see also Tansel and Oznur-Kan 2011). FS: Formal salaried; IS: Informal salaried; FSE: Formal self-employed; ISE: Informal self-employed; U: Unemployed; OLF: Out of the labor force. laborENG ic.indd 81 16.05.2013 11:55 TABLE A1 (Continued) Labor market transitions and crisis impacts (sectors) Transitions from the previous year to Trends and crisis impact 2007 2008 2009 Pre-Crisis trend Crisis trend Crisis impact A to A 95.8 95.5 96.9 -0.3 1.4 1.7 A to M 0.8 1.1 0.7 0.3 -0.5 -0.8 A to C 1.0 1.1 0.7 0.1 -0.3 -0.4 A to S 2.4 2.4 1.8 0.0 -0.6 -0.6 M to A 1.9 2.3 2.2 0.4 -0.1 -0.5 M to M 91.1 87.5 89.5 -3.6 2.0 5.6 M to C 1.7 2.4 1.3 0.7 -1.1 -1.8 M to S 5.3 7.8 7.0 2.5 -0.8 -3.3 C to A 4.4 3.1 8.0 -1.3 4.9 6.2 C to M 3.3 4.7 2.3 1.4 -2.4 -3.8 C to C 86.0 82.0 81.4 -4.0 -0.5 3.5 C to S 6.2 10.2 8.2 4.0 -2.0 -6.0 S to A 1.7 1.4 1.5 -0.3 0.1 0.4 S to M 2.1 2.6 1.5 0.6 -1.2 -1.7 S to C 0.8 1.7 0.8 0.8 -0.9 -1.7 S to S 95.4 94.3 96.2 -1.1 1.9 3.0 Source: TUIK (Survey of Income and Living Conditions) and authors’ calculations (see also Tansel and Oznur-Kan 2011). A: Agriculture; M: Manufacturing; C: Construction; S: Services. laborENG ic.indd 82 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN 83 TABLE A2 Household per capita real income and crisis impacts 2006 2007 2008 2009 Growth rates of per capita household income (%) Trends and crisis impact Pre-Crisis Crisis Crisis trend trend impact Total income 13,3 -5,7 0,7 -1,4 3,8 -0,4 -4,2 Labor income 4,3 0,0 -3,4 0,9 2,2 -1,2 -3,4 Wage income 8,3 3,9 1,2 0,9 6,1 1,0 -5,0 Self-employed 5,4 -5,2 -6,3 -2,7 0,1 -4,5 -4,6 income Shares of per capita household income (%) Labor income 45,2 47,6 44,9 45,7 in total income Wage income 66,5 67,2 67,0 66,6 in labor income Source: : TUIK (Survey of Income and Living Conditions) and authors’ calculations. laborENG ic.indd 83 16.05.2013 11:55 TABLE A3 The impact of the crisis across different types of workers Dependent Variable = Crisis impact on: Male Young Coeff. St. Err. Coeff. St. Err. As a share of WAP LF (=LFPR) -0,011 (0,007) 0,002 (0,010) Employed (=ER) -0,027*** (0,004) -0,005 (0,005) Idle 0,019** (0,005) -0,004 (0,008) Jobless 0,035** (0,008) 0,003 (0,012) Wage employed -0,023*** (0,003) -0,001 (0,005) Self-employed -0,001 (0,002) -0,004+ (0,002) Unpaid family workers -0,001 (0,002) -0,000 (0,002) Informal employed -0,005 (0,003) -0,003 (0,005) Formal employed -0,022*** (0,004) -0,002 (0,003) Formal wage employed -0,020*** (0,004) -0,000 (0,003) Informal wage employed -0,003 (0,003) -0,000 (0,005) Formal self-employed 0,001 (0,001) -0,001+ (0,001) Informal self-employed -0,002 (0,002) -0,003 (0,002) Employed in agriculture 0,002 (0,001) -0,002 (0,001) Employed in manufacturing -0,017*** (0,003) -0,007* (0,003) Employed in construction -0,003+ (0,001) -0,003 (0,002) Employed in services -0,008+ (0,004) 0,006 (0,004) As a share of labor force: Unemployed (=UR) 0,003 (0,006) 0,029* (0,010) Log real monthly earnings Of all wage employed 0,018+ (0,009) -0,034* (0,014) Of formal wage employed 0,002 (0,009) -0,024 (0,015) Of informal wage employed 0,039+ (0,020) -0,012 (0,019) Of wage employed in agriculture 0,002 (0,043) -0,090+ (0,047) Of wage employed in manufacturing 0,053** (0,016) -0,008 (0,022) Of wage employed in construction -0,097+ (0,049) -0,011 (0,043) Of wage employed in services 0,011 (0,009) -0,033+ (0,016) Log Hours worked: Of formal employed 0,018* (0,008) 0,003 (0,011) Of informal employed 0,016 (0,015) -0,017 (0,014) Of employed in agriculture -0,021+ (0,010) -0,031+ (0,017) Of employed in manufacturing 0,053** (0,016) -0,003 (0,010) Of employed in construction 0,035+ (0,015) 0,014 (0,019) Of employed in services 0,025*** (0,004) 0,002 (0,007) Log constructed hourly wage rate: Of formal wage employed -0,013 (0,011) -0,023 (0,020) Of informal wage employed 0,035 (0,026) 0,009 (0,024) Of wage employed in agriculture 0,027 (0,029) -0,181** (0,048) Of wage employed in manufacturing 0,033 (0,019) -0,004 (0,022) Of wage employed in construction -0,125+ (0,055) -0,068 (0,037) Of wage employed in services 0,005 (0,016) -0,025 (0,019) Source: TUIK (quarterly labor force survey data) and authors’ calculations. *** statistically significant at less than 1% level, ** at 1%, * at 5% and + at 10%. laborENG ic.indd 84 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN 85 Sec. Educ. Urban Constant R-squared Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. 0,008 (0,009) -0,006 (0,006) 0,019** (0,005) 0,213 0,005 (0,006) -0,014** (0,004) 0,016** (0,004) 0,775 0,016* (0,007) 0,003 (0,005) -0,031*** (0,004) 0,661 0,019 (0,012) 0,011 (0,007) -0,028*** (0,005) 0,683 0,005 (0,005) -0,009* (0,004) 0,002 (0,003) 0,735 -0,001 (0,003) -0,001 (0,003) 0,008** (0,003) 0,201 -0,000 (0,001) -0,004 (0,002) 0,006* (0,003) 0,338 0,005 (0,004) -0,007 (0,004) 0,011* (0,004) 0,338 0,000 (0,005) -0,007 (0,004) 0,005 (0,004) 0,759 0,001 (0,005) -0,003 (0,003) -0,003 (0,003) 0,732 0,005 (0,003) -0,006+ (0,003) 0,005+ (0,002) 0,308 -0,000 (0,001) -0,000 (0,001) 0,002** (0,000) 0,318 -0,000 (0,003) -0,001 (0,003) 0,006* (0,003) 0,130 -0,000 (0,002) -0,015*** (0,002) 0,015*** (0,002) 0,827 0,001 (0,003) -0,005+ (0,002) 0,005* (0,002) 0,853 0,003* (0,001) -0,002 (0,002) 0,001 (0,001) 0,478 0,001 (0,003) 0,009+ (0,005) -0,006 (0,005) 0,535 -0,012 (0,007) 0,023*** (0,005) 0,016+ (0,007) 0,697 0,055*** (0,010) 0,001 (0,016) -0,044* (0,017) 0,759 0,046*** (0,007) -0,022+ (0,012) 0,002 (0,017) 0,718 0,037 (0,045) 0,020 (0,017) -0,087** (0,023) 0,311 -0,006 (0,199) 0,051 (0,041) -0,061 (0,053) 0,205 0,041+ (0,019) -0,034 (0,033) -0,051 (0,034) 0,464 0,053 (0,047) -0,014 (0,028) 0,048 (0,059) 0,374 0,043*** (0,009) -0,001 (0,019) -0,021 (0,021) 0,521 0,009 (0,005) 0,015+ (0,008) -0,037** (0,010) 0,421 0,014 (0,011) -0,010 (0,014) -0,016 (0,015) 0,304 0,014 (0,033) -0,033 (0,028) 0,003 (0,008) 0,297 0,016 (0,010) -0,001 (0,010) -0,064** (0,018) 0,658 0,034* (0,012) 0,020 (0,016) -0,078** (0,021) 0,473 0,003 (0,003) -0,010 (0,007) -0,012+ (0,006) 0,666 0,041** (0,010) -0,014 (0,017) 0,012 (0,022) 0,579 0,042 (0,051) 0,023 (0,025) -0,116** (0,030) 0,262 0,023 (0,168) 0,002 (0,037) -0,065* (0,027) 0,503 0,032+ (0,017) -0,020 (0,036) -0,030 (0,042) 0,267 0,052 (0,045) -0,029 (0,018) 0,081 (0,061) 0,530 0,058*** (0,012) 0,011 (0,024) -0,047+ (0,026) 0,570 laborENG ic.indd 85 16.05.2013 11:55 TABLE A4 Degree of recovery for different types of workers Dependent Variable = Degree of recovery for: Male Young Coeff. St. Err. Coeff. St. Err. As a share of working age: LF (=LFPR) -0,178** (0,043) -0,080* (0,033) Employed (=ER) -0,164** (0,043) -0,085* (0,032) Idle -0,004 (0,023) -0,100** (0,024) Jobless 0,032+ (0,016) -0,054** (0,016) Wage employed -0,131** (0,036) 0,008 (0,044) Self-employed -0,617** (0,191) -0,093 (0,156) Unpaid family workers -0,083 (0,055) -0,239** (0,063) Informal employed -0,201** (0,060) -0,105* (0,044) Formal employed -0,377* (0,130) -0,023 (0,100) Formal wage employed -0,126** (0,030) 0,045 (0,033) Informal wage employed -0,154** (0,044) 0,033 (0,053) Formal self-employed -0,613** (0,138) 0,122 (0,229) Informal self-employed -0,721** (0,213) -0,074 (0,229) Employed in agriculture -0,073 (0,041) -0,115+ (0,054) Employed in manufacturing -0,193** (0,053) -0,139* (0,051) Employed in construction -0,177+ (0,088) 0,060 (0,103) Employed in services -0,255** (0,063) 0,060 (0,096) As a share of labor force: Unemployed (=UR) -0,157* (0,051) -0,028 (0,042) Log real monthly earnings of all wage employed -0,001 (0,001) -0,004+ (0,002) of formal wage employed -0,001 (0,001) -0,004* (0,002) of informal wage employed 0,004 (0,004) -0,004 (0,005) of wage employed in agriculture 0,012 (0,019) 0,017 (0,017) of wage employed in manufacturing 0,000 (0,005) -0,003 (0,004) of wage employed in construction -0,007 (0,009) -0,016*** (0,003) of wage employed in services -0,000 (0,001) -0,003 (0,001) Log Hours worked: of formal employed 0,002 (0,003) -0,005 (0,003) of informal employed 0,008 (0,005) 0,001 (0,004) of employed in agriculture 0,000 (0,001) -0,012*** (0,003) of employed in manufacturing 0,009+ (0,005) 0,002 (0,004) of employed in construction -0,004 (0,007) -0,009*** (0,002) of employed in services 0,006 (0,006) -0,007 (0,004) Log constructed hourly wage rate: of formal wage employed 0,006 (0,017) 0,018 (0,021) of informal wage employed -0,060 (0,345) -0,385 (0,373) of wage employed in agriculture 0,308 (0,666) -0,807 (0,642) of wage employed in manufacturing 0,012 (0,174) -0,080 (0,112) of wage employed in construction 0,040 (0,098) -0,107 (0,060) of wage employed in services 0,085 (0,193) 0,735 (0,438) Source: TUIK (quarterly labor force survey data) and authors’ calculations. *** statiscally significant at less than 1% level, ** at 1%, * at 5% and + at 10% laborENG ic.indd 86 16.05.2013 11:55 TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN 87 Sec. Educ. Urban Constant R-squared Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. -0,055 (0,040) 0,078+ (0,042) 1,159*** (0,038) 0,801 -0,065 (0,041) 0,062 (0,041) 1,151*** (0,036) 0,789 -0,003 (0,029) 0,062* (0,025) 0,887*** (0,022) 0,669 0,020 (0,012) 0,075** (0,020) 0,881*** (0,019) 0,812 -0,055 (0,045) -0,127* (0,044) 1,281*** (0,042) 0,692 -0,187 (0,170) 0,367 (0,220) 1,272*** (0,230) 0,679 -0,197* (0,074) 0,094+ (0,048) 1,137*** (0,029) 0,728 -0,137* (0,053) 0,038 (0,060) 1,135*** (0,054) 0,780 -0,157 (0,108) -0,347+ (0,182) 1,736*** (0,228) 0,693 -0,117* (0,040) -0,036 (0,032) 1,283*** (0,027) 0,747 -0,117 (0,070) -0,223** (0,050) 1,269*** (0,051) 0,775 -0,334+ (0,183) -0,033 (0,118) 1,525*** (0,079) 0,670 -0,054 (0,239) 0,431+ (0,238) 1,290*** (0,258) 0,596 -0,150** (0,044) 0,071+ (0,039) 1,130*** (0,030) 0,681 -0,118 (0,074) 0,050 (0,051) 1,195*** (0,044) 0,639 -0,091 (0,101) -0,074 (0,110) 1,461*** (0,111) 0,272 -0,044 (0,059) 0,034 (0,087) 1,168*** (0,099) 0,582 0,018 (0,030) 0,059 (0,041) 1,159*** (0,066) 0,627 0,004** (0,001) -0,004 (0,002) 1,010*** (0,002) 0,598 0,007*** (0,001) -0,003 (0,002) 1,005*** (0,002) 0,744 -0,002 (0,005) -0,006 (0,004) 1,006*** (0,005) 0,318 0,017 (0,022) 0,006 (0,012) 1,006*** (0,021) 0,146 -0,001 (0,003) -0,003 (0,006) 1,007*** (0,009) 0,060 -0,014*** (0,002) -0,014*** (0,003) 1,039*** (0,009) 0,891 0,009*** (0,001) -0,001 (0,002) 1,006*** (0,002) 0,782 -0,001 (0,002) 0,004+ (0,002) 0,993*** (0,003) 0,288 -0,007 (0,006) -0,005 (0,005) 0,980*** (0,004) 0,328 -0,004 (0,006) 0,008** (0,002) 0,988*** (0,001) 0,596 0,003 (0,003) -0,004 (0,005) 0,992*** (0,005) 0,331 -0,007** (0,002) -0,008*** (0,001) 1,016*** (0,007) 0,789 0,004 (0,004) -0,002 (0,003) 0,986*** (0,006) 0,377 0,060*** (0,011) -0,007 (0,019) 0,999*** (0,026) 0,461 -0,170 (0,647) 0,458 (0,701) 0,810 (0,531) 0,080 -0,280 (0,753) -0,053 (0,464) 1,262 (0,714) 0,082 -0,029 (0,063) -0,087 (0,212) 1,136** (0,355) 0,040 -0,064* (0,028) -0,190** (0,047) 1,248*** (0,103) 0,710 -0,202 (0,202) 0,190 (0,181) 0,958*** (0,205) 0,436 laborENG ic.indd 87 16.05.2013 11:55 laborENG ic.indd 88 16.05.2013 11:55