80803 Report No: 70130 - TR TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE 15 March 2013 The World Bank Human Development Sector Unit Europe and Central Asia Region 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 ACKNOWLEDGEMENTS This is a joint study by the World Bank (WB) and the HBS Household Budget Survey Ministry of Development (MoD). This report was IMF International Monetary Fund ISAIS Integrated Social Assistance Information System prepared by a team comprising Cristobal Ridao-Cano (WB), Victoria Levin (WB), A. ISKUR Turkish Employment Agency Levent Yener (WB), Gökhan Güder (MoD), Müşerref Küçükbayrak (MoD), Ahmet KOSGEB Small and Medium Enterprises Development Organization Tozlu (MoD), Sinem Çapar Diriöz (MoD), Mehmet Tarık Eraslan (MoD), Yalın Kılıç LFS Labor Force Survey (MoD), Eser Pirgan (MoD) and Raif Can (MoD). Helpful inputs were provided by MoD Ministry of Development E. Emrah Hatunoğlu (MoD), Elif Oznur Kan (Çankaya University, Turkey) and Elif MoFSP Ministry of Family and Social Policies MoNE Ministry of National Education Yükseker (WB). Overall guidance was provided by Martin Raiser (Country Director for NEET Not in employment, education, or training Turkey, WB), Ulrich Zachau (former Country Director for Turkey, WB), Roberta Gatti NES National Employment Strategy (Sector Manager, Human Development Economics, Europe and Central Asia, WB), OECD Organization for Economic Cooperation and Development Jesko Hentschel (former Sector Manager, Human Development Economics, Europe PAYGO Pay-as-you-go and Central Asia, WB), and Ana Revenga (Director, Human Development, Europe and PMT Proxy-means Test SILC Survey of Income and Living Conditions Central Asia, WB). The report greatly benefited from the comments provided by Gökçe SME Small and Medium Enterprises Uysal (Bahçeşehir University), Hakan Ercan (Middle East Technical University), David SSP Social Support Program Newhouse (WB), Carolina Sanchez-Paramo (WB) and Herwig Immervoll (WB). 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 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 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, TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 9 despite the long-term upward trend in operations cited by Turkish firms.2 The • The increase in unemployment was • Overall Turkey’s labor market weathered real GDP. About 35 percent of youth (15- large supply of young and low-skilled explained by increased unemployment the storm well relative to other middle 24 year olds), mostly women, are neither workers and the decreasing demand for duration and job losses, but the effect on income countries. Unlike in Turkey, working nor attending school — the low-skilled workers will thus continue to total employment was partly attenuated formal-sector earnings fell in most highest share of inactive youth among make it challenging to increase formal by increased activity rates within the countries. OECD countries. Job informality (defined employment and reduce unemployment household (the added-worker effect), and— as jobs without social security benefits) in the non-agricultural sector. employment recovered fast and strong. Policies during the business cycle affected 42 percent of workers in 2011 (28 percent excluding the agricultural There is ample room for policies to • Jobs losses hit formal employees, To what extent were the obser ved sector), contributing to Turkey’s lower enhance productive employment in while the informal sector ser ved as overall and distributional impacts of the labor productivity compared with the Turkey, and a large return from taking 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 OECD and other peer countries. immediate action. Decisive policy action entrants (mostly going to informal self- due to policies? Surely policies have to enhance productive employment — employment, including unpaid family some explanatory power, but exactly Ongoing structural transformations putting more human capit al to use labor in agriculture) — but formal wage how much is hard to tell. The study and the large ‘stock’ of low-skilled and making it more productive — is sector jobs recovered strong after the reviews policy measures taken during workers are behind the jobs challenge needed today to take advantage of crisis. the business cycle and existing labor in Turkey. Continued urbanization and the demographic window in Turkey. market institutions against the observed labor shedding in agriculture, along Increasing female employment, in • The increase in minimum wages drove impacts. The focus of the analysis is 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 up formal sector and total earnings on employment and social protection age population (WAP), will continue and reduce poverty. during the crisis, while informal workers policies. to increase the number of (mostly) got smaller paychecks—earnings growth young and low-skilled workers looking Labor markets through the recent slowed with the recovery but earnings • The crisis was preceded by a labor for non-agricultural jobs. Although the cycle inequality was further increased. mark et reform that reduced non- young are becoming more educated wage labor costs and set the basis and skilled, 1 half of the WAP still have • The Turkish economy was hit hard by • Job losses hit men in urban areas, for expanding active labor market less than basic education, accounting the crisis, which affected households 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- for 64 percent of the jobless and 65 mainly through reduced labor incomes— educated saw lower earnings—women board reduction in non-wage labor percent of the informal. As firms strive but recovery was fast and strong. gained jobs through the business cycle costs is likely to have prevented some to stay competitive in a global market, while wage inequalities rose. layoffs during the crisis and encouraged the ‘skills bar’ in formal non-agricultural • The crisis had a relatively mild overall hiring during recovery, possibly being a sectors will continue to increase. For impact on jobs, mainly through increased • The increase in earnings offset the major contributor to the rapid pace of instance, skills are already the third unemployment. negative impact of the crisis on wage employment growth after the crisis. most important constraint to business employment, making the wage bill grow during the crisis (albeit at a lower rate • But Turkey entered the crisis with 1- Turkey has virtually achieved universal pri- than before the crisis) and increase its stringent labor market regulations and mary education and increased net secondary share in GDP , as self-employment income limited protection for the unemployed. school enrollment to 67 percent, while at the same time recording an impressive half a year (mostly informal) and profits took most of Given the fall in formal employment, of school gain in PISA scores between 2003 2- Business Environment and Enterprise the hit from the crisis. stringent regulations are unlikely to and 2009 (World Bank, forthcoming). Performance Survey (BEEPS) for 2008. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 11 have saved many jobs during the crisis, • Unemployment insurance (UI) • Other social assistance programs impact of the crisis and policy responses but may constrain job creation during provided limited income protection provided more limited income in Turkey and around the world, the study recovery and in the longer term. The for the unemployed during the crisis. protection to those affected by the suggests (i) general lessons for improving 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 crisis. Targeted transfer programs could the responsiveness of labor and social limited support to job losers before the scheme in response to the crisis, and have played a greater role in mitigating protection policies to future crises crisis due to strict qualification rules and thus while coverage of UI increased the negative impacts of the crisis on and adjusting the policy mix through low benefits. during the crisis, it provided limited households, particularly given that (i) the the economic cycle; and (ii) options to support to job losers. coverage of unemployment insurance is strengthen income protection policies in • The Government introduced a crisis- low and limited to formal workers, and (ii) Turkey. response package in 2009, including • The increase in minimum wages part of the adjustment took place through employment-related measures such may have protected the income reduced informal income. Improving the responsiveness to as: (i) expanded short-time work scheme of low-wage earners in the formal future crises and adjusting the policy mix through the cycle (STW); (ii) expanded vocational training sector, but possibly at the expense of • A number of policy measures for the unemployed; (iii) introduction of job losses. The increase in minimum introduced after the crisis will increase To be most cost-effective, the policy a public works program; (iv) expanded wages drove up earnings in the formal responsiveness to future crises and response to a crisis needs to be timely support to SMEs; (v) time-bound sector and did not reduce earnings contribute to job creation. These policy (when needed), address the nature of the measures (e.g. subsidies for hiring new inequality in this sector. The minimum measures include: (i) efforts to further adjustment (e.g. jobs versus earnings), female and young entrants; reductions in wage in 2009 was 71 percent of the expand and improve ALMP; (ii) some well-targeted to those who need support, consumption taxes for hard-hit sectors). median wage, the highest level in the changes related to flexible contracting and temporary (for as long as support is Although not explicitly part of the crisis- OECD, and it is binding. This may have and the extension of hiring subsidies; needed). How? Mostly by being prepared response package, statutory minimum made firms resort to layoffs to adjust to (iii) preparation of a new National and then making temporary adjustments wages were increased substantially in the crisis more than they would have Employment Strategy, which will include as needed and only introducing new 2009. And there was also some response otherwise. a focus on making labor markets more programs as a last resort: to the crisis in terms of increased flexible while increasing the protection spending on social assistance programs. • The Green Card Program (GCP) of workers; and (iv) measures to improve • Articulation of policies and institutions. contributed to protecting healthcare the effectiveness and responsiveness Gradually converging to a system that • The focus of crisis-response measures utilization among poor informal- of social assist ance, including the brings together social insurance, social on protecting the jobs of formal sector sector families during the crisis. introduction of a new Integrated Social assistance, ALMP and labor regulations. workers was an appropriate response Although the benefit expansion Assistance Information System (ISAIS). to the disproportional reduction in was already planned as part of the • Increasing reliance on social insurance, formal employment, although coverage Universal Health Insurance Law, a Options to strengthen the including UI, will reduce reliance on of the STW scheme remained low. And decision was made to implement it management of labor markets discretionary measures, and allow social the increased support to the unemployed during the crisis. The scale-up of an through the cycle transfers to be allocated to the most (from a very low base) through ALMP already high-performing program to vulnerable. 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 Crises are rarely fully predictable, but and upgrade their skills at a time when incomes declined significantly during there are measures Turkey can take to • Making labor markets more flexible. the opportunity cost of training them was the crisis, contributed to protecting be better prepared for and responsive Giving firms more flexibilit y in the lower. healthcare utilization. to them. Based on the analysis of the management of human resources is TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 13 likely to encourage job reallocation during workers and their families and maximize for UI. An alternative approach is to prospects with policies that address crises and job creation during recoveries. job creation during the recovery. To this reduce severance pay without changing the structural jobs challenge outlined end, the policy mix needs to be adjusted the system, while expanding UI and earlier. The Government is well aware • 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 replacing the current pay-as-you-go of this and has made employment it is impossible to predict the exact availability of timely information is crucial, (PAYGO) system with Unemployment a top policy priority. A new National magnitude and nature of the impact of a focusing on policies aimed at stabilizing Insurance Individual Savings Accounts Employment Strategy is expected to crisis, early analysis of likely labor market employment and providing income (UIISA). Under the current (PAYGO) be approved in the first half of 2013, impacts and an assessment of existing protection to workers during downturns, system, benefits can be set up to decline covering measures to improve labor policies and institutions as well as the and eventually switching to policies that with the length of the unemployment market flexibilit y and securit y, the available fiscal space can inform the facilitate job creation and activate the spell to provide incentives for job relevance of education to market needs, policy mix and help improve targeting in jobless as the economy starts recovering. search. And the existing links between the employability of vulnerable groups response to a crisis. the receipt of UI and activation — job (including youth and women) and the Strengthening income protection search and work requirements as well link bet ween social protection and • Increasing reliance on well-designed policies in Turkey as (targeted) participation in ALMP — employment. The study builds on the pre-existing programs. While good could be further strengthened. Activation analysis of labor market performance information and analysis can help inform Income protection policies aim to conditions could be temporarily switched during the cycle to draw inference on the right policy response, the best policy complement self-insurance against off during downturns and an automatic key policy priorities to enhance long-term ‘insurance’ against a crisis is to have a unemployment or a fall in earnings. 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 good inventory of pre-existing programs A well-articulated income protection switched on. be corroborated with further research. that can be scaled up and adjusted as system would ideally rely first and needed. foremost on unemployment insurance • Unemployment assistance: targeted Enhancing productive employment in (UI), complemented with unemployment complement to UI. The expansion of the Turkey would involve: • Making temporar y adjustments as assistance (UA) for jobseekers that current UI system can be accompanied needed and linking them to labor market do not qualify for UI but have formal by the introduction of a UA program for • Building the skills for work, conditions. Pre-existing programs, even if sector attachment, public works for jobseekers that do not, or no longer, entrepreneurship and innovation. In well-designed, may need to be adjusted other jobseekers without formal sector qualify for UI, with preference given to addition to skills, policies to boost to better respond to the crisis, e.g. the attachment, and cash transfers not tied to those who have had some formal sector firm growth and innovation are crucial extension of the UI coverage period. To job status to protect the incomes of the attachment. To make these programs to increasing labor productivit y in avoid possible moral hazard, however, most vulnerable. The following discussion cost-effective, they would need to be Turkey. This study focuses on the skills these adjustments need to be made focuses on UI and UA: targeted (on the basis of means or proxy- dimension of competitiveness. temporary by tying them to labor market means), time-bound (as UI) and tied to conditions through a pre-defined rule and • Unemployment insurance: coverage the same activation measures as UI. • Improving the enabling environment— eventually by accompanying them with and activation. Increasing protection labor market, investment climate and activation measures. through UI goes hand in hand with Options to enhance productive innovation—for skills to be productively reducing severance obligations. One employment used. Policies that improve the business To manage labor markets effectively option is to introduce pre-funded 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 through the cycle, policies should aim severance pay accounts, while increasing 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 to minimize the impact of the crisis on benefits and relaxing the eligibility criteria dramatically enhance its growth innovation policies are key to putting new TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE OV 15 ideas to use. In this study the focus is on in activating low-skilled workers into Functioning labor mark ets are • Effective enforcement and policies that improve the functioning of productive employment in a cost- essential for individuals to find and awareness-raising are already the labor market. effective manner by: 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. Skills are central to enhancing productive • Reorienting services towards low- right skills. Achieving this objective will Job informality is interrelated with other employment in Turkey—upgrading the skilled workers, particularly young require moving towards more flexible, forms of informality like tax evasion. skills of low-skilled workers, as part of females. efficient and secure labor markets. Ongoing enforcement and awareness- an activation package, is crucial over Severance pay and UI have already been raising measures are already reducing job the medium term. The low level of skills • Designing employment support discussed above, so here we focus on informality. But these instruments do not of the WAP , the increasing demand for services to address multiple barriers to flexible contracting, enforcement of labor affect the incentives for firms (particularly skills, and the demographic dividend productive employment (in partnership laws and awareness-raising to reduce SMEs) to employ informal workers and make skills central to the jobs agenda. with other public agencies), focusing informality, and employment services. for workers to be employed informally. Skills are best acquired the first time first on more cost-effective services The 2008 across-the-board reduction in around, but Turkey also needs to enhance (employment services), complementing • More flexible contracting mainly employers’ social security contributions the skills of existing workers in order to vocational training with life skills training, involves relaxing the rules of existing is likely to have reduced informality by accelerate labor productivity growth. recognizing women’s mobilit y and flexible contracts. Regarding fixed/ decreasing the ‘tax’ on formal jobs. A large segment of the WAP is hard to time constraints by complementing temporar y contracts, the following Evidence from Mexico suggests that employ productively and the low level employment support with targeted 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- of skills is the main barrier. Low-skilled childcare subsidies. opening up fixed-term contracts to all financed universal social security system workers face other barriers to productive job activities and allowing temporary could make job informality negligible jobs, including information, access to • Reorganizing service delivery around employment agencies to operate in (by eliminating the tax on formal jobs capital and mobility, and the availability the new job and vocational counselors all sectors/occupations; (ii) allowing and the ‘subsidy’ to informal jobs) in a of programs to overcome these barriers to (1) do an initial assessment of several unconditional renewals of fixed- budget-neutral way (by reducing evasion is also limited in Turkey. And often their employability and profiling jobseekers term and temporary contracts; and (iii) of VAT and direct taxes). This process, 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 extending the probation period to at however, requires careful thinking disincentives for formal employment built jobseekers to the most cost-effective least the OECD average (4 months). about what benefits to delink from in social benefits. package of services, focusing the bulk Recent legislative changes enabled part- contributions and how. Another option to of resources on the hard-to-employ; and time workers to pay their unpaid social strengthen incentives is to tie access to The Turkish Employment Agency (3) monitor progress, linking the receipt security contributions retroactively. public contracts or support to SMEs to (ISKUR) plays a key role in activating of benefits to progress towards finding However, there are still disincentives for employing workers formally. low-skilled workers into productive employment. workers to take on part-time jobs: while employment. ISKUR has come a part-time workers contribute for days long way since 2008, increasing the • Designing the selection and worked, a full-time worker gets credited coverage and qualit y of vocational contracting of pri vate provider s 7 days a week, becoming eligible for a training, introducing job and vocational of employment support services pension proportionally much faster. The counselors and linking social assistance to provide the right incentives and contributory week could be redefined receipts to registration in ISKUR. Going compensation for helping low-skilled to make it more proportional to days for ward, ISKUR could play a key role workers find and keep productive jobs. worked. 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. TÜRKİYE: EKONOMİK DALGALANMA BOYUNCA İŞGÜCÜ PİYASALARININ YÖNETİMİ I 19 FIGURE 1 FIGURE 2 Activity rates have been stubbornly low over time (Long-term trends in labor market outcomes: 1990-2011) Recent trends in leading labor market indicators, 2006-2012 60 Seasonally - Adjusted Labor Force Paticipation Rate in Turkey, January 2005 - July 2012 51.0 Labor Force / Non- Institutionalized 15+ Population 50 50.0 49.0 Levels 40 48.0 47.0 30 46.0 LABOR FORCE PARTICIPATION 20 45.0 44.0 10 43.0 2005 2006 2007 2008 2009 2010 2011 2012 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Changes in Labor Force Participation Rate in Turkey (Same month previous year), January 2006 - July 2012 Labor force participation rate Unemployment rate (UR) Non-agricultural UR 3.0 Change from same month of previous year (percentage points) Youth UR Employment rate (ER) Female ER 2,5 Source: TUIK and authors’ calculations. 2.0 Year-on-year changes second quarter of 2012 (seasonally- 26 percent of women 15 years of age 1.5 adjusted), 4 increasing during crisis and older were working on average 1.0 periods and decreasing afterwards. during the first 7 months of 2012, down from 31 percent in 1990, making it by 0.5 2. Employment rates are particularly far the lowest employment rate in the 0.0 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 -0.5 annual growth in female employment double the overall figure, being in general -1.0 after the crisis (more on this later), only 5- The comparison with the OECD average -1.5 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 -2.0 OECD are 12.1 percent and 8.8 percent in 2010, 2010: 26 percent for Turkey and 57 percent for respectively. the OECD average. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I 21 FIGURE 2 (Continued) FIGURE 2 (Continued) Recent trends in leading labor market indicators, 2006-2012 Recent trends in leading labor market indicators, 2006-2012 Seasonally - Adjusted Employment Rate in Turkey, January 2005 - July 2012 Seasonally - Adjusted Unemployment Rate in Turkey, January 2005 - July 2012 46.0 16.0 Number Employed / Non-Institutionalized 15+population 45.0 14.0 44.0 12.0 Number Unemployed / Labor force 43.0 10.0 Levels Levels 42.0 8.0 41.0 6.0 40.0 4.0 39.0 UNEMPLOYMENT RATE 2.0 38.0 EMPLOYMENT RATE 0.0 37.0 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Changes in Employment Rate in Turkey (Same month previous year), Changes in Unemployment Rate in Turkey (Same month previous year), January 2006 - July 2012 January 2006 - July 2012 Change from same month of previous year (percentage points) 51.0 6.0 Change from same month of previous year (percentage points) 5.0 50.0 Year-on-year changes 4.0 Year-on-year changes 49.0 3.0 48.0 2.0 1.0 47.0 0.0 46.0 -1.0 45.0 -2.0 -3.0 44.0 -4.0 43.0 -5.0 Source: TUIK (Labor Force Survey data) and authors’ calculations. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I FIGURE 3 23 The long transition to work for youth FIGURE 4 (Distribution of activities in 2010, by age and gender) High job informality contributes to low labor productivity MEN WOMEN 100% 100% Job informality: declining but remains high Labor productivity: increasing but remains low 60% 50 90% 90% 80% 80% 50% 45 70% 70% 40 48.2% 40% 30 47.0% 45.4% 43.5% 43.8% 60% 60% 40.6% 42.1% 50% 50% 25 30% 40% 40% 20 29.8% 30% 30% 20% 15 29.4% 27.4% 24.2% 23.9% 23.3% 22.6% 10 20% 20% 10% 5 10% 10% 0% 0 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 15-19 20-24 25-29 30-34 15-19 20-24 25-29 30-34 2005 2006 2007 2008 Total Non agricultural employees School only School and work Work only No school or work Turkey Poland South Korea Source: TUIK (Labor Force Survey data) and authors’ calculations. Source: TUIK (Labor Force Survey), OECD and authors’ calculations. Labor productivity is measured relative to the US. more sensitive to the business cycle. the processes of urbanization and 4. The labor market was rather static 5. Structural transformations and the Even more importantly, about 35 percent agricultural shedding have been the prior to the global crisis despite large ‘stock’ of low-skilled workers are 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 rapid growth. Figure 2 shows the behind the jobs challenge in Turkey. nor in education or training (NEET), the informality, although there are many absence of any trend in employment Continued urbanization and shedding largest share among OECD countries informal workers in non-agricultural and unemployment during the pre-crisis of labor in agriculture, along with the (Figure 3). This is mainly driven by idle sectors (28 percent). And informality period. The analysis of labor market increase in the working-age population young females (45 percent). And while affects women disproportionally: 58 transitions confirms this static picture: (WAP), will continue to increase the the share of idle men peaks at ages 20- percent of employed women work in the about 90 percent of workers that were number of (mostly) young and low-skilled 24 to then come down (as the share of informal sector (unpaid family worker in employed in a given year remained workers looking for non-agricultural working men increases), the share of idle agriculture is the main category). High employed the next year (Figure 5). About jobs (Figure 6). It is important to note, women increases through life—indeed, job informality contributes to low labor half of the unemployed remain jobless however, the stalling of agricultural most women do not make the transition productivity in Turkey, which is about 40 the next year, and about 90 percent shedding since 2006, which is explained from school to work. percent of the productivity level in the of the inactive remained inactive. If by higher food prices and the added- US, similar to Poland and below South anything, there seemed to be a declining worker effect during the crisis (more on 3. Job informality has come down Korea, countries that started from a flow from unemployment and inactivity this later). Although youth are becoming remark ably, but it remains high, lower base (Figure 4).6 to employment before the crisis. There more educated and skilled,7 half of the contributing to low levels of labor was also very limited movement across WAP still have less than basic education, productivity. Job informality (defined t ypes of employment and sectors. accounting for 64 percent of the jobless as jobs without social security benefits) 6- There is a significant wage gap between There was, however, some movement and 65 percent of the informal. As firms informal and formal workers even after among 15-64 year old workers has into services from other sectors and controlling for their characteristics. These come down remarkably from when differences are likely to be caused, at a sizable flow from informal to formal 7- Turkey has virtually achieved universal it was first measured in 20 05 (48 least in part, by productivity differentials wage employment, suggesting that the primary education and increased net between these sectors. There are also large secondary school enrollment to 67 percent, percent), but it still affects 42 percent informal sector is not necessarily a dead differences in total factor productivity (TFP) while at the same time recording an of workers in 2011 (Figure 4). Most between formal and informal firms even after end for everybody (see Table A1 for all impressive half a year of school gain in PISA informal workers are in agriculture— controlling for firms’ and entrepreneurs’ labor transitions). scores between 2003 and 2009 (World Bank, characteristics (World Bank 2009a). forthcoming). TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE I FIGURE 5 25 A static labor market before the crisis, with some flows from informal to formal jobs FIGURE 6 Most employed people remained so, with Informality is not a dead end for all informal A number of structural factors behind long-term challenges decreasing flows into employment salaried workers Increasing working-age population Growing urbanization 100 70.0 until 2020 90 90 80 60.0 1.00 65+ 70 50.0 80 84 60 81 70 78 50 40.0 0.80 74 70 40 30.0 60 65 30 15-64 59 20.0 0.60 50 20 10 10.0 40 0 44 0.40 E U OLF E U OLF OLF U OLF 0.0 30 From E in previous From U in previous From OLF in previous FS IS FSE ISE U OLF 0.20 20 year to year to year to From IS to <15 10 2007 2008 2009 0.00 0 2010 2020 2030 2040 2050 1980 1990 2000 2010 2020 2030 2040 2050 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. Agricultural shedding Large ‘stock’ of low-skilled workers 50 strive to stay competitive in a global market, working women (35 percent), jobs they lose 45 60 the ‘skills bar’ in formal non-agricultural access to as rural families move to cities or 40 50 56 52 35 sectors will continue to increase—skills are away from agriculture while facing limited 40 30 43 already the third most important constraint job opportunities in the non-agricultural 30 25 cited by Turkish firms.8 The large supply sector. Indeed, urbanization and agricultural 20 20 of young and low-skilled workers and the shedding are the main drivers of the decline 23 22 15 19 19 16 16 10 decreasing demand for low-skilled workers in female employment over the last two 12 10 10 8 0 will thus continue to make it challenging to decades (despite increased education, 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 increase formal employment and reduce reduced fertility and delayed marriage), Total Men Women unemployment in the non-agricultural while low education is the main explanatory Source: TUIK (Labor Force Survey), UN (urbanization, population projections) and authors’ sector. factor for low female employment in urban calculations. 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 7. There is ample room for policies to the share of women who work full disadvantaged in the labor market, standstill in 2005, and while the increase enhance productive employment in time by just 6 percentage points could but the downward trend in female during the crisis may well be due to an Turkey, and a large return from taking increase income by 7 percent and employment may be reversing. Although added-worker effect (more on this later), immediate action. Decisive policy action reduce poverty by 15 percent (World the gender gap in education has been the remarkable increase thereafter may be to enhance productive employment— Bank 2010a). Section 5 discusses some significantly reduced, today’s stock of indicating a change in the trend. Indeed, putting more human capit al to use policy options to enhance productive working-age women are less educated other countries have gone through a similar and making it more productive—is employment in Turkey. than men. Unpaid agricultural family work experience, as forces driving up female needed today to take advantage of the is still the main economic activity for employment end up offsetting the effects demographic window. Increasing female of urbanization and agricultural shedding employment could boost economic 8- Business Environment and Enterprise (World Bank 2011b). growth and reduce poverty: increasing Performance Survey (BEEPS) for 2008. 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). 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 indicator in the last available quarter and and presented in Table 1. Table 1 also jobs was relatively mild, and recovery was fast and strong the average pre-crisis level). includes the impacts of the crisis on GDP , (Impact of the crisis and degree of recovery: GDP, household income, leading household income and the transition labor market indicators and labor transitions) 2. The study also looks at the rates bet ween basic labor market differential impact of the crisis across states: employment, unemployment and GDP HI HLI LFPR ER UR EE EU EOLF UE UU UOLF OLFE OLFU OLFOLF Levels 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 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 olds, versus working-age adults, 25- labor transitions come from the Survey of 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 64 year olds), education (secondar y Income and Living Conditions (SILC), an Post-crisis 49,3 44,0 10,7 -- -- -- -- -- -- -- -- -- Changes education or more versus less than annual nationally representative rotating secondary education) and location (urban panel survey of households for 2006- 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 versus rural). A quasi-panel of 16 cells 2010. The analysis for different types 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 combining the four worker characteristics of employment and sectors is based Post-crisis 7,7 -- -- 0,8 1,6 -1,9 -- -- -- -- -- -- -- -- -- Outcomes 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 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 methodology. Finally, these impacts transitions across sectors. Results for Degree of 1,15 -- -- 1,08 1,09 0,87 -- -- -- -- -- -- -- -- -- are regressed on binary indicators for different types of workers are in Table A3 recovery each characteristic. This methodology (crisis impacts) and Table A4 (degree of Source: TUIK data and authors’ calculations. Latest post-crisis quarterly data is for the second quarter of 2012. provides estimates of the impact of the recovery). Latest post-crisis monthly data is July 2012 (labor force participation rate (LFPR), the employment rate (ER) and the crisis on, for example, the employment 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 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 income (real). Labor transitions are relative to the previous year. EE is the transition from employed to employed; other characteristics const ant. The hard by the crisis, which affected 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 differential degree of recovery is analyzed households mainly through from 2007 to 2008 and transition rates from 2006 and 2007, while the crisis trend is the difference between transitions by regressing the recovery ratios for reduced labor incomes, but 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 each cell on binary indicators for each recovery was fast and strong 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 characteristic. These regression results are 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. complemented with estimates of crisis 4. The Turkish economy was hit hard impacts (recovery ratios) for each group by the global economic crisis, but deviated from its pre-crisis trend (5.2 most creditworthy borrowers. Growth of workers (e.g. men versus women) to recovered fast and strong. The economy percent) by 13.3 percentage points (Table resumed rapidly after the crisis, reaching help interpret the direction of the impacts had already started to slow down in 2007, 1). Turkey was hit essentially through 9 percent in 2010 and 8.5 percent in (recovery ratios) for each group. but the global financial events of late two channels: exports and financial 2011. Turkey was among the 10 percent 2008 led to a sharp contraction starting flows into the banking sector. Exports hardest-hit countries in 2009, but it was 3. The main source of data for the in the last quarter of 2008 until growth were concentrated in globally hard-hit also one of the quickest to bounce back. analysis in this study is the Labor resumed in the last quarter of 2009. sectors such as automotive vehicles, Following the crisis in the Eurozone, Force Survey (LFS). The impact analysis As a result of the crisis, GDP growth consumer durables, and capital goods growth slowed down in the second half for employment rates, labor force and machinery. As a result of reduced of 2011, and it is expected to be around 3 10- LFS only includes information on earnings, participation rates and unemployment while SILC includes information on labor financial flows to the banking sector, the percent in 2012 before reverting to about rates is based on LFS monthly figures income (from earnings and self-employment) banking system cut lending to all but the 5 percent growth over the medium term. as well as other sources of income. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 31 FIGURE 7 Increasing dominance of wage employment, particularly in services 5. The crisis affected households mainly percent by July 2012 (Figure 2). Overall it (Sector shares in total employment, %) through reduced labor incomes. The is estimated that the crisis increased the aggregate GDP shock translated into a pre-crisis unemployment rate trend by The increasing dominance of wage Slow tertiarization of employment— 70 employment 60 agricultural employment is still important less than proportional income shock at the 3.5 percentage points (Table 1). Although 60 50 household level. In particular, household the crisis increased the flow of people 50 40 per capita income remained basically from employment to unemployment (job 40 unchanged during the crisis, but since it losses), the main source of the rise in 30 30 had been growing at almost 4 percent unemployment was the increased share 20 20 before the crisis, the crisis reduced the pre- of people that remained unemployed 10 10 crisis trend in household income per capita (longer unemployment duration). The 0 0 by 4.2 percentage points. And the main unemployment rate came back down to 2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011 transmission mechanism of the crisis to average pre-crisis level by February 2011, Wage Employer Self-Empl Unpaid Agriculture Industry Construction Services households was through the labor market. about 17 months after the crisis hit Turkey. Source: TUIK (Labor Force Survey) 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 impact on employment despite the rise in Jobs losses hit formal employees, the crisis to a 1.2 percent drop, resulting in than the average pre-crisis level.11 Rapid unemployment is explained by the increase while the informal sector served a crisis impact estimate of -3.4 percentage growth has fueled this sharp decline in in the flow from inactivity to employment as a cushion—formal wage jobs points. The rest of this section tries to unemployment to pre-crisis levels, but the during the crisis, as additional households recovered strongly after the crisis identify the sources of this reduction in slowdown from the second half of 2011 members managed to find jobs in response labor incomes and how it was distributed may make it difficult to bring unemployment to the crisis (added-worker effect). The 8 . Job losses during the crisis across types of employment, sectors and significantly below pre-crisis levels. labor force participation rate grew by over were concentrated in formal wage types of workers. 1 percentage point during the crisis, and employment, which also saw the 7. The added-worker effect minimized most of these new entrants found their way greatest growth after the crisis— Increased unemployment duration the negative impact of the crisis on into employment, as the transitions from the informal sector served as a and job losses were attenuated employment, which recovered quickly inactivity to employment increased by 1.7 cushion. Prior to the crisis, formal by the added-worker effect— to improve upon pre-crisis levels. The percentage points (Table 1). The employment wage employment (as a percentage employment recovered fast employment rate fell from around 42 rate in the second quarter of 2012 is already of the WAP) was slowly increasing and strong percent right before the crisis to 40.3 9 percent higher than the average pre-crisis i n Tu r key, w h i l e a l l o t h e r t y p e s o f percent in April 2009. But it rebounded level. The strong recovery of employment employment were slowing decreasing 6. Increased unemployment duration quickly, reaching the average pre-crisis is explained by both rising labor force (Figure 7). The crisis reversed this and job losses fueled a sharp rise level by September 2009 and continuing 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 in unemployment during the crisis, to increase to reach 45.3 percent by formal wage employment fell by 1.6 12- Changes in the employment rate are de- coming down gradually as growth the second quarter of 2012. The crisis percentage points, while other types composed into changes in the unemployment resumed to reach pre-crisis levels. The reduced the employment trend by rate and changes in the labor force participa- of employment were little affected by seasonally-adjusted unemployment rate just 0.6 percentage points. This small tion rate following Cho and Newhouse (2011). the crisis—the trend in informal self- This analysis reveals that the increase in labor started increasing in September 2008, employment and unpaid family labor 11- The decline in unemployment after the force participation rates explains 54 percent peaking in April 2009 at 14.9 percent and crisis also appears to be more the result of the of the post-crisis trend in employment rates, increased slightly. Most formal wage falling gradually since then to reach 9.1 reduction in the stock of unemployed rather while the decrease in the unemployment rate sector job losers, however, went into than increased hiring of new entrants. explains the other 46 percent. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 33 TABLE 2 Formal wage workers lost jobs but got higher earnings; informal workers got smaller paychecks informal wage employment rather 9. Job losses were concentrated in (Crisis impact and degree of recovery: sectors of employment, earnings and than into joblessness (Table A1). This manufacturing, while agricultural working hours) boost to informal wage employment employment increased, serving as a Pre-crisis Crisis Crisis Pre-crisis Q4 2010 Degree of was offset by a reduced flow from cushion—agricultural jobs continued trend trend impact level recovery informal to formal wage employment increasing after the crisis. Before the Employment (relative to WAP) Wage employed 0,6 -0,9 -1,5 27,5 29,4 1,07 that instead went to informal self- crisis, agriculture was mostly shedding Self-employed -0,5 0,1 0,5 9,0 8,7 0,96 employment and inactivity. And most workers, although that trend started Unpaid family workers -0,1 0,2 0,3 5,7 5,9 1,05 ‘added’ workers went to informal self- changing right before the crisis (Figure Informal employed -0,8 -0,3 0,5 19,8 19,4 0,98 employment (including unpaid family 7). And employment in manufacturing 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 labor) (Table A1). Thus the informal and services was increasing. The crisis Informal wage employment -0,5 -0,4 0,1 8,0 7,6 0,95 sector served as cushion for job losers hit manufacturing jobs, while agricultural Formal self-employment -0,2 -0,1 0,1 3,3 2,9 0,90 and new entrants. The recover y of employment increased (Table 2). The 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 formal wage employment has been lack of movement across sectors before Employed in manufacturing 0,1 -0,7 -0,8 9,1 9,1 1,01 impressive—formal wage employment the crisis was exacerbated during the Employed in construction 0,0 -0,1 -0,1 2,7 3,2 1,19 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 Employed in services 0,1 -0,1 -0,2 22,5 22,7 1,01 average pre-crisis level by the fourth employment was mostly due to new Real average monthly earnings All employees 3,2 4,8 1,5 543,2 580,0 1,07 quarter of 2010. entrants and in the form of informal self- Formal employees 1,4 4,7 3,3 621,2 651,7 1,05 employment (including unpaid family Informal employees 3,2 -1,3 -4,5 331,7 334,3 1,01 labor). Employment has been growing in 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 Box: The crisis and high food prices are behind the stalling of Employees in services 3,0 5,6 2,7 591,7 646,9 1,09 agricultural shedding since 2007. Average hours worked All workers -1,8 -2,8 -1,0 49,1 47,5 0,97 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 Formal workers -1,0 -1,9 -0,9 50,8 50,4 0,99 sector becomes more attractive and productivity increases in agriculture push labor out Informal workers -3,2 -4,3 -1,1 46,6 43,3 0,93 of agriculture. While agricultural subsidies have slowed down this process, the downward Workers in agriculture -2,7 -4,2 -1,5 38,6 37,0 0,96 trend in agricultural employment continued until 2007: the share of agricultural employment Workers in manufacturing -0,9 -2,9 -2,1 52,2 51,7 0,99 halved from 46 percent in 1990 to 23.5 percent in 2007 , while the number of agricultural Workers in construction -1,8 -3,5 -1,6 51,8 51,9 1,00 workers declined from 9 million to 6 million during the same period. In parallel, the share of Workers in services -1,9 -1,8 0,2 51,8 50,1 0,97 agriculture in GDP decreased from 17 .5 percent to 7.6 percent. Real wage bill All employees 7,3 3,3 -4,0 1,20 Since 2007 , however, this trend has been reversed: agricultural employment increased by Formal employees 9,4 4,5 -4,9 1,00 26 percent between 2007 and 2011 and its share in total employment reached 25.5 percent Informal employees -1,9 -5,7 -3,8 1,24 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 Household labor income 2,2 -1,2 -3,4 -- -- -- in GDP increased to 7 .9 percent in 2011. Why has agricultural employment been growing Household wage labor income 6,1 1,0 -5,0 -- -- -- since 2007? Household self-employed income 0,1 -4,5 -4,6 -- -- -- Labor productivity 4,6 -5,6 -10,3 473,5 497,5 1,05 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 Source: TUIK and authors’ calculations. All based on quarterly Labor Force Survey except for family-owned, small and fragmented. Wage earners are only 10 percent of total employment household-level variables, which are from SILC. Crisis impacts are in percentage points. 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 . TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 35 One explanation for the surge in agricultural employment is higher agricultural prices, which all sectors after the crisis, particularly a 1 percentage point increase in wages has made the sector more profitable and thus attractive for investments that have in turn in construction and agriculture. By the (monthly earnings per hour), as working generated employment. The figure below shows that until 2007 changes in agricultural fourth quarter of 2010, manufacturing hours, on a downward trend before the 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 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 but faster than general producer prices. Around mid-2008 world food prices plunged while pre-crisis level, while employment in crisis (labor hoarding). 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 construction and agriculture was 19 well above the trend in general producer prices). Thus the trend in agricultural prices could and 9 percent, respectively, above pre- 11. The reduction in household labor explain some of the increase in agricultural employment in 2007 and could have had a lot crisis levels. The relative stability of income was driven by household 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 employment since 2007 members not finding or losing jobs agricultural prices are a significant predictor of changes in agricultural employment. is explained by a combination of the and lower self-employment income. cushioning function of agriculture As noted earlier, the crisis affected Increasing relative agricultural Increasing relative wages in during the crisis and improved households mainly through reduced prices make agriculture a more agriculture make it a more attractive profitable sector sector for low-skilled workers agricultural terms of trade (Box). labor income. This reduction is partly 250 1.40 explained by increased unemployment 1.20 200 The increase in minimum wages duration and job losses. Earnings 150 1.00 0.80 drove up formal (and total) of informal employees declined but 100 0.60 earnings, while informal workers overall earnings increased. SILC data 50 0 0.40 got smaller paychecks—earnings show that household income from 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.20 growth slowed with recovery but wage employment did increase by 0.00 FAO food price index (2002-04=100) 2002 2003 2004 2005 2006 2007 2008 2009 2010 inequality increased further. 1.0 percent during the crisis but this General producer index (Turkey) (2003=100) increase was smaller than the pre-crisis Agricultural producer index (Turkey) (2003=100) Ratio of agricultural wages to minimum wages 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 Source: TUIK data. Agricultural wages refer to permanent male workers in demand shock, monthly earnings 5 percentage points (Table A2). Self- agricultural enterprises (survey of salary structure). grew even faster than before the employment income, on the other crisis, which was driven by higher hand, had a slight positive trend before The other explanation is increased attractiveness of agricultural jobs relative to non- agricultural jobs, particularly during the crisis. Agricultural employment served as a cushion wages, as the trend in working hours the crisis and dropped significantly against the crisis. The increase in agricultural employment mostly came in the form of declined. Despite the severe negative during the crisis, resulting in a negative 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 demand shock, average real monthly impact of 4.6 percentage points (Table increase in the relative labor demand for low-skilled workers in agriculture. One way to see earnings grew slightly faster during the A2). Thus, although self-employment that is by looking at the levels and trends of agricultural wages versus minimum wages. crisis than before the crisis, resulting was not affected during the crisis and 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, in a 1.5 percentage point increase in even increased slightly, income from increasing thereafter to peak at a level 24 percent higher than minimum wages in 2008 and the growth rate of earnings. And this self-employment declined significantly. 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 . was not just the result of the drop in Since most self-employment is informal Gürsel and İmamoglu (2011) find that changes in non-agricultural wages for low-skilled inflation (which was only 0.7 percentage (about 66 percent in 2011), the result workers do explain changes in agricultural employment in 2004-10. 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 Source: Hatunoğlu, E. Emrah (2011) (background paper this report); Gürsel, Seyfettin and Z. percentage points). The increase in the significant decline in total informal İmamoğlu (2011). growth rate of earnings is explained by income. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 37 FIGURE 9 12. The growth in earnings contrasts (the product of earnings and wage The binding minimum wage with the decline in labor productivity employment) grew but at a lower rate (Formal Earnings in Manufacturing and Services and Minimum Wage, 2008) and GDP, indicating an increase in than before the crisis (consistent with 1.5 Net Minimum Wage in 2008 (in 2003 prices) 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. 1 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 Manufacturing Services GDP growth. Labor productivity was grew even faster than before the ,5 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 0 2 4 6 8 10 FIGURE 8 Log formal Earnings in 2008 (in 2003 prices) Growth in earnings despite sharp declines in Source: TUIK (Labor Force Survey) and authors’ calculations. labor productivity and GDP (Year-on-year changes in real GDP, labor productivity and earnings, 2006-2011) increased in the formal sector but sector earnings was driven by higher 20 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 15 shock was through employment in the sector earnings was the result of reduced 10 formal wage sector and through earnings wages and working hours. in the informal wage sector. While the 5 crisis had the same negative impact on 14. The increase in minimum wages 0 the growth of the wage bill of formal and drove up formal sector earnings during 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 informal workers (1.8 percentage points), the crisis but did not reduce earnings -5 the growth was still positive among inequality in that sector. Formal sector -10 formal workers but negative among wages continued to increase during informal workers. And while earnings the crisis because of the 2.6 percent -15 increased across all sectors during the increase in the minimum wage between GDP Labor productivity Earnings crisis, the only sector in which the trend 2008 and 2009. The minimum wage is -20 in earnings increased during the crisis binding in Turkey, as it is a floor to formal Source: TUIK and authors’ calculations. Labor productivity: GDP into the product of total employment and average annual working hours. Earnings: monthly earnings. was services. The increase in formal sector wages and monthly earnings are TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 39 bunched around it (Figure 9). 13 Thus, resulting in a negative adjustment in relative to men in terms of employment to respective pre-crisis trends. This was increases in the minimum wage can informal earnings after the crisis, and through the business cycle (Table A4). partly due to youth being hit harder by affect average earnings, both directly a further widening of the earnings gap This is due to the relative gains in labor job losses in manufacturing than adults. (increased earnings for minimum wage between formal and informal workers. force participation because the female Although youth unemployment came earners) and indirectly (by anchoring By December 2010, formal earnings were unemployment rate has recovered more down faster than that of adults during all wages at a higher new level). But significantly above pre-crisis levels while slowly than men’s. recovery, youth labor force participation the minimum wage appears to be informal earnings were about the same did not change, resulting in a slower more binding for manufacturing than level. 17. But women lost to men in terms recovery of youth employment relative for services. Wages increased more in of earnings during the crisis, although to adult employment. This lack of change services than other sectors because of Job losses hit men in urban areas, female earnings caught up during in youth activity rates is mostly due to the differential impact of the crisis across while women, youth and the low the recovery. Female earnings were some youth postponing entry and going sectors: manufacturing output dropped educated saw lower earnings— growing faster than male earnings prior back to school, as the joblessness rate by 19 percent while services declined by women gained jobs through to the crisis. During the crisis, however, (share of youth neither working, nor 10 percent. Despite the sharp increase the business cycle while wage the trend of male earnings adjusted attending school) decreased significantly in minimum wages during the crisis, inequalities increased slightly upwards while the trend for among youth during recovery after having earnings inequality, as measured by Gini female earnings adjusted downwards. increased during the crisis. coefficient, in formal wage employment 16. Men suffered greater job losses This was basically due to smaller relative increased. than women, particularly formal 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 manufacturing jobs—women particularly, greater relative declines in terms of earnings and that difference 15. Earnings growth slowed down in gained relative to men in terms of informal earnings. The relative gains in has been amplified after the crisis. the recovery period, while the earnings employment through the business earnings for men were more apparent Prior to the crisis, earnings of youth gap between formal and informal cycle. Controlling for age, education level in manufacturing. And these gains can were growing even faster than those of workers was reinforced. Increases in and location, the crisis did have a larger be attributed to the dynamics of hours adults. The crisis saw earnings of adult real wages after the crisis were offset by impact on men’s employment relative to worked by men relative to women, as workers increase (although at the same proportional reductions in working hours. women’s (Table A3). In fact, as a result of women’s hours were cut much more than rate as before the crisis), while earnings The lack of earnings growth contrasts the crisis female employment increased men’s in all sectors except agriculture. of young workers remained unchanged, with the growth in labor productivity slightly while male employment Female earnings grew faster than men’s thus experiencing a sharp decline relative during the post-crisis period, which decreased relative to the absence of any during the recovery period and by the to its pre-crisis trend. The increase in the was already above pre-crisis levels by pre-crisis trend. This mainly reflects the last quarter of 2010, real earnings of both earnings gap between youth and adults December 2010, indicating that the loss larger flow of women out of inactivity men and women exceeded pre-crisis during the crisis was due to a smaller in competitiveness during the crisis was into employment (added-worker effect) averages by about 1 percent. relative increase in formal earnings only temporary. The increase in wages relative to men rather than a differential among youth and, especially, a larger was smaller among informal workers, impact on unemployment. The negative 18. The crisis had a larger toll on youth relative decline in informal earnings (3.3 i m p a c t o n m a l e e m p l oy m e n t wa s unemployment—youth employment percent). These disparities are mainly 13- In contrast, while the minimum wage represents a ceiling for informal wages, most concentrated in formal manufacturing 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 informal wages are significantly below the jobs. Male and female employment young people went back to school. increased earnings premium on work minimum wage. And the increase in minimum grew at similar rates during the recovery 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 wages during the crisis had little effect on period, resulting in women gaining twice as fast as that of adults relative the crisis, as youth earnings have been informal wages, which declined sharply. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 41 TABLE 3 subject to large cuts (both formal and 21. Job losses were concentrated in informal) while adult earnings have urban areas, while rural residents In middle income countries the crisis had a relatively small impact on jobs and a large impact on earnings growth remained unchanged. were able to resort to agriculture as a cushion against the crisis. Urban Number of Pre-crisis Crisis Difference 20. Earnings inequality between workers were disproportionally affected countries high and low educated workers by job losses: the employment rate in GDP growth 28 7.3 -2.4 -9.7 increased during the crisis and was urban areas decreased by 1.2 percentage Wage bill growth 28 9.4 1.1 -8.3 reinforced later. Before the crisis, points during the crisis while the rural Employment growth 28 1.8 -0.2 -2.0 earnings of workers with less than employment rate remained unchanged Earnings growth 28 7.3 1.3 -6.0 secondar y education (low educated thanks to the increase in agricultural Hours worked growth 14 1.7 -5.2 -6.9 workers) were growing faster than employment. Unemployment increased Real wage growth 14 6.5 7.2 0.7 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 Nominal wage growth 14 12.9 12.2 -0.7 secondary education (high educated as much in urban areas than in rural areas. CPI growth 14 7.0 6.0 -1.0 workers). Low educated workers lost Both urban and rural areas benefited from Unemployment rate 28 9.0 9.7 0.7 to high educated workers in terms the increase in employment and the Labor force participation rate 24 53.0 53.3 0.3 of earnings during the crisis, as their decline in unemployment after the crisis. earnings stalled while high educated The growth of agricultural employment Source: Khanna et al. 2011. The pre-crisis period is an average of year on year changes over eight workers saw their paychecks increase after the crisis continues to boost rural quarters from Q3 2006 to Q3 2008. The crisis period is an average between Q4 2008 and Q3 2009. even above the pre-crisis trend. High employment above pre-crisis levels. educated workers enjoyed large (Table 3).14 There was, however, variation the shock than employment, while there increase in formal earnings and Overall Turkey’s labor market across countries according to the severity was a negligible impact on activity rates. even benefited from higher informal weathered the storm well relative of the GDP shock, the structure of the This is because (1) part of the impact on earnings, while low educated workers to other countries economy (e.g. relative size of export and unemployment came from those who did not experience in any change in manufacturing sectors) and the nature of remained unemployed as a result of the formal earnings and saw their informal 22. In most other upper middle labor market institutions. crisis (as in Turkey); (2) most of those earnings reduced. These differences income countries the crisis also had who remained and became jobless a were mainly driven by differences a relatively small overall impact on 23. In most cases people who result of the crisis stayed attached to in wage rates. While low educated jobs. Evidence from up to 44 middle remained or became unemployed the labor force looking for a job (as in workers have caught up with high income countries using the same basic as a result of the crisis stayed Turkey); and (3) the added-worker effect educated workers in terms of informal methodology as in this study (Khanna attached to the labor force. In general, was weak, unlike in Turkey where it earnings, as high educated workers et al. 2011; Cho and Newhouse, 2011) unemployment was more sensitive to was significant, although most of this lost what they gained during the crisis, shows that despite large contractions new employment was of low quality 14- These studies are necessarily constrained the gap has been amplified for formal of GDP as a result of the crisis, (informal self-employment, including by the data available to make a homogenous 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 , analysis of 44 countries. The present study for unpaid family labor). Although the same have seen their earnings reduced. particularly, labor force participation Turkey thus extends the analysis in a number type of analysis is not available for OECD of dimensions, including the analysis of the were relatively little affected on average 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. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE II 43 The fall in real GDP was larger than the is mostly explained by men being earnings growth was entirely explained in minimum wages in real terms of 1 increase in unemployment in all but 6 disproportionally represented in wage by the sharp drop in the growth of hours percentage points or more in 2009. 17 OECD countries (e.g. the US and Spain), employment and manufacturing. Unlike (significantly larger than in Turkey), as The Global Wage Report 2010 finds no and employment was only 1.8 percent Turkey, however, it is not explained by real wages increased slightly thanks clear relationship between minimum lower in the fourth quarter of 2010 than the added-worker effect among women. to declining inflation. The reduction of wages and the incidence of low pay or three years earlier (OECD 2011). As in Turkey, the differences by level of positive growth in real earnings in 2009 is earnings inequality (often the objectives education were small. Relative to most also observed for 80 out of 115 countries of minimum wage policies). In Turkey, 24. As in Turkey, wage employment other countries, in Turkey the crisis analyzed in the Global Wage Report the increase in real minimum wages in and manufacturing jobs were did have a significantly larger impact 2010 (ILO 2010a).16 An ILO survey of 54 2009 did not prevent an increase in the 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 countries across the income spectrum incidence of low pay or an increase in The relatively small overall impact on the relatively small overall impact on also shows that labor hoarding was a earnings inequality, even among formal jobs masks significant differences by employment in OECD countries, youth, common labor market adjustment to employees. sector, with wage employment and men, low-skilled workers and temporary the crisis (ILO 2009). OECD countries manufacturing jobs being more affected workers were hit especially hard (OECD relied much more on labor hoarding than 28. In most countries the share of the as a result of their relatively larger 2011). layoffs, and the decline in hours tended wage bill in GDP also increased during exposure to trade shocks. For example, to be more proportional to the fall in GDP the crisis. The slowdown in earnings while employment growth fell in industry 26. Unlik e Turk ey, formal-sector (OECD 2011). growth was generally smaller than the by 3.3 percentage points, it increased in earnings growth was reduced in most decline in labor productivity and GDP agriculture by 1.5 percentage points and countries.15 As in Turkey, in most other 27. About half of the countries with growth. In most countries the wage remained unchanged in services. As in middle income countries real earnings 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 Turkey, job losses in one sector were not growth started declining in the first increase it during the crisis. About half took a disproportional hit from the crisis. absorbed by other sectors but instead quarter of 2008, as increases in food and of the 108 countries in the ILO sample Previous crises have also witnessed translated into higher unemployment. fuel prices skyrocketed. However, while increased the statutory minimum wage smaller adjustments in earnings relative in most other middle income countries in 2009 (including Turkey, Brazil, Russia to labor productivit y and GDP and 25. The impact on jobs was also larger nominal earnings growth declined and the majority of advanced countries), increases in the wage bill share. And in for youth and men in most countries. during the crisis, it increased slightly in while in the other half minimum wages most cases, recovery periods tended to In most countries young people were Turkey. In fact, the fall in earnings growth were left unchanged (ILO 2010a). As a reverse this dynamic. disproportionally affected by job losses explains most of the decline in wage bill result of changes in statutory minimum and increased unemployment relative growth during the crisis in most other wages and/or declining inflation, most 29. In most ECA and OECD countries to adults. The differential impact (which middle income countries. The fall in advanced countries and half of countries labor market recovery lagged behind was only significant in manufacturing 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 in Turkey) happened within the same 15- Data on earnings for these countries come (including Turkey) experienced increases relatively well. Most countries in ECA sectors, suggesting firms tended to from establishment surveys and thus mainly started growing by the second and third prefer dismissing youth over adults, refer to formal sector employees. Khanna et quarters of 2009, while real GDP in the 16- There is, of course, variation across al. (2011) use the wage bill, the product of total perhaps as a result of youth’s lower employment and (essentially formal) earnings, regions: growth declined but remained OECD area has been growing since the positive in Asia and Latin America, it was firm-specific skills and more flexible to look at labor market adjustment borne by slightly positive in advanced countries and 17- The ECA region encompasses the contractual arrangements. The larger workers and how much of this adjustment is significantly negative in some countries of transition countries of Eastern Europe, the due to changes in employment and earnings. impact on men relative to women Europe and Central Asia like Latvia, Lithuania, Balkans, the Commonwealth of Independent Serbia and Ukraine. States, and Turkey. 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 first quarter of 2009. In Turkey, one of the 30. And in a number of these on making a constructive assessment hardest hit countries, recovery only started countries, particularly in Europe, of policy measures taken during the 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 business cycle and existing labor market was among the most vigorous, quickly worse due to the economic slowdown institutions against the observed impacts. recovering its pre-crisis level. In most ECA starting in the second half of 2011. Even The (reasonable) assumption is that while and OECD countries, however, growth was when, on average, labor markets in the policies may have had an effect, this effect not vigorous enough to re-employ many of OECD were slowly recovering, countries was not strong enough to change the those workers that were laid off during the like Spain, Greece, Portugal and Ireland sign of the observed impacts. The focus crisis. Among ECA countries, employment (the last three experiencing ‘bailouts’ by of the analysis is on employment and growth has been weak even in countries the EU and the IMF that prompted harsh social protection policies. The last part of with high GDP growth, except in Turkey and fiscal consolidations) were experiencing this section benchmarks Turkey’s crisis- Kazakhstan where rapid GDP growth has stagnant or increasing unemployment. response policies against those taken by been accompanied by strong employment Following the spread of the sovereign other countries. 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 A framework for employment and before the crisis. The unemployment rate of 2011, growth has slowed down in the social protection policies through in the OECD had only come down by 0.6 OECD, particularly in the Eurozone, and the economic cycle 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 1) Policies to create or protect jobs (i.e. fourth quarter of 2009. Turkey, Germany growth slowed down in the second stimulate demand) 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 a. Create jobs: subsidies to firms for crisis levels. foreign capital are reduced. new hires (e.g. reductions in social TÜRKİYE: EKONOMİK DALGALANMA BOYUNCA İŞGÜCÜ PİYASALARININ YÖNETİMİ III 47 security contributions, often targeted a. Benefits tied to employment: in-work 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 to disadvantaged groups like youth benefits (e.g. tax credits or lump-sum partly attenuated by the added-worker economic cycle and women), support to SMEs and the payments) for low-paid workers; minimum effect—employment recovered fast and self-employed (e.g. access to finance, wages; partial withdrawal from individual strong. 2. T h e c r i s i s wa s preceded by a advisor y ser vices, and preferential savings accounts for unemployment or labor market reform that reduced treatment in public tenders), and public pensions. • Jobs losses hit formal employees, non-wage labor costs and set the works.18 while the informal sector ser ved as basis for expanding acti ve labor b. Benefits for the jobless: unemployment 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 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 entrants (mostly going to informal self- 2008 the first employment package schemes, under which firms or workers extensions of benefit receipt period during employment, including unpaid family was introduced, but measures were receive a subsidy for a temporar y crises) and unemployment assistance (e.g. labor in agriculture—formal wage jobs implemented in October of that year, 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, recovered strong after the crisis. coinciding with the beginning of the encouraging work sharing rather than qualify for unemployment insurance). 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 layoffs. Labor regulations governing • The increase in minimum wages t h e r e fo r m we r e ( 1 ) r e d u c t i o n s i n severance payments and labor contracts c. Benefits not tied to job status: social 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 are not tied to the business cycle but assistance, such as cash and in-kind earnings, while informal workers got (across-the-board 5 percentage points they can affect how labor markets adjust transfers. These benefits are typically smaller paychecks—earnings came to reduction and further temporar y to it. High severance pay makes it more targeted to the chronic poor, but can 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 costly for firms to fire workers. More also be used to address the increasing reinforced. a n d yo u n g e n t r a n ts into the labor flexible contracts in terms of wages and/ social needs arising from crises by, for market), bringing Turkey’s tax wedge or hours reduce the need for firms to fire example, relaxing eligibility criteria (and • 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 workers. thus expanding coverage) and increasing 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 benefits. unemployment duration, job losses registered unemployed (funding from 2) Policies to support job search and among formal employees as well as the Unemployment Insurance Fund, upgrade skills. This group of policies A recap of results reduced wages and self-employment UIF, was increased and the beneficiary aims to address individual’s barriers to income among informal workers. base was extended to all registered employment in terms of information • The Turkish economy was hit hard by unemployed—previously only UI and skills: employment services (job the crisis, which affected households • Job losses hit men in urban areas beneficiaries qualified), thus facilitating intermediation and counseling, job search mainly through reduced labor incomes— 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 assistance) and skills training. recovery was fast and strong. 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, 3) Policies to protect income. These • The crisis had a relatively small overall through the business cycle while wage in 2008, representing 3.8 percent of programs aim to complement self- impact on jobs, mainly through increased inequalities increased. registered unemployed (1.2 percent of insurance against unemployment or a fall unemployment. all unemployed). in earnings: • The increase in unemployment was explained by increased unemployment 19- The tax wedge is the share of taxes and 18- Public works programs also have an inco- duration and job losses, but the social security contributions in total labor me-protection role, particularly during crises. costs. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 49 3. The across-the-board reduction obligations. 20 Restrictions on fixed/ deterrent for layoffs during the crisis, there workers need to meet the same strict in non-wage labor costs is likely to temporar y contracting result in a 74 would have been a relatively larger impact conditions as for unemployment insurance. have prevented some layoffs during percent job informality rate among workers on employment not subject to these A negligible number of workers benefited the crisis and encouraged hiring employed on temporary/fixed basis (almost obligations or restrictions. Job losses, from this program before 2009, when it during recovery. Although not a crisis- half of all workers in Turkey) (Labor Force however, were concentrated among formal reached 190,233 people. response measure, the across-the- Survey, 2010). There are disincentives wage sector workers, for which severance board cut in employers’ social security for workers and employers to take on payments apply. Most job losers went to 2) Expansion of vocational training. The contributions was introduced at the part-time jobs, resulting in only 3 percent the informal wage employment, which was coverage of vocational training provided outset of the crisis, reducing labor of formal workers being part-time. The not affected by the crisis. And there was by the Turkish Employment Agency costs for firms at a time when their 2008 reform increased unemployment some adjustment in average working hours (ISKUR) increased from 30,000 people in revenues were declining. Along with benefits by 11 percent (17 percent both in the formal and informal sectors. 2008 to 167,000 in 2009 (21 percent of the targeted subsidy for new hires among minimum-wage earners) by tying Even within the formal sector, the crisis did registered unemployed, 6.4 percent of total (which has been extended ever since), payments to gross rather than net wages. not have a disproportional impact on youth unemployed). In addition to building skills, it is likely to have contributed to job But the combination of large numbers of employment (generally more flexible), the program also provided a daily stipend creation (the original purpose of the informal workers, strict qualification rules except in manufacturing. of 15TL to trainees (about half of the reform) during recover y by reducing and low benefits limit the effectiveness minimum wage in 2009), which increased hiring costs. A study simulates that the of unemployment insurance to protect 6. The Government introduced a crisis- to 20TL in 2012. impact on employment of the across- workers during economic downturns and response package in 2009, including 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 employment-related measures. The 3) Public works. The Public Works program increase) may be limited relative to its percent of registered unemployed (5.3 authorities’ response to the global crisis was introduced in 2009. To be eligible, budgetar y cost (World Bank 2009b) percent of all unemployed) were receiving covered four areas: monetary policy, the beneficiary had to register at ISKUR because part of the reduction is unemployment benefits. banking liquidity measures, fiscal stimulus, and not receive any other similar public translated into higher wages. The same and employment. The bulk of the measures support. Payments were made equal study shows that reductions targeted 5. Stringent EPL is unlikely to have came in May 2009 and accounted for about to the minimum wage for 6 months (it at low-wage earners (e.g. youth and been a major factor in safeguarding 2.2 percent of GDP in 2009 (ILO 2010b), was extended to 9 months in 2012). The women) are more cost-effective. jobs during the crisis, but is likely to although this figure is reduced to less program benefited 45,500 people in 2009. pose a constraint to job creation. Strict than 1 percent of GDP if only crisis-related 4 . Turk ey entered the crisis with EPL tends to reduce job flows through the discretionary measures are included. 4) Support to SMEs. SMEs account stringent labor market regulations business cycle (hiring during upturns and 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 and limited protection for the firing during downturns) (Micco and Pages included (Table 4): The government increased funding to unemployed. The 20 08 reform did 2004). If severance obligations or restrictive Turkey’s Small and Medium Enterprises not touch the employment protection working arrangements had been a major 1) Short-time work scheme. Payments Development Organization (KOSGEB) by legislation (EPL), which remains among increased by 50 percent and benefit receipt the most restrictive in the OECD. 20- Workers qualify after one year of service, period extended from 3 months to 6 21- SMEs (firms with less than 250 workers) This rigidity stems from restrictions/ with payment of one monthly wage per year months (February 2009). The program was account for 92 percent of employment. Small of service for qualifying separations (including firms (less than 50 workers) account for 79 disincentives to flexible contracting initiated in 2005 to partially compensate separations for economic reasons, just cause percent, while firms with less than 10 workers (part-time, fixed-term and temporary discharge cases, and retirements), and no workers in firms going through difficulties are the single most important category (59 contracts) and generous severance ceiling on the number of years of service but for reduced working hours. To be eligible, percent). on the amount paid per year. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 51 TABLE 4 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 Key employment-related crisis measures extended this support to SMEs in the terms (Figure 10), in sharp contrast with (Main programs and totals) service sector, and expanded the Credit the decline in labor productivity.23 But the 2008 2009 2010 Guarantee Fund (CGF) by 1 billion TL increase in the statutory minimum wage Benef. Million Benef. Million Benef. Million to leverage credit resources for SMEs. was not exceptional to the crisis: it was (x1000) TL (x1000) TL (x1000) TL Credit flowed quickly back into the slightly larger than in previous years but Vocational training 31 35 167 193 157 242 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 Public works 45 111 42 138 reducing the cost of credit subsidies and wage of full-time workers in 2009, the Short-term work scheme 190 163 27 39 resulting in actual KOSGEB expenditures highest among OECD countries. And Incentives for new hires 16 66 137 being lower in 2009 relative to 2008 as shown earlier, the minimum wage is KOSGEB support to SMEs 51 186 74 167 73 203 despite the significant increase in binding in Turkey. Source: ISKUR, KOSGEB and Ministry of Labor and Social Security. 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 FIGURE 10 for hiring UI beneficiaries (employers’ a countercyclical behavior, increasing social security contributions paid by substantially in 2009 by 33 percent The minimum wage increased significantly during the crisis the UIF for remainder of UI benefit and decreasing slightly in 2010 (Table to reach the highest level relative to median wages in the OECD eligibility period) were introduced until 5). The increase in spending in 2009 Increasing minimum wages during The highest relative minimum the end of 2010. In an effort to reduce led to a sharp increase in the share of the crisis and beyond wage in the OECD layoffs in hard-hit sectors, reductions social assistance in GDP from 1 percent (Growth rates of minimum wages in 2003 prices) (ratio of national minimum wage in consumption taxes were introduced to 1.4 percent. However, most of this to median wage) 5 80 71 until September 2009 in sectors like increase was not in response to the 70 4 61 59 automotive, electronics and household crisis. About half of the increase in 60 54 54 52 51 51 49 48 48 47 3 46 46 appliances. spending is explained by the increase 45 45 50 44 44 43 42 41 41 37 36 36 40 in Green Card Program (GCP) benefits, 2 30 7. Although not explicitly part of the following the implementation of the 1 20 crisis-response package, statutory 2008 Social Security and Universal 0 10 minimum wages were increased 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 substantially in 2009. The statutory 23- The national minimum wage is set by -2 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 Source: TUIK and OECD (National Labor Force Surveys). 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. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 53 TABLE 5 Assessment of policies against 11. Also appropriate was the increased Social assistance: Expenditures and beneficiaries observed crisis impacts support to the unemployed through (Main programs and totals) Active Labor Market Programs (ALMP). 10. The focus of crisis-response The expansion of ISKUR vocational 2007 2008 2009 2010 measures on protecting the jobs of training allowed more unemployed Benef. Million Benef. Million Benef. Million Benef. Million formal employees was appropriate to people to preserve and upgrade their (x1000) TL (x1000) TL (x1000) TL (x1000) TL Social Assistance DG 1,413 1,797 2,379 2,033 the nature of labor market adjustments skills at a time when the opportunity CCT 2,756 321 2,978 409 2,882 483 3,002 341(1) to the crisis. The changes to the short- cost of training was lower, increasing Food assistance 140 2,106 218 2,063 379 862 92 time work scheme gave firms greater their chances of finding more and better Green Card 9,355 3,913 9,338 4,031 9,647 5,506 9,452 4,951 capacit y to adjust to the shock via jobs when labor demand recovered. Non-contributory 1,245 1,620 1,266 2,019 1,321 2,367 1,364 2,562 working hours rather than workers. And The program also provided income pensions it did so in the formal wage sector, which support through the stipend. The public Home care subsidy 0,4 0,5 1,3 400 205 959 285 1,567 was hit the hardest. However, despite works program provided temporar y Coal assistance 436 594 557 the changes introduced to the scheme employment and income support to the Municipalities 436 519 485 453 in response to the crisis, the coverage registered unemployed. Despite the Social assistance, total 8,066 11,159 9,815 14,834 13,019 14,018 12,998 remained low (82,439 at its peak in June significant expansion of ALMP during Total/GDP (%) 0,96 1,03 1,37 1,18 2009, accounting for only 1 percent of the crisis (particularly vocational training), registered workers), which may have coverage remained low (27 percent of Source: Ministry of Development and Ministry of Family and Social Policy. Social pensions include non-contributory pensions for the elderly and disabled. resulted in a limited overall impact on registered unemployed, 8 percent of (1) CCT expenditures decreased in 2010 due to the introduction of the new Integrated Social employment. In the automotive industry, unemployed). The typical delays of setting Assistance Information System (ISAIS- benefits were discontinued temporarily for 1 million beneficiaries until data could be verified. 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 Health Insurance Law. 24 Overall social 9. The Social Support Program (SSP) through grants and interest subsidies are wage, the program may have created assistance programs were protected also helped to meet the increased also likely to have protected jobs, both competition between people really in during the crisis and in some cases social needs arising from the crisis in formal and, to a lesser extent, informal.25 need and workers earning less than the expanded in response to the crisis. the South East region of Turkey. Social minimum wage. Support Program (SSP) was introduced 25- SMEs account for 99.5 percent of in May 20 08 to complement other informal workers, with the percentage of job 12. Unemployment insurance government programs under the South informality increasing as firms get smaller. The provided limited income protection for 24- The Green Card Program has been Eastern Anatolia Project (GAP) aimed typical SME receiving public support tends to the unemployed. There were no changes providing health insurance coverage to low- employ about 100 workers and it is less likely at raising the living standards of people made to unemployment insurance during income families not covered by social security. to employ informal workers than similarly- As a result of the 2008 Universal Health living in South East region of Turkey. sized firms. An evaluation of WB-funded credit the crisis in terms of eligibility, benefits Insurance Law, benefits of Green Card holders SSP includes specific interventions to lines to SMEs between 2006 and 2008 (World or the duration of the benefit receipt have been aligned with those for beneficiaries Bank 2011c) shows that receiving the loan increase the employability and living period. As a result, although UI coverage of contributory systems. In January 2012 the is associated with a 13 percent increase in program was integrated with contributory standards of disadvantaged groups. employment. Because of the controls they are among the unemployed increased from health insurance program under a single subject to, however, these firms are less likely 5.3 in September 2008 to 9.4 percent in general health insurance. to employ informal workers. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 55 June 2009, it remained very low. Thus already planned as part of the Universal CCT expenditures increased but the Unions of Chambers and Commodity unemployment insurance provided little Health Insurance Law, a decision was number of beneficiaries did not change. Exchanges of Turkey (TOBB) to provide ‘automatic’ protection to those who had made to implement it during the crisis The increase in spending responded to vocational training in vocational and been unemployed prior to the crisis and despite the much reduced fiscal space. the annual increase in the benefit level. technical high schools and internships at remained jobless as a result of the crisis The GCP is targeted to poor households Without any discretionary measure (e.g. TOBB businesses. The national vocational 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 , a temporary increase in the eligibility qualification system, which links curricula result of the crisis. i.e. the poor households engaged in threshold), the lack of change in the and qualifications in vocational fields with informal activity, which are the poorest number of beneficiaries is not surprising occupational needs, continues to be 13. The increase in minimum wages households. In fact, the GCP was among given that the CCT makes use of a proxy- developed. And training providers are now may have protected the income of the best performing social assistance means test to determine eligibility, and selected on the basis of specific quality low-wage earners in the formal sector, programs in ECA at the outset of the proxies are unlikely to change much and performance criteria, not just cost. but possibly at the expense of job crisis: in 2008, 48 percent of households in the short run, even in the face of a losses. The increase in minimum wages in the poorest quintile of the population shock. This is because the CCT program 17. Some changes related to the STW drove up earnings in the formal sector. (in terms of per capit a household in Turkey, like similar CCTs around the scheme, flexible contracting and 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 world, is primarily designed to address targeted subsidies for new hires have earnings was higher at higher levels of covered, and 71 percent of all Green long-term poverty rather than short- been introduced. A number of changes earnings, i.e. earnings inequality in the Card beneficiaries were in the poorest term income shocks. As discussed later, to the STW scheme have increased its formal sector increased despite higher quintile of the population. Coverage however, there are a number of design coverage and payments and reduced minimum wages—overall earnings of the poorest quintile increased to features that can make these programs processing time, including the extension inequality also rose as informal earnings 52 percent in 2009. The scale-up of an more responsive to shocks. of the benefit receipt period to 12 months declined. As most workers were already already high-performing program to poor and the enlarged scope of the scheme earning the minimum wage, the ability informal households, whose incomes Post-crisis labor and social to include sectoral and regional crises. of firms to adjust wages downwards declined significantly during the crisis, protection policies In February 2011 legislative changes in response to higher minimum wages contributed to protecting health utilization were introduced to extend the scope was limited, resulting in higher average (Aran 2012). 16. Efforts to expand and improve of the incentives introduced in 2008. earnings. The latter combined with ALMP after the crisis are likely to For example, the incentives for hiring limited scope to maneuver in adjusting 15. Other social assistance program contribute to job creation. The main women and youth were extended until hours possibly made firms resort to provided more limited income role of ALMP is to help create jobs 2015, and social security contributions layoffs to adjust to the crisis more than protection to those affected by the during recovery periods and beyond by for self-employed women were reduced. they would have otherwise without the crisis. Transfer programs are potentially addressing barriers to employment (e.g. The Law also enabled part-time workers minimum wage increase. But there is no effective tools to mitigate the negative information and skills). The coverage of to pay their unpaid social securit y evidence to suggest low earners were impacts of the crisis on households, ALMP has continued to expand, mainly contributions retroactively, and to be significantly more affected by layoffs. particularly when the coverage of vocational training—250,000 trainees eligible for unemployment insurance. unemployment insurance is low and part in 2011. As part of this effort, UMEM And it reduced possible disincentives for 14. The GCP contributed to protecting of the adjustment takes place through (Specialized Vocational Course Centers Green Card holders to look for jobs in the healthcare utilization among poor reduced informal income, as in Turkey. Project) was introduced in 2010. UMEM formal sector by ‘freezing’ (rather than informal families during the crisis. Expenditures under the Social Assistance is a partnership between ISKUR, Ministry taking away) the Green Card while the Although the expansion of benefits was DG increased by 32 percent in 2009. of National Education (MoNE) and the person works in the formal sector. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 57 FIGURE 11 Distribution of Policies in OECD and Middle 18. The Government has been general health insurance system. ISAIS will and Low Income Countries preparing a new National Employment enhance responsiveness to future crises OECD Strategy, which will include a focus on by allowing a much faster, streamlined Cash transfers making labor markets more flexible and objective application process, Extended level or duration of UB while increasing the protection of including an automatic determination of Early retirement or social pensions Additional social protection measures workers. A comprehensive National eligibility from within the system, and by Subsidized health insurance Employment Strategy (NES) is in the paying beneficiaries directly.26 An action In-kind transfers (including food subsidies) Income protection making, covering measures to improve plan to strengthen the link between Training labor market flexibility and security, the social assistance and employment was Job search Skills certification relevance of education to market needs, introduced in 2010, including the registration Intermediation and the employability of vulnerable of social assistance beneficiaries that are Counseling Job search and training groups (including youth and women) and able to work in ISKUR. Credit and support to SMEs the link between social protection and Public works Public jobs employment. The NES will complement Benchmarking of crisis-response Wage subsidy (for new entrants) the new Industry Strategy—dealing with policies around the world27 -- Work sharing the investment climate and innovation Reduction of non-wage labor costs policy aspects of employment. Other 20. Most countries adopted some kind Job subsidies Support labor demand employment-related measures, including of policy response to the crisis—the 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 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 NON OECD also contribute to job creation, but access and severity of the crisis. Around the Cash transfers to long-term financing continues to be a world, governments were more active Extended level or duration of UB challenge. in protecting jobs, training workers, and Early retirement or social pensions Additional social protection measures expanding safety nets than in previous Subsidized health insurance 19. Significant steps are being taken crises. These policies were roughly divided In-kind transfers (including food subsidies) Income protection to improve the effectiveness of social among these 3 types of interventions: labor Training assistance, including measures to make demand, income protection, and job search Job search Skills certification it more responsive to future crises. After Intermediation the June 2011 election, the Government 26- Under the new system, applications for Counseling Job search and training combined responsibility for all central assistance can be done at any point during Credit and support to SMEs the year and are processed automatically the government social assistance benefits Public works same day with single ID document. Under Public jobs under the new Ministry of Family and the previous system, applications for the Wage subsidy (for new entrants) Social Policies (MoFSP). A new Integrated CCT could only be done between August -- and October, it would require more than 6 Work sharing Social Assistance Information System Reduction of non-wage labor costs documents from other public institutions (ISAIS) has been developed, while common and it would take between 2 and 3 months to Job subsidies Support labor demand mechanisms are being developed to target process. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 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 Source: ILO-WB Inventory of Policy Responses. OECD (2011). TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 59 and skills training. The policy mix within OECD countries), interventions were STW schemes is to ensure that the subsidy percent of interventions in developing each of these categories differed across mostly directed at formal sector workers. 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 OECD and non-OECD countries (Figure In countries like Turkey, however, informal preventing the necessary reallocation of provide temporary employment at low 11). While there are no accurate data on all workers did experience a significant jobs that are no longer competitive.28 wage rates on labor-intensive projects. programs, estimates suggest that in most reduction in income. The rest of this section One good feature of these programs cases crisis-response budgets did not tries to draw some lessons from selected 23. Outside the OECD, support to labor during downturns is self-selection (thus exceed one percent of GDP . For example, interventions to support labor demand and demand was mainly channeled through not involving administrative decisions expenditures on ALMP in OECD and ECA protect incomes. SMEs. SMEs were not only affected by for program entry or exit). When wages countries ranged between 0.01 and 0.5 reduced sales, but also limited access to are sufficiently low (i.e. no higher than percent of GDP—0.13 percent in Turkey. Support to labor demand financing and high borrowing costs. Most the market wage for unskilled labor) Overall, the magnitude of the response countries intervened to support SMEs and the work is labor intensive, then and the choice of policies were more a 22. Short-time work schemes (STW) through a variety of instruments, including poor people are likely to participate and reflection of the available fiscal space, the were the most common type of support access to finance, advisory services, and benefit from the program (Del Ninno et types of institutions and programs that to labor demand in OECD countries— preferential treatment in public tenders. al. 2009). 29 Despite the self-selection 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 For example, Mexico’s stimulus package feature, it is not easy to set up and the GDP shock, rather than an assessment protecting jobs. Most OECD countries required at least 20 percent of government implement a new program during a of the nature of labor market adjustments— already had STW or partial unemployment purchases to be made from SMEs. crisis, as the experience in countries Turkey was no different. schemes before the crisis. These programs Because of the stricter control they are like Turkey shows. Programs that have are meant to preserve jobs and provide subject to, most beneficiary SMEs are succeeded in protecting the poor 21. In general, interventions tended income support for workers experiencing more likely to be in the formal sector or during a crisis tend to be programs to focus on protecting jobs and the reduced hours in firms subject to have lower incidence of job informality than that were already in place and were unemployed—mostly benefiting formal temporary shocks to demand. Many of other SMEs. However, some countries, just expanded during the crisis, like sector workers—rather than providing these countries, including Turkey, extended particularly in ECA, have also supported Argentina’s Jefes de Hogar (Galasso income support to workers. In non-OECD the coverage or generosity of STW the self-employed, which are more likely and Ravallion 2004). These programs countries, around 60 percent of the policy schemes (as in Turkey) or relaxed eligibility to be informal. In the Czech Republic, for often maintain a list of projects that are interventions consisted of support to labor or the administrative requirements to example, the number of recipients of ready to be implemented and scaled up demand (excluding public works), job search encourage take-up. The take-up was much entrepreneurship grants increased from when needed while ensuring resources assistance and training, and the extension larger in countries with well-established 12,800 in 2008 to 20,200 in 2009. are allocated to building infrastructure of unemployment benefits—interventions STW programs relative to countries with or maintaining assets with the highest to avoid dismissals in the formal sector or new schemes. The increase in take-up 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. to protect those who lost formal sector was particularly large in countries like mitigating the impact of reduced jobs. This is in sharp contract with the Germany and Italy, where the average incomes among the poor, particularly in 29- In May 1999, the Republic of Korea finding that in most of these countries monthly number of beneficiaries reached countries with existing programs. Public launched a public works program for the the main labor market adjustment to the more than 3 percent of employees (0.4 works programs accounted for about 10 unemployed not covered by unemployment benefits. Around 2.5 times more people crisis was through reduced earnings. With percent in Turkey). Hijzen and Venn (2011) benefited from the public works compared 28- The significant reduction in take-up in the exception of cash transfer programs find a positive impact of STW schemes on with unemployment insurance. The wage Turkey in 2010 despite the extension of the be- and public works (which only represented employment during the crisis, particularly in had to be adjusted downward several times nefit to 12 months suggests that STW scheme as some workers were leaving their jobs to about 25 percent of interventions in non- Germany and Japan. The main challenge of works as a mechanism to protect jobs during receive the higher wages in the program. temporary shocks. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE III 61 FIGURE 12 Coverage of unemployment benefits and response during Income protection 12). France and Japan made it easier for the crisis in the OECD temporary irregular workers to access Coverage of unemployment benefits Change in the number of UB recipients as a 25. The coverage of unemployment unemployment insurance. In Latvia, before the crisis (%) percentage of the change in the number of insurance was limited at the outset the contribution period before a worker unemployed (%) of the crisis except in rich OECD could claim benefits was decreased. 120 160 countries. Few developing countries The duration of unemployment benefits 100 140 80 have unemployment insurance (UI) and was increased in countries like the USA, 120 60 even when they do coverage tends to Canada, Latvia, Poland, and Romania. 100 40 80 be very limited, as eligibility is linked to Benefit levels were increased in countries 20 formal sector employment. In rich OECD like Greece and Italy. 60 0 countries, UI is the first and main tier of 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 automatic support to the jobless during 27. To be cost-effective, adjustments in 20 0 downturns. Many of these countries the level and, particularly, the duration 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 also have unemployment assistance of benefits need to be temporary Uemployment Insurance Unemployment Assistance (UA), which typically takes the form of and tied to labor market conditions. Source: OECD. Right-hand side figure refers to beneficiaries and unemployed during the first year of the crisis. 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 general, automatically linking extensions and receipt of UB more generally, to UI benefits (Figure 12). of benefits during downturns when to labor market conditions through a activation measures like job search and unemployment spells are t ypically rule is preferable to ad-hoc/discretionary work requirements during the downturn 26. Unemployment benefits were longer. Extensions also support an adjustments during crises in terms of is likely to limit its effectiveness as a the first line of response to the crisis, other wise weak aggregate demand, timeliness, temporariness and overall crisis-response measure. There is still, but they provided limited protection thus acting as an economic stabilizer. cost-effectiveness (Woodbury and Rubin however, room to set benefits in the to the jobless except in rich OECD However, longer benefit periods can 1997). The specification of an automatic extended period (and the UB receipt countries—temporary changes in the induce benefit recipients to delay their rule is not without challenges in practice, period more generally) to decline with 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 the most important of which is to limit the length of the unemployment spell more effective. In OECD countries, the labor market conditions improve. 30 To the extent of automatic adjustment in a to provide incentives for job search. And increase in the number of beneficiaries mitigate this negative impact, benefit typically fiscally-constrained environment it may be desirable to link benefits to was on average about 60 percent of extensions should be temporary and (OECD 2011).31 participation in ALMP such as job search the increase in the total number of linked to labor market conditions. In assistance and skills training for those unemployed (OECD 2011). The degree to 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 which unemployment benefit programs benefits could be linked to activation conditions improve, linking benefit responded to the crisis depended on 30- For example, Aaronson et al. (2010) measures as labor market conditions receipt to activation measures like job estimate that the significant benefit extension initial conditions (i.e. qualifying rules and improve. Linking benefit extensions, search and work requirements is key to 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 ensuring the unemployed transition back 31- Canada provides a good example of UA) and the adjustments made during increase in average unemployment duration into employment (Almeida et al. 2012). since July 2008, which translates into a 0.7 linking both eligibility and benefit duration to the crisis to eligibility rules as well as local labor market conditions while limiting percentage point rise in unemployment. the level and duration of benefits (Figure the automatic variation in benefit duration to a pre-defined range (OECD 2011). TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 63 4. OPTIONS TO STRENGTHEN Alternatively, Unemployment Insurance data from management information THE MANAGEMENT OF LABOR MARKETS Individual Savings Accounts (UIISA), systems were able to respond better.32 implemented in countries like Chile and Tight and low eligibility thresholds of THROUGH THE CYCLE Brazil, automatically provide an incentive Guranteed Minimum Income (GMI) for job search without the need for close schemes, the most common last-resort 1. Crises are rarely fully predictable, monitoring (Reyes-Hartley et al. 2010). social assistance program in ECA, has but there are measures Turkey can limited its responsiveness to the crisis.33 take to be better prepared for and 29. Along with public works, social However, the regular indexation of the responsive to them. This section assistance, particularly cash transfers, eligibility threshold for Serbia’s Material makes use of the analysis of the impact are lik ely to have been the most Support Program allowed the program to of the crisis and policy responses effective policy response to protect expand significantly during the crisis. CCT in Turkey as well as lessons from the incomes of poor and vulnerable. programs are also not typically designed international experience to suggest Transfer programs have been a more to address short-term income shocks, (i) some guiding principles to improve common crisis-response measure in but a number of countries introduced the responsiveness to future crises in developing countries, where the first changes to make CCT more responsive. a cost-effective way; (ii) ways to adjust and main tier of support (UI) is often not Brazil and Mexico temporarily added the policy mix through the economic available or limited. Transfer programs beneficiaries to programs with already cycle; and (iii) options to strengthen have also been appropriate policy large coverage and increased benefit income protection policies in Turkey. responses to the crisis in developing levels. Brazil’s Bolsa Familia expanded Section 5 links policies to manage labor countries, where the main adjustment coverage by raising the benefit eligibility markets through the cycle with policies was through reduced labor incomes, threshold and revising the targeting to address the longer-term, structural especially when informal workers formula to account for variations in jobs challenge in Turkey. were particularly hit, as in Turkey. In household income, a permanent all cases social assistance has been change that will allow greater automatic Improving the responsiveness to less responsive to the crisis than UB, responsiveness to future crises (Fiszbein future crises but a number of factors improved the et al. 2011). responsiveness of these programs. 2. To be most cost-effective, the policy response to a crisis needs to be timely 30. Pre-crisis preparedness and the 32- The latter is a proxy for administrative (when needed), address the nature capacity as well as the ability to monitor and adjustment of program parameters manage social assistance programs. of the adjustment (e.g. jobs versus improved the responsi veness of earnings), well-targeted to those 33- GMI schemes tailor benefits to each social assistance programs to the household according to the difference who need support and temporary crisis. In the ECA region, pre-crisis between their observed incomes and some (for as long as support is needed). preparedness mattered (Isik-Dikmelik, guaranteed minimum income level, which How? Mostly by being prepared and 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 then making temporary adjustments existing social assistance programs that narrowly-targeted programs. GMI schemes are as needed and only introducing new had greater coverage of the poor and also inflexible because to increase coverage programs as a last resort: via an increase in the threshold, governments vulnerable and with readily available usually have to increase benefits for all recipients. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 65 1) Articulation of policies and institutions. for different types of workers) against some of the ‘conditions’ attached to a 4. During downturns, the focus could Gradually converging to a system that an assessment of existing policies and benefit to quickly increase coverage of be on protecting workers who are most coordinates social insurance, social institutions and the available fiscal space this benefit during a crisis (e.g. activation at risk of losing their jobs or seeing assistance, ALMP and labor regulations. can inform the policy mix and targeting in conditions). These adjustments, however, their earnings fall. Unemployment Well-articulated systems are not only response to the crisis. This analysis can should be temporary to avoid possible benefits, cash transfers and public works more effective overall but also more be updated as new information comes moral hazard. And the best way to ensure are the main policy instruments to protect responsive to crises (World Bank 2012a). in, so that policies can be adjusted temporariness is by tying them to labor incomes. Temporary short-time work accordingly. market conditions through a pre-defined schemes can encourage work sharing 2) Increasing reliance on social insurance. rule and eventually accompanying them rather than layoffs during a downturn, Gradually increasing the coverage of 5) Increasing reliance on well-designed with activation measures as labor although the benefit is limited to formal social insurance, including unemployment pre-existing programs. While good demand picks up. More generally, ex employment. Support to SMEs and insurance, will reduce reliance on information and analysis can help inform ante planning of policy responses to a the self-employed, particularly through discretionary transfers during downturns, the right policy response, the best policy downturn leads to more cost-effective access to finance, can also help protect and allow limited fiscal resources to be ‘insurance’ against a crisis is to have a interventions. And while making policy jobs. Policies that facilitate job search allocated to protecting the incomes of the good inventory of pre-existing programs interventions (including adjustments) are less effective when labor demand most vulnerable. that can be scaled up and adjusted as automatic increases responsiveness, it is low. Skills training for the jobless can needed. This involves, for example, may also be desirable to set limits to the help preserve skills and re-skill those in 3) Making labor markets more flexible. having social assistance programs with automatic variation to avoid excessive need to switch sectors/careers, although Giving firms more flexibility in the good coverage and targeting of the poor fiscal pressure. the impact of these programs is greater management of human resources and and vulnerable that can be ‘adjusted’ to when labor demand is high. encouraging job creation. For example, a crisis situation. It also involves having Adjusting the policy mix through more flexible contracts in terms of wages programs like public works that can be the economic cycle 5. During recovery, the policy mix and/or hours reduce the need for firms to ‘switched’ on and off as needed. And pre- would focus on activating individuals fire workers during downturns. This can existing programs need to be designed 3. To manage labor markets effectively and facilitating job creation. As labor be complemented with STW incentives to respond flexibly to temporary shocks, through the cycle, policies should market conditions improve, the receipt to prevent layoffs. High severance pay e.g. by adjusting the targeting formula aim to minimize the impact of the of UB or welfare transfers can be linked reduces job flows but at the expense to account for variations in income and crisis on workers and their families to activation measures like job search of inefficiencies. Reducing severance having a streamlined and automated and maximize the impact of recovery and work requirements as well as pay while increasing coverage of UI will system for processing applications for on job creation. To this end, the policy participation in ALMP (e.g. job search encourage job creation during upturns social assistance. mix needs to be adjusted through the assistance and skills training) for those and increase worker protection during economic cycle—the availability of timely who need such support. Targeted wage downturns. 6) Making temporary adjustments as information is crucial, focusing on policies subsidies for new hires can help increase needed and linking them to labor market aimed at stabilizing employment and employment among vulnerable groups 4) Good information and analysis. conditions. Pre-existing programs, even providing income protection to workers over and above the displacement of other While it is impossible to predict the exact if well-designed, may need to be adjusted during downturns, and eventually workers. Support to SMEs and the self- magnitude and nature of the impact of a to better respond to the crisis, e.g. the switching to policies that facilitate job employed could be continued during the crisis, early analysis on probable labor market extension of UB period. In some cases, creation and activate the jobless as the upturn for as long as access to finance impacts and adjustments (overall as well as it may even be necessary to discontinue economy starts recovering. continues to be a key binding constraint. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE IV 67 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 extension of receipt period (which is less be used to protect the incomes of the not qualify for UI, public works for other thus reducing job informality. It also links than one year on average) switched on. poor during crises. And initial coverage jobseekers, and cash transfers not tied benefits directly to contributions, with a and responsiveness are crucial to making to job status to protect the incomes well-targeted subsidy for those who do 8. Unemployment assistance: targeted these transfers an effective crisis- of the most vulnerable. The following not reach the minimum benefit. Partial complement to UI. The expansion of the response policy. The following policy discussion focuses on UB, UA and the withdrawals would allow workers to cope current UI system can be accompanied options refer to Turkey’s CCT program, cash transfers. with reduced earnings. And it provides a by the introduction of a UA program for but the same basic principles could strong incentive to look for a job. jobseekers that do not, or no longer, apply to other transfers to the poor. The 7. Unemployment insurance: coverage qualify for UI, with preference given to CCT program is selected as an example and activation. Large numbers of 2) Linking UI to activation measures. those who have had some formal sector because it is the benefit of last resort informal workers, strict qualification rules Under the current PAYGO system, attachment. To make these programs for the poor, its overall good design and and low benefits limit the effectiveness benefits can be set up to decline with cost-effective they would need to be performance are well documented and of the current unemployment insurance the length of the unemployment spell targeted (on the basis of means or proxy- some of the best international examples system in protecting workers. to provide incentives for job search. And means), time-bounded (as UI) and tied to of crisis-responsive safety nets come the existing links between the receipt the same activation measures as UI. from CCT programs.35 1) Increasing protection through UI of UB and activation—job search and goes hand in hand with reduced work requirements as well as (targeted) 9. Cash transfers to the poor: coverage, severance obligations. One option participation in ALMP—could be further responsiveness to crises and is to introduce pre-funded severance strengthened in practice (such links activation. As noted earlier, significant 35- The 2007 evaluation of the program (Ahmed et al. 2007) shows that 62 percent accounts (to make it more efficient and already exist in the law). Activation steps are being taken to improve the and 78 percent of beneficiaries of education ensure workers are actually paid), as conditions could be temporarily switched effectiveness of social assistance, and health benefits, respectively, belong to in Austria, while increasing benefits off during downturns and an automatic including measures to make it more the poorest quintile of the population, which is very high by international standards. And and relaxing the eligibility criteria for responsive to future crises (e.g. ISAIS) 34- Küçükbayrak (2012) shows that reducing the benefits are conditional on investments UI, so that more workers in the formal the minimum period of contribution to be and link it to activation. Cash transfers in the health and education of children from eligible for UI would not significantly affect are typically targeted to the chronic poor poor families, which has resulted in significant the finances of the Unemployment Insurance improvements in those areas, particularly irrespective of work status but can also Fund. among girls. 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 1) Increasing the coverage of poor will assistance programs. This revision could work is needed to refine these options. 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 2. More research is needed on the to be too narrowly targeted. Although determines eligibility so as to increase barriers to the creation of and access there is no information on the coverage coverage. to productive employment to help of the poor, if we assume that 70 percent refine the policy options below and of the beneficiaries are in the poorest 2) Increasing flexibility to better come up with others. The report notes quintile, then the CCT is estimated to respond to idiosyncratic shocks. The the stalling of agricultural labor shedding benefit 19 percent of the 20 percent CCT program would continue focusing since 2006, which is explained by a poorest households. This is in contrast on reducing chronic poverty, but small combination of higher food prices and with similar programs like Bolsa Familia changes can make it more responsive the added-worker effect during the crisis. in Brazil and Oportunidades in Mexico to shocks. One option is to modify the And subsidies to agriculture have slowed where the coverage of the poorest PMT formula to account for variations in down agricultural labor shedding over quintile is 48 percent and 54 percent, household income, as in Brazil. Another the long run. A more general question, respectively. The proxy-means test (PMT) option is to raise the eligibility threshold however, is the extent to which there used for Turkey CCT is currently being during crises, as a number of countries are barriers to the reallocation of labor revised and extended to other social did during the recent crisis. (and capit al) from less productive TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 71 sectors to more productive sectors short-term external financing makes the 2) Improving the enabling environment market returns of technical, cognitive and (including within agriculture). Another economy more exposed to global shocks. for skills to be productively used. behavioral skills in Turkey to help inform area that deserves further work is female The concomitant appreciation of the Policies that improve the business future policy. employment, which seems to be trending TL has led to a loss of competitiveness climate (e.g. by reducing the regulatory up after two decades of decline, possibly of traditional Turkish exports, while burden) are essential for firms to grow 6. Improving skills starts with a strong indicating a structural shift. Policies that modern manufacturing sectors with high and generate employment. Innovation foundation and getting the basic skills help to activate women into productive import content, such as automobiles policies (e.g. promoting the collaboration right for everybody, and then building employment will boost growth. And more and consumer durables, have benefited between universities and firms) are key job-relevant skills through secondary work is needed on the sources of and from this appreciation, substituting to putting new ideas to use (World Bank and higher education. The ongoing factors behind job creation after the crisis. domestic intermediate goods for foreign 2009c, 2010b). Here we focus on policies expansion of preschool education intermediate goods, thus reducing labor to improve the functioning of the labor (universal enrollment of 5 year olds by 3. Employment-related policies need demand in the formal wage sector market. 2014) will improve school readiness and to build on a stable macroeconomic (Yeldan 2010). subsequent learning achievement. Turkey environment—macro policies have Building the skills for work, has near-universal primary education and largely achieved that but reliance 4. Thus, while rapid economic growth entrepreneurship and innovation the new primary education curriculum on external financing remains a is behind the impressive rates of job already yielded improved PISA scores.37 challenge. Turkey’s economy was creation after the crisis, reliance on 5. Skills are central to enhancing There are ongoing reforms to improve growing fast before the crisis, it was short-term capital inflows to finance productive employment in Turkey. the quality and relevance of secondary then hit hard by the global crisis but this growth puts into question the Skills are at the core of improving education. The main challenge in higher recovered fast and strong. Underlying sustainability of those gains, particularly individuals’ chances of finding a good education is to ensure the qualit y these changes are movements in the given the uncertainties created by the job in the formal sector and being of the rapidly expanding sector. But current account deficit (CAD), which was crisis in the eurozone, and calls for policy productive at that job, developing new further reforms are needed to ensure growing fast before the crisis, declined action to address the high CAD and ideas and helping to use existing ones, that curricula emphasize the full skills during the crisis, shot up thereafter to enhance productive employment through and becoming a successful entrepreneur. set (including innovation skills) and to reach 10 percent of GDP in 2011, and it employment-related policies, which are The required skill set includes basic strengthen quality assurance systems, is now expected to decline to 7.3 percent the focus of the rest of this section. cognitive skills (e.g. numeracy, literacy), teacher quality, school financing and in 2012. And CAD is largely financed by technical skills and, increasingly—as service delivery (World Bank 2011a and short-term capital inflows. Underlying A two-pillar policy framework to countries move up in the value-added forthcoming). Improving the quality of the persistently high CAD are structural enhance productive employment chain—higher-level cognitive skills (e.g. education through the school cycle is the factors like export competitiveness, in Turkey problem solving, communication) and most cost-effective measure to enhance energy imports and domestic savings.36 behavioral skills (e.g. perseverance, productive employment over the long run. But expansionary fiscal and monetary 1) Building the skills for work, self-discipline, teamwork). In Turkey, policies (at least until the end of 2010) entrepreneurship and innovation. the low level of skills of the WAP , the 37- Turkey’s results in the Program for Inter- have contributed to it. High reliance on Policies to boost firm growth and increasing demand for skills, and the national Student Assessment (PISA)—which innovation are crucial to increasing labor demographic dividend make the skills evaluates 15 year olds’ abilities to apply basic 36- A recent report examines the factors skills—improved remarkably between 2006 productivity in Turkey (World Bank 2009c, agenda particularly relevant (see Section underlying the low and declining levels of do- and 2009, although the average 15 year old mestic savings in Turkey and provides options 2010b). However, this study focuses on 1). More information, however, is needed in Turkey is still about one full school year for boosting domestic savings (World Bank the skills dimension of competitiveness. on the supply, demand by firms and labor behind the average OECD student (World Bank 2012b). forthcoming). TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE V 73 7. Building job-relevant skills is also coverage. Low-skilled workers also face of youth are neither working nor going MoFSP . And good public information on about providing opportunities for skills barriers to productive jobs other than to school—60 percent among 20-24 the programs is essential to attract the upgrading through the working life. skills, including information, access to year olds with less than secondar y right people to the program. The 2009 lifelong learning strategy and capital and mobility, and the availability education. Inspired by the experiences the expansion and quality improvement of programs to address these barriers in the UK and the US, Jovenes programs Providing the enabling labor of ISKUR vocational training are positive is still limited in Turkey. And often their in several Latin American countries market for skills to be productively steps, but more efforts are needed to precarious job status is reinforced by t arget disadvant aged out-of-school used ensure lifelong learning opportunities disincentives for formal employment built youth (typically 15-29 year olds with are available to those who need them, in social benefits. Recent reforms are, less than secondar y education) and 11. Functioning labor markets are irrespective of whether they have a job however, starting to address this problem provide a package of services: incentives essential, in addition to skills, for or not. The role of government in lifelong by linking social assistance receipt to to complete secondar y education, individuals to find and accept good learning can be more focused on setting registration in ISKUR, opening up social vocational training, socio-emotional skills jobs and for employers to find and standards (e.g. skills certification), assistance to formal sector workers and training, employment services and job recruit skilled employees. Employers ensuring quality and providing targeted reducing the disincentives to formal internships. These programs have had need the flexibility to manage their funding, as in Chile. employment for Green Card holders. large impacts on formal employment human resources, and workers need exceeding program costs. to be able to move freely bet ween 8. Upgrading the skills of the 9. Activation programs can be j o b s a n d r e g i o n s . Ach i ev i n g t h i s vulnerable—as part of an activation designed in a cost-effective way— 2) Women. Women account for most of objective will require moving towards 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 the jobless and most working women are more flexible, efficient and secure producti ve employment over the can have a large payoff. Activating the informal—the low level of education and labor markets by avoiding high labor medium term. Skills are best acquired vulnerable into productive employment in skills is a key underlying factor. Activation costs, restrictive contracting, and high the first time around and reforms to a cost-effective manner involves (i) good programs can be designed to recognize severance payments, while revamping improve skills while in school are most targeting and profiling (right package to women’s mobility and time constraints. income protection systems for workers cost-effective. But the impact of these the right people), (ii) a comprehensive 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 reforms will only materialize in the long approach to activation (a package of example, provides extra subsidies match skills to jobs. The employment run, while the large share of the WAP programs/services to address multiple for mothers and transport expenses, protection legislation in Turkey is one that do not have the basic skills to barriers to productive employment), and yielding a higher impact on earnings of the most restrictive in the OECD, find a job or to get out of informal/low- (iii) linking the receipt of social benefits and employment among women than resulting from restrictions/disincentives productivity jobs (i.e. the vulnerable) to activation. And targeting low-skilled men. The Government could consider to flexible contracting and generous limits Turkey’s growth potential. The youth and women, the t wo groups the experience of Jovenes programs to severance obligations. And support to skills building needs of these low-skilled disproportionally affected by the jobs develop Turkey-specific schemes that workers through UI and employment people are largely underserved: about challenge, could have a large payoff: build on existing ISKUR programs. services has been limited. Severance 74 percent of ISKUR trainees have at pay and UI have already been least secondary education,38 and second 1) Youth. Activation programs are more 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 chance education programs have limited cost-effective for youth than for adults would require reorienting ISKUR on flexible contracting, enforcement (Betcherman et al. 2007) and the overall services towards the vulnerable (see of labor laws and awareness-raising 38- This is because courses are designed for these people and providers have an incentive impact is larger while the demographic paragraph 15). It would also involve close to reduce informalit y and enhance to select them for training (World Bank, forth- window is open. More than one third collaboration between ISKUR, MoNE and employment services. coming). 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 12. More flexible contracting mainly credited 30 days a month, becoming j o b s e e ke r s d e e m e d t o h ave g o o d involves reducing barriers to existing eligible for a pension proportionally much 14. Making employment services chances of finding employment only get flexible contracts . The restrictions on faster. The contributory week could be front and center of activation efforts. minimal services (e.g. information on job fixed/temporary contracting result in a redefined to make it more proportional to ISKUR is working to expand employment vacancies), focusing instead the attention 74 percent job informality rate among days worked. services (job placement, counseling, job on monitoring their individual actions to workers employed on a temporar y/ search assistance), which are currently find employment. Individuals who have fixed basis (almost half of all workers 1 3 . Effecti ve enforcement and ver y limited. International evidence the hardest time finding employment get in Turkey). To avoid this situation, the awareness-raising are already shows that employment services are the bulk of activation services, including following changes could be considered: reducing job informality, but incentives more cost-effective than other activation follow-up support from job consultants.  (i) opening up fixed-term contracts to need to be addressed. Job informality measures and an effective screening all job activities and allowing temporary is interrelated with other forms of 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 employment agencies to operate in all informalit y like t ax evasion (World who require additional services (e.g. sectors/occupations; (ii) allowing several Bank 2009a). Ongoing enforcement vocational training). unconditional renewals of fixed-term and and awareness-raising have already temporary contracts; and (iii) extending contributed to the 7.3 percent increase in 15. Making activation policies cost- the probation period to at least the OECD the number of SSI contributors in 2010 effecti ve also requires making average (4 months). The recent legislative and 2011. But these instruments do not jobseekers more responsible and changes enabled part-time workers affect the incentives for firms (particularly getting the right services to the to pay their unpaid social securit y SMEs) to employ informal workers and right people. A good example is UK’s contributions retroactively. However, for workers to be employed informally. Jobcenter Plus, which centers around there are still disincentives for workers to The 2008 across-the-board reduction in job counselors who (i) agree with each take on part-time jobs, resulting in only employers’ social security contributions jobseeker on an individual plan—including 3 percent of formal workers being part- is likely to have reduced informality by individual actions to find employment time: while part-time workers contribute decreasing the ‘tax’ on formal jobs. and participation in specific activation for days worked, a full-time worker gets Evidence from Mexico suggests that programs, based on an employability 39- The plan is also to provide counseling services to employers. 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. 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TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN 81 TABLE A1 Labor market transitions and crisis impacts (main) World Bank, 2012a, Social Protection Transitions from the previous year to Trends and crisis impact and Labor Strategy 2012-2022. 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 World Bank, 2012b, Turkey: Sustaining FS to IS 2,8 1,9 4,7 -0,9 2,8 3,8 High Growth: The Role of Domestic FS to FSE 0,4 0,5 0,5 0,1 0,0 -0,1 Savings. 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 World Bank, forthcoming , Turkey: FS to OLF 4,1 3,0 3,2 -1,0 0,2 1,2 Evaluating the impact of vocational 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 training for the jobless, World Bank. 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 World Bank, forthcoming, Promoting IS to U 9,4 10,2 11,7 0,9 1,5 0,6 Excellence in Turkey’s Schools, World IS to OLF 12,2 9,6 12,0 -2,6 2,4 4,9 Bank. 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 Yeldan, Erinç, 2010, “A Macroeconomic 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 Assessment of the Effects of Fiscal FSE to U 0,9 1,4 1,3 0,5 -0,1 -0,6 Stimulus Measures on Employment and FSE to OLF 2,4 4,1 3,3 1,7 -0,8 -2,4 Labour Markets� , in Crisis and Turkey: ISE to FS 1,3 1,6 1,1 0,3 -0,5 -0,8 Impact Analysis of Crisis Response ISE to IS 4,0 3,3 2,3 -0,7 -0,9 -0,2 Measures, ILO Office for Turkey. 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. 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 TABLE A1 (Continued) 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 Labor market transitions and crisis impacts (sectors) 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 Transitions from the previous year to Trends and crisis impact income 2007 2008 2009 Pre-Crisis trend Crisis trend Crisis impact Shares of per capita household income (%) A to A 95.8 95.5 96.9 -0.3 1.4 1.7 Labor income 45,2 47,6 44,9 45,7 A to M 0.8 1.1 0.7 0.3 -0.5 -0.8 in total income A to C 1.0 1.1 0.7 0.1 -0.3 -0.4 Wage income 66,5 67,2 67,0 66,6 A to S 2.4 2.4 1.8 0.0 -0.6 -0.6 in labor income M to A 1.9 2.3 2.2 0.4 -0.1 -0.5 Source: : TUIK (Survey of Income and Living Conditions) and authors’ calculations. 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. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN TABLE A3 85 The impact of the crisis across different types of workers Dependent Variable = Crisis impact on: Male Young Sec. Educ. Urban Constant R-squared Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. As a share of WAP LF (=LFPR) -0,011 (0,007) 0,002 (0,010) 0,008 (0,009) -0,006 (0,006) 0,019** (0,005) 0,213 Employed (=ER) -0,027*** (0,004) -0,005 (0,005) 0,005 (0,006) -0,014** (0,004) 0,016** (0,004) 0,775 Idle 0,019** (0,005) -0,004 (0,008) 0,016* (0,007) 0,003 (0,005) -0,031*** (0,004) 0,661 Jobless 0,035** (0,008) 0,003 (0,012) 0,019 (0,012) 0,011 (0,007) -0,028*** (0,005) 0,683 Wage employed -0,023*** (0,003) -0,001 (0,005) 0,005 (0,005) -0,009* (0,004) 0,002 (0,003) 0,735 Self-employed -0,001 (0,002) -0,004+ (0,002) -0,001 (0,003) -0,001 (0,003) 0,008** (0,003) 0,201 Unpaid family workers -0,001 (0,002) -0,000 (0,002) -0,000 (0,001) -0,004 (0,002) 0,006* (0,003) 0,338 Informal employed -0,005 (0,003) -0,003 (0,005) 0,005 (0,004) -0,007 (0,004) 0,011* (0,004) 0,338 Formal employed -0,022*** (0,004) -0,002 (0,003) 0,000 (0,005) -0,007 (0,004) 0,005 (0,004) 0,759 Formal wage employed -0,020*** (0,004) -0,000 (0,003) 0,001 (0,005) -0,003 (0,003) -0,003 (0,003) 0,732 Informal wage employed -0,003 (0,003) -0,000 (0,005) 0,005 (0,003) -0,006+ (0,003) 0,005+ (0,002) 0,308 Formal self-employed 0,001 (0,001) -0,001+ (0,001) -0,000 (0,001) -0,000 (0,001) 0,002** (0,000) 0,318 Informal self-employed -0,002 (0,002) -0,003 (0,002) -0,000 (0,003) -0,001 (0,003) 0,006* (0,003) 0,130 Employed in agriculture 0,002 (0,001) -0,002 (0,001) -0,000 (0,002) -0,015*** (0,002) 0,015*** (0,002) 0,827 Employed in manufacturing -0,017*** (0,003) -0,007* (0,003) 0,001 (0,003) -0,005+ (0,002) 0,005* (0,002) 0,853 Employed in construction -0,003+ (0,001) -0,003 (0,002) 0,003* (0,001) -0,002 (0,002) 0,001 (0,001) 0,478 Employed in services -0,008+ (0,004) 0,006 (0,004) 0,001 (0,003) 0,009+ (0,005) -0,006 (0,005) 0,535 As a share of labor force: Unemployed (=UR) 0,003 (0,006) 0,029* (0,010) -0,012 (0,007) 0,023*** (0,005) 0,016+ (0,007) 0,697 Log real monthly earnings Of all wage employed 0,018+ (0,009) -0,034* (0,014) 0,055*** (0,010) 0,001 (0,016) -0,044* (0,017) 0,759 Of formal wage employed 0,002 (0,009) -0,024 (0,015) 0,046*** (0,007) -0,022+ (0,012) 0,002 (0,017) 0,718 Of informal wage employed 0,039+ (0,020) -0,012 (0,019) 0,037 (0,045) 0,020 (0,017) -0,087** (0,023) 0,311 Of wage employed in agriculture 0,002 (0,043) -0,090+ (0,047) -0,006 (0,199) 0,051 (0,041) -0,061 (0,053) 0,205 Of wage employed in manufacturing 0,053** (0,016) -0,008 (0,022) 0,041+ (0,019) -0,034 (0,033) -0,051 (0,034) 0,464 Of wage employed in construction -0,097+ (0,049) -0,011 (0,043) 0,053 (0,047) -0,014 (0,028) 0,048 (0,059) 0,374 Of wage employed in services 0,011 (0,009) -0,033+ (0,016) 0,043*** (0,009) -0,001 (0,019) -0,021 (0,021) 0,521 Log Hours worked: Of formal employed 0,018* (0,008) 0,003 (0,011) 0,009 (0,005) 0,015+ (0,008) -0,037** (0,010) 0,421 Of informal employed 0,016 (0,015) -0,017 (0,014) 0,014 (0,011) -0,010 (0,014) -0,016 (0,015) 0,304 Of employed in agriculture -0,021+ (0,010) -0,031+ (0,017) 0,014 (0,033) -0,033 (0,028) 0,003 (0,008) 0,297 Of employed in manufacturing 0,053** (0,016) -0,003 (0,010) 0,016 (0,010) -0,001 (0,010) -0,064** (0,018) 0,658 Of employed in construction 0,035+ (0,015) 0,014 (0,019) 0,034* (0,012) 0,020 (0,016) -0,078** (0,021) 0,473 Of employed in services 0,025*** (0,004) 0,002 (0,007) 0,003 (0,003) -0,010 (0,007) -0,012+ (0,006) 0,666 Log constructed hourly wage rate: Of formal wage employed -0,013 (0,011) -0,023 (0,020) 0,041** (0,010) -0,014 (0,017) 0,012 (0,022) 0,579 Of informal wage employed 0,035 (0,026) 0,009 (0,024) 0,042 (0,051) 0,023 (0,025) -0,116** (0,030) 0,262 Of wage employed in agriculture 0,027 (0,029) -0,181** (0,048) 0,023 (0,168) 0,002 (0,037) -0,065* (0,027) 0,503 Of wage employed in manufacturing 0,033 (0,019) -0,004 (0,022) 0,032+ (0,017) -0,020 (0,036) -0,030 (0,042) 0,267 Of wage employed in construction -0,125+ (0,055) -0,068 (0,037) 0,052 (0,045) -0,029 (0,018) 0,081 (0,061) 0,530 Of wage employed in services 0,005 (0,016) -0,025 (0,019) 0,058*** (0,012) 0,011 (0,024) -0,047+ (0,026) 0,570 Source: TUIK (quarterly labor force survey data) and authors’ calculations. *** statistically significant at less than 1% level, ** at 1%, * at 5% and + at 10%. TURKEY: MANAGING LABOR MARKETS THROUGH THE ECONOMIC CYCLE AN TABLE A4 87 Degree of recovery for different types of workers Dependent Variable = Degree of recovery for: Male Young Sec. Educ. Urban Constant R-squared Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. Coeff. St. Err. As a share of working age: LF (=LFPR) -0,178** (0,043) -0,080* (0,033) -0,055 (0,040) 0,078+ (0,042) 1,159*** (0,038) 0,801 Employed (=ER) -0,164** (0,043) -0,085* (0,032) -0,065 (0,041) 0,062 (0,041) 1,151*** (0,036) 0,789 Idle -0,004 (0,023) -0,100** (0,024) -0,003 (0,029) 0,062* (0,025) 0,887*** (0,022) 0,669 Jobless 0,032+ (0,016) -0,054** (0,016) 0,020 (0,012) 0,075** (0,020) 0,881*** (0,019) 0,812 Wage employed -0,131** (0,036) 0,008 (0,044) -0,055 (0,045) -0,127* (0,044) 1,281*** (0,042) 0,692 Self-employed -0,617** (0,191) -0,093 (0,156) -0,187 (0,170) 0,367 (0,220) 1,272*** (0,230) 0,679 Unpaid family workers -0,083 (0,055) -0,239** (0,063) -0,197* (0,074) 0,094+ (0,048) 1,137*** (0,029) 0,728 Informal employed -0,201** (0,060) -0,105* (0,044) -0,137* (0,053) 0,038 (0,060) 1,135*** (0,054) 0,780 Formal employed -0,377* (0,130) -0,023 (0,100) -0,157 (0,108) -0,347+ (0,182) 1,736*** (0,228) 0,693 Formal wage employed -0,126** (0,030) 0,045 (0,033) -0,117* (0,040) -0,036 (0,032) 1,283*** (0,027) 0,747 Informal wage employed -0,154** (0,044) 0,033 (0,053) -0,117 (0,070) -0,223** (0,050) 1,269*** (0,051) 0,775 Formal self-employed -0,613** (0,138) 0,122 (0,229) -0,334+ (0,183) -0,033 (0,118) 1,525*** (0,079) 0,670 Informal self-employed -0,721** (0,213) -0,074 (0,229) -0,054 (0,239) 0,431+ (0,238) 1,290*** (0,258) 0,596 Employed in agriculture -0,073 (0,041) -0,115+ (0,054) -0,150** (0,044) 0,071+ (0,039) 1,130*** (0,030) 0,681 Employed in manufacturing -0,193** (0,053) -0,139* (0,051) -0,118 (0,074) 0,050 (0,051) 1,195*** (0,044) 0,639 Employed in construction -0,177+ (0,088) 0,060 (0,103) -0,091 (0,101) -0,074 (0,110) 1,461*** (0,111) 0,272 Employed in services -0,255** (0,063) 0,060 (0,096) -0,044 (0,059) 0,034 (0,087) 1,168*** (0,099) 0,582 As a share of labor force: Unemployed (=UR) -0,157* (0,051) -0,028 (0,042) 0,018 (0,030) 0,059 (0,041) 1,159*** (0,066) 0,627 Log real monthly earnings of all wage employed -0,001 (0,001) -0,004+ (0,002) 0,004** (0,001) -0,004 (0,002) 1,010*** (0,002) 0,598 of formal wage employed -0,001 (0,001) -0,004* (0,002) 0,007*** (0,001) -0,003 (0,002) 1,005*** (0,002) 0,744 of informal wage employed 0,004 (0,004) -0,004 (0,005) -0,002 (0,005) -0,006 (0,004) 1,006*** (0,005) 0,318 of wage employed in agriculture 0,012 (0,019) 0,017 (0,017) 0,017 (0,022) 0,006 (0,012) 1,006*** (0,021) 0,146 of wage employed in manufacturing 0,000 (0,005) -0,003 (0,004) -0,001 (0,003) -0,003 (0,006) 1,007*** (0,009) 0,060 of wage employed in construction -0,007 (0,009) -0,016*** (0,003) -0,014*** (0,002) -0,014*** (0,003) 1,039*** (0,009) 0,891 of wage employed in services -0,000 (0,001) -0,003 (0,001) 0,009*** (0,001) -0,001 (0,002) 1,006*** (0,002) 0,782 Log Hours worked: of formal employed 0,002 (0,003) -0,005 (0,003) -0,001 (0,002) 0,004+ (0,002) 0,993*** (0,003) 0,288 of informal employed 0,008 (0,005) 0,001 (0,004) -0,007 (0,006) -0,005 (0,005) 0,980*** (0,004) 0,328 of employed in agriculture 0,000 (0,001) -0,012*** (0,003) -0,004 (0,006) 0,008** (0,002) 0,988*** (0,001) 0,596 of employed in manufacturing 0,009+ (0,005) 0,002 (0,004) 0,003 (0,003) -0,004 (0,005) 0,992*** (0,005) 0,331 of employed in construction -0,004 (0,007) -0,009*** (0,002) -0,007** (0,002) -0,008*** (0,001) 1,016*** (0,007) 0,789 of employed in services 0,006 (0,006) -0,007 (0,004) 0,004 (0,004) -0,002 (0,003) 0,986*** (0,006) 0,377 Log constructed hourly wage rate: of formal wage employed 0,006 (0,017) 0,018 (0,021) 0,060*** (0,011) -0,007 (0,019) 0,999*** (0,026) 0,461 of informal wage employed -0,060 (0,345) -0,385 (0,373) -0,170 (0,647) 0,458 (0,701) 0,810 (0,531) 0,080 of wage employed in agriculture 0,308 (0,666) -0,807 (0,642) -0,280 (0,753) -0,053 (0,464) 1,262 (0,714) 0,082 of wage employed in manufacturing 0,012 (0,174) -0,080 (0,112) -0,029 (0,063) -0,087 (0,212) 1,136** (0,355) 0,040 of wage employed in construction 0,040 (0,098) -0,107 (0,060) -0,064* (0,028) -0,190** (0,047) 1,248*** (0,103) 0,710 of wage employed in services 0,085 (0,193) 0,735 (0,438) -0,202 (0,202) 0,190 (0,181) 0,958*** (0,205) 0,436 Source: TUIK (quarterly labor force survey data) and authors’ calculations. *** statiscally significant at less than 1% level, ** at 1%, * at 5% and + at 10%