Informal Employment Turkey Conference Presentation Labour market reforms

Informal Employment: Turkey Conference Presentation «Labour market reforms in the Western Balkans and Turkey – More and better jobs for inclusive growth and prosperity – » Hakan Ercan Middle East Technical University, Ankara 02. 10. 2018 Budva 1

Growth was high in Turkey • 2017 GDP growth rate was 7. 4 % (GDP per capita was USD 10 602). • 2018 second quarter GDP growth rate was 5. 2 % over 2017 Q 2. • This was before the currency meltdown in the third quarter. • Large fiscal stimulus package was introduced in 2016: • Consumption tax break in consumer durables and furniture; • and a “Credit Guarantee Fund, KGF” for SMEs as loan guarantees. The injection to the economy totalled TL 200 billion (EUR 44. 15 billion). 02. 10. 2018 Budva 2

But there are employment challenges (in bold face) • • Labour force (June 2018): 32. 6 million Labour force participation rate (LFPR): 53. 8 % Male LFPR: 73. 4 %; female LFPR: 34. 6 % High economic growth during the past decade did not reflect itself in employment opportunities. Employment: 29. 3 million; Employment rate: 48. 4 % Agriculture 19. 2 %, industry 19. 6 %, construction 7. 2 %, services 54 % Unregistered work: 34 % (29. 7 % for men and 43. 4 % for women) In the non-agricultural sector: 22. 4 %! Despite considerable improvements over the past decade, informality continues to be a major problem in the Turkish labor market: informal employment in Turkey declined by around 15 percentage points from 2002 to 2013 and gradually keeps decreasing. 02. 10. 2018 Budva 3

Unemployment and NEET rates are not good (June 2018) • Number of unemployed: 3. 3 million; Unemployment rate: 10. 2 % • Male unemployment rate: 8. 7 %; female unemployment rate: 13. 2 % • Non-agricultural unemployment rate: 12. 1 % • Youth unemployment rate: 19. 4 %; Young males: 16. 5%; young females 24. 6% • Long-term unemployed: 22. 7 %; Male: 19 %; female 27. 1 % • NEETs: 16. 4 %; young men: 16. 2 %; young women: 36 % 02. 10. 2018 Budva 4

And relative poverty is a problem: Average annual equivalent household disposable personal income, NUTS 2, 2017 1 € = TL 4. 13 in 2017 02. 10. 2018 Budva 5

Income inequality in Turkey (2017) • Gini coefficient is 0. 405 • P 80/P 20 = 7. 5 02. 10. 2018 Budva 6

Who are these poor? Outlook for poverty and social exclusion Technical Assistance for Increasing the Institutional Capacity of the Ministry of Family and Social Policies in the Field of Social Inclusion Policies Project Simulations about inequality and poverty indexes have been carried out using dynamic microsimulation, based on SILC 2015 microdata, into 2040 (Fondazione Brodolini researchers): • The households headed by a female (often, single member households) are more at risk of relative poverty than the households where the main income earner is a male: the gap in poverty risks by gender of the household head is never below 10 percentage points • and is rather stable over the simulation period. If they work, they work in the informal sector. • Poverty risks are strictly related to the household head’s education that is a main driver of his /her earnings. Poverty risks are much higher for households headed by at most lower secondary individuals. These also tend to work in the informal sector. 02. 10. 2018 Budva 7

Questions on employment: Youth employment is a problem area. Aging is another problem area. We need to postpone retirement, lest we also stress the pension systems: • Can we design employment incentives for the young, while also keeping older workers employed? Not trivial questions, but they are generally ignored: • One invests in productivity enhancing technologies (Industry 4. 0), one can produce with fewer workers (aging); what happens to youth unemployment? Who gets or keeps the job? • What will happen to informal employment? Key factors: Education and sector of employment. • Who will be better able to adapt to digitalization of the workplace, the young or the old? In which occupations? (Think 3 D printing and manufacturing. ) 02. 10. 2018 Budva 8

Will the traditional viewpoint be enough? • Mehmet Simsek (Turkey’s former Minister of Finance) (2014): ”informality inhibits long-term economic growth and productivity gains; creates unfair competition; hinders the growth of small and medium-size enterprises (the main sources of employment); and leaves millions of workers without basic rights, such as health insurance and pensions. It also leads to significant taxrevenue losses, reducing both the quality and quantity of public services. Income inequality and social injustice invariably increase as well. ” • «governments should reduce the tax burden, simplify tax systems, and reduce regulatory compliance costs, while strengthening enforcement. » • ? (See the slide on industry 4. 0) • Thank you. 02. 10. 2018 Budva 9