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DIAGNOSTIC TURKEY

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© 2019 International Bank for Reconstruction and Development / The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202-473-1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions

This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: Aysenur Acar and Ximena Del Carpio. 2019. “Turkey Jobs Diagnostic” World Bank, Washington, DC. License: Creative Commons Attribution CC BY 3.0 IGO. Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. Images: © World Bank Tajikistan. Further permission required for reuse.

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ACKNOWLEDGMENTS The report was prepared by Aysenur Acar Erdogan and Ximena V. Del Carpio. The team is grateful to the following colleagues for their excellent contributions: Reyes Aterido, Laurent Loic Yves Bossavie, Mattia Makovec, Efsan Nas Ozen, Habib Rab, Adrian Scutaru, Sirma Demir Seker, Pinar Yasar, [add after review meeting]. The team is grateful to the Government of Turkey more broadly for supporting this work. Numerous colleagues from the Ministry of Family, Labor and Social Security, the Ministry of Industry and Technology, World Bank, development partners, private sector, and the broad academic community supported the team in conceiving this study.

The team received general guidance from Cem Mete (Practice Manager; Social Protection and Jobs). The team is grateful for the excellent advice provided by the peer reviewers Achim Daniel Schmillen, Metin Nebiler and Pinar Yasar.

The team also thanks Gozde Yilmazturk and Derya Barlak for providing excellent administrative support. The report has been edited by Graham Colin-Jones.

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CONTENTS

EXECUTIVE SUMMARY ............................................................................................. 10

Economic Growth and Jobs ...................................................................................... 10

Workforce ............................................................................................................... 11

Recommendations to facilitate job creation in Turkey ................................................ 13

INTRODUCTION ....................................................................................................... 15

1. ECONOMIC GROWTH AND JOBS ....................................................................... 16

2. WORKFORCE ..................................................................................................... 24

Demographics, Labor Force Participation and Unemployment ................................... 24

Employment and Job Types ..................................................................................... 28

Profile of the workers ............................................................................................... 31

Inactivity ................................................................................................................. 36

Education, Skills and Labor Market Outcomes .......................................................... 40

Labor force skills as measured by PIAAC, PISA, and TIMSS ....................................... 44

Technological change and skill composition in the labor market ................................. 46

Labor market returns ............................................................................................... 51

Workforce skills in relation to job creation and productivity growth ............................. 54

Job quality............................................................................................................... 56

3. LABOR DEMAND IN THE FORMAL SECTOR ...................................................... 61

Profile of formal sector labor demand ........................................................................ 61

The relationship between productivity and employment ............................................. 71

Firm perceptions of obstacles to performance ............................................................ 76

1. Informal competition and informality ............................................................... 76

2. Excessive labor regulation ............................................................................... 77

3. Inadequately educated and skilled workforce .................................................... 79

4. RECOMMENDATIONS TO FACILITATE JOB CREATION IN TURKEY ................. 80

1. Details of actions recommended ...................................................................... 84

APPENDIX ............................................................................................................... 102

BIBLIOGRAPHY........................................................................................................ 113

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ABBREVIATIONS

EIS Entrepreneurship Information System

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

GII Global Innovation Index

GNI Gross National Income

ICT Information and Communications Technology

JQI Job Quality Index

LFP Labor Force Participation

LFS Labor Force Survey

NEET Not in Education, Employment, or Training

OECD Organization for Economic Co-operation and Development

PIAAC Programme for the International Assessment of Adult Competencies

PISA Programme for International Student Assessment

PPP Purchasing Power Parity

SME Small and Medium-sized Enterprise SuTP Syrian under Temporary Protection

TFP Total Factor Productivity

TIMMS Trends in International Mathematics and Science Study

TUIK Agency of Statistics under the Republic of Turkey

UN United Nations

WB World Bank

WDI World Development Indicators

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LIST OF FIGURES

Figure 1 Turkey’s GDP per capita (PPP), 1990-2017 ................................................................................ 16 Figure 2 Real GDP annual growth, 2000-2017 ........................................................................................... 16 Figure 3 Poverty rate in Turkey, 2002-2016................................................................................................. 17 Figure 4 Key labor market indicators, compound annual growth rate, 2005-2017 ............................... 17 Figure 5 Export, FDI and Remittances, 2005-2017 ................................................................................... 18 Figure 6 GDP and employment growth, 2005-2017 .................................................................................. 19 Figure 7 Employment-GDP elasticities, quarterly, 2005 Q1- 2018 Q2 ................................................... 19 Figure 8 Total employment and net increase in employment by sector .................................................. 20 Figure 9 Shapley decomposition of per capita value-added growth ......................................................... 20 Figure 10 Employment and value added by major sector, 2005-2017 ..................................................... 22 Figure 11 Sectoral contributions to per capita value-added growth and employment growth, 2005-2017 .................................................................................................................................................................... 22 Figure 12 Labor productivity, 2001-2016 ..................................................................................................... 23 Figure 13 Demographic window for Turkey ............................................................................................... 24 Figure 14 Profile of the working age population in Turkey (2017) .......................................................... 25 Figure 15 Labor force participation rates, by gender and age group ....................................................... 26 Figure 16 Unemployment rates over time, all sectors ................................................................................ 26 Figure 17 Employed, unemployed, LFP in the population, 2017............................................................. 27 Figure 18 Employed, unemployed, LFP in the population, by gender, 2017 ......................................... 27 Figure 19 Country comparison in terms of labor force participation rates, 2016 or the latest year .... 28 Figure 20 Employment status by year and gender ...................................................................................... 29 Figure 21 Evolution of informality in Turkey ............................................................................................. 30 Figure 22 Evolution of informality rate in Turkey, by gender (in percent) ............................................. 30 Figure 23 The share of informal workers in sectoral total employment by employment status and sector, 2017 ....................................................................................................................................................... 31 Figure 24 Formality and informality rates across regions, 2017 ............................................................... 32 Figure 25 Formality and informality rates by gender, age, education and economic sector, 2017 ...... 34 Figure 26 Number employed by contract type and informality (indexed to 2005=100) ...................... 35 Figure 27 Hours worked per week by contract type and informality (2005=100) ................................. 36 Figure 28 NEET (%) in selected countries, aged 15–29, 2016 ................................................................. 37 Figure 29 NEET rates (%) in Turkey over time, by gender and education level completed ............... 37 Figure 30 Characteristics of NEETs (2017)................................................................................................. 38 Figure 31 Inactivity rates ................................................................................................................................. 39 Figure 32 Reasons for inactivity among the NEET, 2017 ......................................................................... 39 Figure 33 Labor force participation by education level and type of employment by education level age 25-64, 2017 ........................................................................................................................................................ 40 Figure 34 Highest diploma obtained, by age cohort and gender, 2017 ................................................... 40 Figure 35 Employment levels and growth by education level, age 25-64, 2017 ..................................... 41 Figure 36 Employment levels and growth by gender and education level, age 25-64, 2017 ................ 42 Figure 37 Shares of employment by education level and gender, age 25-64, 2017 ................................ 43 Figure 38 Informality by education level and gender, age 25-64, 2017 .................................................. 43 Figure 39 Proficiency gaps by age group (2015, difference between mean proficiency scores) .......... 44 Figure 40 Proficiency gaps between Turkey and OECD ........................................................................... 44 Figure 41 PISA scores (2003-2015) ............................................................................................................... 45 Figure 42 PISA scores and GDP per capita ................................................................................................ 45

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Figure 43 TIMSS Mathematics scores and ranks (Turkey, Grades 4 and 8, 2011 and 2015) ............... 46 Figure 44 TIMSS Science scores and ranks (Turkey, Grades 4 and 8, 2011 and 2015) ........................ 46 Figure 45 Trends in labor shares in output every 10 years since 1975 .................................................... 46 Figure 46 Distribution of occupational employment over the probability of computerization........... 47 Figure 47 Global Innovation Index (2018, selected countries, score) ..................................................... 48 Figure 48 Employment trends by type of occupation in Turkey, 2009-2017 ......................................... 49 Figure 49 Employment composition by type of occupation in Turkey, 2010-2017 .............................. 50 Figure 50 The percentage of firms offering formal training for their permanent, full-time employees (2018, selected countries, score) .................................................................................................................... 51 Figure 51 Daily real wage for formal and informal sectors, 2007-2017 ................................................... 52 Figure 52 Evolution of the daily minimum wage (both nominal and real) ............................................. 52 Figure 53 Evolution of real hourly wage, by occupation, 2009–2017...................................................... 52 Figure 54 Average monthly real wages in the formal and informal sector (2003=100) ........................ 53 Figure 55 Wage premium over time in Turkey............................................................................................ 54 Figure 56 Evolution of nominal minimum wage in Turkey ...................................................................... 54 Figure 57 Employment composition by type of occupation and firm size (2016) ............................... 55 Figure 58 Job creation (2014-2016) by type of occupation and firm size .............................................. 55 Figure 59 Employment composition by firm type based on skill intensity (in percent) ....................... 56 Figure 60 Distribution of Job quality ............................................................................................................ 57 Figure 61 Job quality index (JQI) by contract type, 2009-2017 ................................................................ 57 Figure 62 Scores by component of the JQI, 2014-2017 ............................................................................ 57 Figure 63 Job quality of wage employment, 2017 ....................................................................................... 58 Figure 64 Distribution of formal firms by province, 2016 ........................................................................ 62 Figure 65 Distribution of employment by province, 2016 ........................................................................ 62 Figure 66 Annual growth in the number of firms between 2007-2016 (in percent) .............................. 62 Figure 67 Annual growth in employment between 2007-2016 (in percent) ........................................... 63 Figure 68 Distribution of firms and employment share by firm size, 2007-2016 .................................. 63 Figure 69 Employment accounted for by largest firms .............................................................................. 64 Figure 70 Revenue accounted for by largest firms ...................................................................................... 64 Figure 71 Distribution of firms and employment share by firm’s age, 2007-2016 ................................ 65 Figure 72 Ownership status and firm size 2015–2016 ............................................................................... 66 Figure 73 Gender composition of ownership and management .............................................................. 67 Figure 74 Distribution of firms share by sector, 2007-2016 ..................................................................... 67 Figure 75 Distribution of employment share by sector, 2007-2016 ......................................................... 68 Figure 76 Annual change in number of firms and employment, by sector, 2007-2016 ........................ 68 Figure 77 Job flows in Turkey........................................................................................................................ 71 Figure 78 Average firm productivity ............................................................................................................. 72 Figure 79 Value added per worker, by firm size .......................................................................................... 73 Figure 80 Value added per worker, by firm age .......................................................................................... 73 Figure 81 Change in value added per worker, by sector ............................................................................ 73 Figure 82 The ratio between capital and labor, by sector .......................................................................... 74 Figure 83 The ratio between capital and labor cost .................................................................................... 74 Figure 84 Concentration of workers around the minimum wage by sector, 2016 ................................. 75 Figure 85 Percentage of firms identifying various obstacles to their performance ................................ 76 Figure 86 Informal competition, by region, 2015–2016 (percentage of firms reporting it as a top obstacle) ............................................................................................................................................................. 77 Figure 87 Labor regulation, by region, 2015–2016 (percentage of firms reporting it as a top obstacle) ............................................................................................................................................................................ 78

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Figure 88 Inadequately educated workforce, by region, 2015–2016 (percentage of firms reporting it as a top obstacle)................................................................................................................................................... 79

LIST OF TABLES

Table 1 Key factors of good job creation ........................................................................... 59

Table 2 Transition Matrix................................................................................................ 71

Table 3 Challenges in the Turkish labor market, as identified through this diagnostic ............. Error! Bookmark not defined.

Table 4 Employment and job creation, Turkey’s 10th National Development Plan ...................... 82

Table 5 Summary of the actions proposed to address Turkey’s labor market challenges ............... 83

APPENDIX

App 1 Nuts Classification of Turkey ................................................................................ 102

App 2 Manufacturing NACE Rev.2 2digit Subsectors .......................................................... 103

App 3 Construction NACE Rev.2 2digit Subsectors ............................................................ 104

App 4 Service Nace Rev.2 2-digit Subsectors and Sector Classifications .................................. 104

App 5 Variables, definitions and formulas used in Labor demand chapter ............................... 106

App 6 The percentage of the number workers at around minimum wage in sectoral employment, Accommodation sector, by province, 2016 ........................................................................ 107

App 7 The percentage of the number workers at around minimum wage in sectoral employment, Construction and Specialised construction activities sector, by province, 2016 .......................... 107

App 8 The percentage of the number workers at around minimum wage in sectoral employment, Education sector, by province, 2016 ................................................................................. 107

App 9 The percentage of the number workers at around minimum wage in sectoral employment, Architectural and engineering activities, technical testing and analysis sector, by province, 2016 ... 108

App 10 The percentage of the number workers at around minimum wage in sectoral employment, Entertainment and recorded media sector, by province, 2016 ................................................ 108

App 11 The percentage of the number workers at around minimum wage in sectoral employment, Food and beverage service activities sector, by province, 2016 .............................................. 108

App 12 The percentage of the number workers at around minimum wage in sectoral employment, Forestry and fishing, by province, 2016 ............................................................................. 109

App 13 The percentage of the number workers at around minimum wage in sectoral employment, Legal, accounting, financial and insurance sector, by province, 2016 ....................................... 109

App 14 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of food products sector, by province, 2016 ...................................................... 109

App 15 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of furniture sector, by province, 2016 ............................................................. 110

App 16 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of leather sector, by province, 2016 ................................................................ 110

App 17 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of textiles sector, by province, 2016 ................................................................ 110

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App 18 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of wearing apparels sector, by province, 2016 ................................................... 111

App 19 The percentage of the number workers at around minimum wage in sectoral employment, Manufacture of wood sector, by province, 2016 ................................................................. 111

App 20 The percentage of the number workers at around minimum wage in sectoral employment, Transportation sector, by province, 2016 .......................................................................... 111

App 21 The percentage of the number workers at around minimum wage in sectoral employment, Wholesale and retail sector, by province, 2016 .................................................................... 112

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EXECUTIVE SUMMARY

Economic Growth and Jobs

Turkey’s economy has grown significantly since the early 2000s, though not always at a steady pace. Between 2002 and 2006, the annual GDP growth rate exceeded 7 percent. Turkey was then hit hard by the global financial crisis, with output declining by almost 5 percent in 2009. But unlike many other countries around the world, the economy bounced back quickly, with growth reaching about 9 percent in 2010 and 2011. Since then, GDP growth has slowed significantly to about 3 percent in 2016 and was 7 percent in 2017.

The poor have benefited from this strong growth. Between 2002 and 2016, the poverty rate declined from 32 percent to 10 percent. Nevertheless, there were still 8 million poor in the country in 2016, with about 10 percent of the population below the poverty line of US$5.5 per day (2011 PPP). The inflow of foreign capital through exports, FDI and personal remittances has been decreasing at constant 2009 US$ prices. While the inflows were significant at current prices between 2005 and 2017, these indicators have not been performing so well in terms of constant prices in recent years. After a peak around 2008, a decreasing trend has become evident. The period of strong economic growth was accompanied by significant employment growth and an expansion of the formal sector. Employment grew by 6 percent from 2005 to 2009. During the period of recovery from the 2008 global financial crisis (2009–2012), employment increased by 17 percent. However, the economic slowdown in recent years has negatively affected the pace of job creation. Employment increased by 4 percent between 2012 and 2014, while from 2014 to 2017, employment and formal employment grew 9 percent and 10 percent, respectively.

Rapid job creation has been accompanied by flat productivity. Such a phenomenon, which is not unique to Turkey,1 indicates that workers and firms are not producing goods and services in the most efficient manner, which affects Turkey’s competitiveness. One of the important ingredients to increasing productivity is having a labor force that is adaptable to changing conditions and flexible enough to gain new skills for changing occupational demands. Thus, low productivity could be a symptom of the inadequacy of skills, which reduces economic growth, limits employment opportunities, and exacerbates social pressures (Arias and Sanchez-Paramo 2014; EU Commission 2012). About half of the jobs created in 2015–2016 are in sectors with low or medium levels of productivity. Similarly, as the shift of employment out of low-productivity agriculture into higher-productivity industry and services has slowed down, associated productivity gains are likely to decline unless workers and firms in the manufacturing and services sector become more productive.

Productivity stills well below OECD average, but it has been the main driver of GDP growth since 2005. Per capita value added has grown by about 3.5 percent per year. Improvements in productivity accounted for about 63 percent of the variation in value added growth; the labor force participation rate grew annually by 1.1 percent, accounting for 31 percent of the change in per capita value added. In other words, had everything else stayed the same, the change in the participation rate

1 In the United Kingdom, for instance, this is explained by a dramatic fall in real wages after the crisis, which essentially led to a substitution effect in favor of labor but runs the risk of creating longer-term competitiveness problems once real wages recover.

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would have generated growth equivalent to 31 percent of the actual observed growth. The working-age population grew by 0.3 percent per year between 2005 and 2017, accounting for 7 percent. The employment rate decreased by 0.03 percent annually on average between 2005 and 2017; its contribution to the growth was negative. A relatively rapid increase in employment can reflect a negative contribution to growth when slow value-added growth is observed, since the growth is measured in per capita terms. Growth in overall labor productivity was driven by the industry sector. The industry sector made the largest contribution of 28 percent to labor productivity, although industry employment did not change. The services sector contributed positively to the change in both the employment rate (14 percent) and productivity (18 percent). On the other hand, the agriculture sector made only a limited contribution (5 percent) to productivity and contributed negatively to employment (-15 percent). Workforce

The rate of job creation has not kept pace with the number of labor market entrants. This is particularly important given the country’s demographic trends. According to TUIK, the Turkish population is expected to peak around the year 2050. Until about 2025, Turkey will have a falling dependency ratio; after that, rising old-age dependency will outweigh falling youth dependency. For Turkey to reap a demographic dividend, it needs to create jobs fast enough to accommodate the youth and women entering the workforce. Each year, about 700,000 new jobs are needed (World Bank 2014). Turkey has a chance to grow rich before it gets old, but for this to happen, structural reforms to boost job creation are needed. With many new entrants to the labor market (not all skilled), the economic slowdown has resulted in increased unemployment (the increase was 1 percentage point~600 thousand unemployed people from 2014 to 2017). Turkey’s human capital is underutilized, exacerbated by the high rate of NEET. As of 2017, about 19.5 million of the working-age population are not in education, employment or training (NEET). Of the 59 million working-age population, about 28 million are not in the labor force. While about 9 million of the latter are in school or training, the remaining 19 million are not in school. This means that they are not contributing to the economy now or improving their own skills to be able to contribute in the future. Over 50 percent of NEET are involved in domestic work, while the highest concentration of NEET is among people with less than high school completion.

Between 2014 and 2017, overall labor force participation rates increased slightly (2 percentage points). The female labor force participation (LFP) rate increased from 30 percent to 34 percent, while the male LFP rate increased from 71 percent to 72 percent. The unemployment rate was highest among the younger cohorts (especially for the 20–24 age group). The LFP rate of young people (20–24) was 58.6 percent, and their employment rate was 46 percent in 2016.

Despite a substantial decrease in the informality rate, the informal sector remains a large source of jobs for workers in Turkey. Between 2005 and 2017, informality in Turkey decreased by 14 percentage points (from 48 percent to 34 percent). However, in recent years, the decrease has been slight or even stagnated. In non-agriculture, informality gradually decreased until 2015, after which it started to increase slightly. As of 2017, 22.1 percent of employment in non-agriculture was informal. Informality among wage and casual workers in non-agriculture has remained remarkable (13.3 percent), showing only slight decreases since 2012.

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Informal workers (including unpaid family workers) tend to be female, older and less educated and work in agriculture, construction or low and medium technology services. The economic sectors requiring low or medium technology capabilities are more likely to employ low skill and informal workers. This confirms the expectation that informality in the market decreases as educational attainment increases.

Premiums for university educated workers increased from 2009 to 2012 and then fell from 2012 to 2016. The decline in 2016 was particularly sharp. The wage premium remained roughly at the same level for secondary school educated workers compared to primary educated workers. The increase in the supply of better educated workers might be running ahead of increases in demand. As the education level has been steadily increasing in Turkey, increases in the relative supply of better educated workers may have put pressure on the earnings premiums, leading to a sharp decline. High school graduates are sought after as indicated by the high growth of real wages and wage premium, and the large influx of better-educated workers that is easily absorbed by the labor market. However, firms continue to demand workers with low and medium skill levels, implying that wage premium increased substantially for them.

Labor demand in the formal sector

Like many developed countries, there are clear differences in labor market dynamism across regions in Turkey. Formal firms are concentrated in economic centers in the west such as Istanbul, Ankara, Aegean, and East Marmara. Such subregional asymmetry is exacerbated by differences in firm characteristics, obstacles faced, and opportunities encountered, and overall firm performance. As such, obstacles to doing business are more likely to be accentuated in provinces where the density of firms is higher than in provinces with fewer formal firms.

Labor demand has been affected by two key factors. First, a large subset of firms has not expanded over time, even though one in four small firms has been operating for at least 20 years. This finding could signal that smaller firms face obstacles to grow beyond a certain threshold, limiting their potential to serve as an engine of employment growth. Second, nominal wage increases of more than 100 percent since 2006 have contributed to stagnant labor productivity, probably adversely affecting the country’s ability to create good jobs. As labor costs (namely wages) increase, firms face the risk of losing their competitive advantage. Expanding high-technology production and moving to more profitable activities within the value chain2 are critical steps to fast-tracking economic development and the widespread creation of good jobs.

Firms state three main obstacles to doing business and creating more jobs: (i) unfair competition from firms that avoid taxes and employ workers informally, (ii) high labor costs, and (iii) inadequately skilled workers. Employers find that various dimensions of the doing business and regulatory environment remain unfavorable and constrain them from creating jobs. For instance, labor regulation and costs, and persistent informality that results in uneven competition among stakeholders, are just some examples of what formal firms perceive as hindering their ability to create quality jobs. Turkey’s minimum wage is high and binding in the formal sector. The cost of hiring additional workers is particularly high when put into perspective with the relatively low and diminishing marginal product of labor—that is additional workers who may not have the required

2 This includes, for example, research and development (R&D), design, marketing, specialized logistics, or after-sale service.

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skills. To adjust to changes in demand, firms therefore prefer to hire additional workers informally—and stay small when counting formal workers. Hence, facilitating the creation of formal jobs partly means altering the cost of informality relative to the marginal product of labor.

While the government has already put in place certain measures to fight informality, it now needs to introduce incentives for smaller firms to employ formal workers. Such incentives could include measures to increase the marginal product of labor to improve the employability of workers, especially those with a low skills base. Employment activation policies are part of the answer, but automation and job de-routinization will likely reduce the demand for low-skilled (formal) workers in the long run. Ensuring that Turkey’s workforce can engage in productive jobs requires sustained and systematic efforts to improve the country’s education and training system and educational outcomes.

Recommendations to facilitate job creation in Turkey

Actions to Address Labor Market Challenges

1.1 Growth and productivity

1 Strengthen the investment climate through policy predictability and transparency; lower administrative burden on businesses; an efficient tax system; access to longer-term finance; and agglomeration economies to accelerate longer-term productive investments including in R&D. 2 Strengthen the efficiency of fiscal support for businesses, including through better targeting of support to firms with high growth and/or large job creation potential, winding down fiscal support that keep inefficient firms in business.

3 Support firms to adopt technology by reforming labor market policies that disincentivize them from doing so and increasing worker support measures to obtain complementary skills.

1.2 Formalization

1 Reductions in excessive employment costs, elimination of employment barriers, and increase the capacity for monitoring compliance with (enforcement of) labor regulations.

2 Increase flexibility of types of formal employment so firms can adjust to changing markets while increasing worker protections through a reformed unemployment insurance system, social assistance with a strong graduation emphasis, and re-employment support services.

3 Streamline new business setup procedures and exit procedures, including targeting support (financial and non-financial) to new firms entering the economy while reducing financial support to inefficient firms that rely on subsidies to stay in business.

4 Promote the positive perception and practice of formality in society and strengthen informality prevention measures.

1.3 Job creation

1 Rationalize existing employment support programs by targeting them to support disadvantaged workers (youth, women, disabled, refugees), ensure their effectiveness in the long term by accompanying them with structural reforms that improve employability (e.g. education and skills, regulations that reduce youth and women's competitiveness). 2 Improve employment related services, including operational efficiency and using technology and data-based tools to improve service delivery. Continue to monitor and address occupations and skills requirements and consider matching jobseekers to jobs based on skills not occupations.

3 Review and reform financial support programs to firms, to increase their impact on productivity and sustain jobs by targeting their support to economically sound firms with high growth potential and plans for longer-term productive related investments. Shift support from (old and stagnant) SMEs and toward younger start-ups and vibrant SMEs that bring innovation and create new jobs.

4 Strengthen system of incentives (monetary and non-monetary) to support fast growing firms and sectors and those that have high export potential.

1.4 Labor force

participation

1 Facilitate improvements in the provision of quality affordable childcare, especially among the most vulnerable women, for whom it should be strongly subsidized. Reform policies to allow flexible working times and improve parental benefits to prevent gender discrimination.

2 Rationalize employment support programs by targeting them to support disadvantaged workers in firms that are productive and economically sound and can sustain employment once the subsidy

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is done. (Follows recommendation 1.3.1) Introduce accompanying non-financial measures to promote economic activity.

3 Improve employment related services to increase their effectiveness placing disadvantaged groups into sustainable jobs. Customize service delivery and strengthen referral system for expert services (beyond employment) to address distinct needs that disadvantaged groups may have.

1.5 Workforce skills and

talent

1 Modernize vocational and lifelong learning systems, provide flexible adult learning options which offers modular courses, which lead to certifications and improvements in qualifications.

2 To improve the skills of existing workers and promote upskilling of the workforce, consider financial support to employers for allowing (lower-skill and at-risk of dismissal) staff to take time off to train in recognition of the costs they will incur and to promote lifelong learning.

3 Facilitate the establishment of employer-led sector skills councils that focus on skills development that address the needs in the economy. Councils should ensure occupational standards, learning provision and qualifications meet sector standards.

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INTRODUCTION

The main challenge for achieving a country’s development goals is the creation of more, better and inclusive jobs, as economic growth needs to be accompanied by job growth if the poor are going to benefit to any significant extent. Turkey’s rapid economic growth since the early 2000s has been studied by the World Bank and others, highlighting the role of comprehensive reforms that promoted the country’s integration into the global economy, facilitated structural change, and catalyzed job creation. However, the big question is: Is Turkey making progress in achieving its development goals? The answer depends on the extent to which Turkey’s economic growth is able to generate employment and earning opportunities on a sustainable basis. Therefore, the objective of this report is to present a comprehensive Jobs Diagnostic for Turkey with a view to promoting inclusive economic growth and poverty reduction. The report also aims to lay the evidence base to support policy dialogue in the country and provide input for the development of a national jobs strategy for the delivery of more, better, and inclusive jobs in Turkey.

Understanding the factors that influence the creation of more, better and inclusive jobs essentially requires a multisectoral approach. Therefore, this Jobs Diagnostic aims to assess the relationships between supply- and demand-side factors. The report utilizes a variety of data sets to provide a comprehensive analysis on the labor market in Turkey; these are summarized in Box 1. Box 1 Summary of key sources used in the Turkey Jobs Diagnostic

• Household Labor Force Surveys (LFSs): The LFS is a large household-based survey providing results on the labor participation of people aged 15 years and older, as well as people outside the labor force.

• Entrepreneurship Information System (EIS): The EIS has been collected by Ministry of Industry and Technology and includes enterprise level data that explores a number of firm characteristics and performance variables in the period 2007-2016. Enterprises report on their total revenue and employment, their location and a detailed sector code (4-digit code, but excludes military service, banks and financial institutions) and worker information (such as age, gender, wage, number of days worked and occupations).

• Enterprise Survey 2015/16 (World Bank): The Enterprise Survey is a firm-level survey of a representative sample of registered firms operating mainly in the private sector. The survey covers a broad range of business environment topics including access to finance, corruption, worker skills, infrastructure, competition, and performance measures.

The rest of the report is organized in four chapters, with a number of topical sections in each

chapter. Chapter 1 provides an overview of Turkey’s economic development and broad structural

changes in terms of job creation and labor productivity growth. Chapter 2 presents the results of the

analysis of labor supply, mainly based on the Turkish Household Labor Force Survey for several years

until 2017. It looks at: 1) demographics and labor force participation; 2) employment and types of

jobs; 3) profile of the workers; 4) inactivity 5) education, skills and labor market outcomes; and 6) the

role of skills. Chapter 3 focuses on labor demand and labor productivity using firm-level data from

the Administrative Records (EIS, 2007-2016). The chapter discusses: 1) the profile of labor demand;

2) firm growth and job creation; 3) productivity and jobs and 4) firm perceptions of obstacles to

performance. Finally, Chapter 4 outlines a set of policies and programs to address the country’s main

challenges in terms of job creation, labor productivity and earnings growth, and access to jobs.

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1. ECONOMIC GROWTH AND JOBS

Turkey’s economy remains relatively strong due to significant achievements in several economic fields over the past decades. While many factors have contributed to Turkey’s successful transformation to a more diversified, higher quality jobs sector, a more dynamic private sector will be crucial to even greater success. Thanks to sound public financial management and structural reform of the banking sector, Turkey was able to achieve single-digit inflation after the 2001 economic crisis. GDP per capita was around 23 thousand (Figure 1) in 2007. Although these improvements placed Turkey in a better position compared to many other countries during the global financial crisis, it still experienced negative growth during 2008 and 2009. But the recovery was also strong, with growth reaching about 8 percent in 2010 and 11 percent 2011 (Figure 2). Since then, output growth has slowed significantly to about 3 percent in 2016 and reached to 7 percent in 2018.

Figure 1 Turkey’s GDP per capita (PPP), 1990-2017

Figure 2 Real GDP annual growth, 2000-2017

Source: Authors’ elaborations based on World Development Indicators

The poor have benefited from high growth performance in the last decade. Between 2002 and 2016, the poverty rate declined from 32 percent to 10 percent (Figure 3). Although Turkey has witnessed significant poverty reduction during the 2000s, there were still about 8 million poor in the

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country in 2016. About 10 percent of the population remains below the poverty line of $5.5 per day (2011 PPP).

Figure 3 Poverty rate in Turkey, 2002-2016


Turkey has benefited significantly from a demographic transition through steady growth in the working-age population. Between 2005 and 2017, the working-age population grew by 1.8 percent per year (Figure 4). The participation rate grew annually by 1.1 percent, bringing millions of women into the labor force (the female employment rate increased 2.8 percent per year over this period). At the same time, the unemployment rate increased for individuals aged 15 years and over (0.2 percent per year) and for those aged between 15 and 24 years (0.4 percent per year).

Figure 4 Key labor market indicators, compound annual growth rate, 2005-2017

Source: Authors’ elaborations based on TUIK data

Inflow of foreign capital through exports, foreign direct investment (FDI) and personal remittances has been decreasing at constant 2009 US$ prices. Despite an impressive

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performance in the export of goods and services, FDI and personal remittances at current prices between 2005 and 2017, these indicators have not been performing so well in terms of constant prices in recent years (Figure 5). After reaching a peak in 2008, they reflect a decreasing trend at constant 2009 US$ prices. Figure 5 Export, FDI and Remittances, 2005-2017


Economic growth in the last decade has translated into significant job creation. Between 2005 and 2017 the economy added more than 8 million jobs. During this period, real GDP grew by an average of 6.9 percent per year, as employment increased by 3.4 percent per year (Figure 6). This implies an average employment to growth elasticity of around 0.49 (Figure 7).

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Figure 6 GDP and employment growth, 2005-2017

Figure 7 Employment-GDP elasticities, quarterly, 2005 Q1- 2018 Q2

Source: Authors’ elaborations based on TUIK data

In the last few years, employment in Turkey has shifted away from agriculture and industry towards service activities. The share of employment in agriculture declined by 10 percentage points between 2004 and 2017, indicating a structural transformation in the labor market. Nonetheless, 19 percent of those who are employed continue to work in agriculture, which is the sector with low labor productivity and high informality. During the same period, the share of those employed in industry decreased from 20 percent to 19 percent, while the share in construction increased from 5 percent to 7 percent. The services sector occupies an increasingly important position in the Turkish economy, with its share rising from 46 percent to 54 percent (Figure 8).

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Figure 8 Total employment and net increase in employment by sector

In Turkey, labor productivity, measured as value added per worker, has been the main driver of GDP growth since 2005.3 Per capita value added has grown by about 3.5 percent per year, with the factors contributing to this outcome being shown in Figure 9.

• Improvements in productivity accounted for about 63 percent of the variation in value added growth;

• The labor force participation rate grew annually by 1.1 percent, accounting for 31 percent of the change in per capita value added. In other words, had everything else stayed the same, the change in the participation rate would have generated growth equivalent to 31 percent of the actual observed growth;

• The working-age population grew by 0.3 percent per year between 2005 and 2017, accounting for 7 percent; and

• The employment rate decreased by 0.03 percent annually on average between 2005 and 2017. Its contribution to the growth was negative. A relatively rapid increase in employment can reflect a negative contribution to growth when slow value-added growth is observed, since the growth is measured in per capita terms.

Figure 9 Shapley decomposition of per capita value-added growth

3 In the analysis, Shapley decomposition was used to understand how growth is linked to changes in employment, labor

force, labor productivity and working-age population at the aggregate level and by sector. Growth in aggregate per capita

value added can be described by the growth in productivity and employment relative to demographics.

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y = Annual Growth Per capita Value Added (Percent) Source: Authors’ elaborations based on TUIK data, World Bank staff calculations using WBG Growth Decomposition Tool

The highest change in value added by sector was in industry. Despite the highest share of services in total employment, growth in value added in services remained modest compared to the industry sector, which has greater value added to the Turkish economy than other sectors. As for agriculture, the agriculture sector is still dominant in the economy (with a share of 19.4 percent of total employment). The change in labor productivity in the agriculture sector was consistently positive over time. The services sectors were the main contributors to job creation. Between 2005 and 2017, employment expanded by an annual average of 3.4 percent, driven by the services sectors. Official TUIK data reveals that approximately 8.2 million jobs were created during this period, of which 69 percent were created in the services sectors (5.6 million), 14 percent in industry (1.2 million), and 12 percent in construction (Figure 10).

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Figure 10 Employment and value added by major sector, 2005-2017

Source: Authors’ elaborations based on TUIK data Note: Bubble size represents sectoral employment in 2005.

Growth in overall labor productivity was driven by the industry sector. The industry sector made the largest contribution of 28 percent to labor productivity, although industry employment did not change. The services sector contributed positively to the change in both the employment rate (14 percent) and productivity (18 percent). On the other hand, the agriculture sector made only a limited contribution (5 percent) to productivity and contributed negatively to employment (-15 percent) (Figure 11). Figure 11 Sectoral contributions to per capita value-added growth and employment growth, 2005-2017

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Source: Authors’ elaborations based on TUIK data, World Bank staff calculations using WBG Growth Decomposition Tool

Labor productivity in Turkey has improved over the past 15 years, but remains far behind the levels seen in OECD and EU28 countries; the low productivity is related to the structure of Turkey’s labor demand. Figure 12 shows labor productivity in terms of GDP per hour worked for Turkey, the OECD and EU28 countries between 2001 and 2016. Turkey has been performing worse than both the OECD and EU28 throughout this period; the situation has not improved over the years. In fact, it is particularly worrisome that labor productivity in Turkey stagnated from 2015 to 2016. Together, micro firms (less than 5 workers) and small firms (between 5 and 19 workers) account for about 90 percent of all (formal) firms in Turkey.4 This fact is discussed in chapter 3, which focuses on labor demand. Smaller firms tend to operate in low-value-added sectors of the economy, offering jobs with less favorable conditions such as lower wages, fewer benefits, and limited career growth options (Paula and Scheinkman 2007). They are more likely to face obstacles that limit their opportunities to innovate and grow. In Turkey, smaller businesses are much more limited in accessing finance or benefiting from trade liberalization and international capital flows (Sener et al. 2014). With limited access to capital, smaller firms are more likely to use suboptimal technologies, which in turn can negatively affect labor productivity, employment growth, and economic growth.

Figure 12 Labor productivity, 2001-2016

Source: Authors’ elaborations based on OECD data Note: GDP per hour worked is a measure of labor productivity. It measures how efficiently labor input is combined with other factors of production and used in the production process. Labor input is defined as total hours worked of all persons engaged in production. Labor productivity only partially reflects the productivity of labor in terms of the personal capacities of workers or the intensity of their effort. The ratio between the output measure and the labor input depends to a large degree on the presence and/or use of other inputs (e.g. capital, intermediate inputs, technical, organizational and efficiency change, economies of scale). This indicator is measured in USD (constant prices 2010 and PPP) and indices.

4 Enterprise Survey 2015–2016.

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2. WORKFORCE

Demographics, Labor Force Participation and Unemployment

The demographic window is open for Turkey. Until about 2025, Turkey will have a falling dependency ratio; after that, rising old-age dependency will outweigh falling child dependency (0-14 years old) (Figure 13). The Turkish population is expected to peak around the year 2050. For Turkey to reap a demographic dividend, it needs to create jobs fast enough to accommodate youth and women entering the workforce. Turkey has a chance to grow rich before it gets old but for this to happen, structural reforms to boost job creation are needed.

Figure 13 Demographic window for Turkey

Source: TUIK

Turkey’s human capital is underutilized. Turkey has a working-age population, defined as 15+ years old, of about 59 million people who can contribute productively to the economy. A breakdown of this population, as of 2017, shows that almost 19.5 million are not in school, meaning that they are neither investing in their own human capital nor contributing economic activity (Figure 14). Turkey needs to find a way to make better use of its human capital. The breakdown shows:

• Of the working-age population of 59 million, about 31 million (53 percent) are involved in the labor force, while 28 million are not.

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• About 28 million (89 percent) of the labor force are employed, while about 3 million (11 percent) are unemployed.

• Of the 28 million not in the labor force, just under 9 million are in school or training, while almost 19.5 million are not in employment, education or training.

Figure 14 Profile of the working age population in Turkey (2017)

Source: Author’s calculations and illustration.

Female participation in the labor market has been increasing in recent years, but remains at a lower level than male participation. Between 2014 and 2017, overall labor force participation rates increased slightly (2 percentage points). A gender breakdown shows that the female labor force participation (LFP) rate increased from 30 percent to 34 percent, while the rate for males increased from 71 percent to 72 percent. Thus, despite more women entering the labor market than men during this period, there are still far fewer women in the labor market than men (Figure 15). Such low levels of participation have a negative effect on the availability of workers who can fill vacancies. It also limits the talent pool, especially when people are skilled but exit the labor force, thus imposing difficulties for firms to find the workforce they need to grow and succeed. As for labor force participation by age group, while youth’s participation increases from 41 percent in 2014 to 43 percent in 2017; participation of population aged between 25 and 64 decreased from 41 percent to 38 percent in the same period. The slight increase in youth’s labor force participation seems to be related increasing unemployment among youth, which will be elaborated in the next figure.

WORKING AGE POPULATION (15+)

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Figure 15 Labor force participation rates, by gender and age group

Source: Authors’ elaborations based on LFS

Women’s increased participation could not be matched by their employment, implying an increase in women’s unemployment. Figure 17 shows the overall unemployment rate since 2005, as well as a breakdown by gender and youth. As of 2017, the unemployment rate was 10.9 percent, having peaked at around 14 percent during the 2009 crisis. Not only has unemployment for women been higher than for men for many years, but of greater concern is the fact that the gap has been widening since the 2009 crisis, especially after 2016.

Youth unemployment is a major challenge that the country has been struggling to address. Even though youth unemployment decreased significantly from 25.3 percent during the 2009 crisis to 18.4 percent during the high growth period (2010-2011), it has been increasing gradually since 2014, reaching 20.8 percent in 2017 (Figure 16).

Figure 16 Unemployment rates over time, all sectors


The unemployment rate is the highest among the younger cohorts (especially for the 20–24 age group). It is useful to look at more disaggregated age groups for key labor market indicators to

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understand the areas that need to be improved. Figure 17 compares employment, unemployment and LFP rates for various age groups. The LFP rate for young people (aged 20–24) was 58.6 percent, and their employment rate was 46 percent in 2017. As expected, employment and labor participation rates increase until age 49; however, they decrease sharply thereafter, reflecting the early exit patterns among Turkish workers.

Figure 17 Employed, unemployed, LFP in the population, 2017


The LFP rate for women is lower than for men across all age groups. Turkey exhibits substantial variation in LFP and employment figures by age cohort and gender. For males, LFP and employment figures show a reversed U-shape, with LFP peaking at middle age for men (Figure 18). In contrast, females show a gradual increase until their early 30s, with a lower level of LFP than males in all age groups. At the older end of the distribution, for both males and females, participation sharply decreases near pension eligible ages.

Figure 18 Employed, unemployed, LFP in the population, by gender, 2017


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Turkey has continued to perform below OECD and EU-28 in terms of LFP rates. Despite improved LFP rates over time, the gap between Turkey and the OECD and EU-28 countries is 7 and 5 percentage points, respectively (Figure 19). Efforts are needed to further improve Turkey’s LFP rates.

Figure 19 Country comparison in terms of labor force participation rates, 2016 or the latest year

Source: OECD

Employment and Job Types

Most of the labor market consists of wage and casual workers, but with a high rate of unpaid family workers. Figure 20 shows the employment status with gender breakdown since 2014. As of 2017, wage and salaried workers made up 60 percent of the labor force, the self-employed and employers constituted 19 percent, and unpaid family workers 10 percent. Since Turkey has not yet completed its modernization of agricultural production, about 3.5 million of the working-age population are engaged in unpaid family work in the agricultural family business. A majority of unpaid family workers were informal (91 percent) in 2017. Men are most likely to be either employed as a wage and casual worker or self-employed; unfortunately, women still constitute a substantial proportion of unpaid family workers.

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Figure 20 Employment status by year and gender


Despite a substantial decrease in the informality rate, the informal sector remains a large source of jobs for workers in Turkey.5 Another way to gauge the status of the labor market is to measure the share of people engaged in informal work in the labor market. Over the years, the Government of Turkey has conducted a series of campaigns against informality, including the introduction of legislation. As a result, informality decreased by 14 percentage points (from 48 percent to 34 percent) between 2005 and 2017. However, in recent years, the decrease has been slight or even stagnated. Not surprisingly, the informality is higher in the agriculture sector, and therefore, it would be more meaningful to look at informality in non-agricultural sectors. In fact, informality in non-agriculture gradually decreased until 2015, after which it started to increase slightly. As of 2017, 22.1 percent of employment in non-agriculture was informal. Informality among wage and casual workers in non-agriculture has remained high (13.3 percent), showing only slight decreases since 2012 (Figure 21).

5 The definition of informality used here is: “workers not registered in the social security system through their main job.”

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Figure 21 Evolution of informality in Turkey


Women are most likely to be employed in informal jobs in Turkey. Figure (22) plots the evolution of informality by gender in Turkey. The overall informality rate declined from around 48 percent in 2005 to 34 percent in 2017. Informality is clearly much higher among females than men for all years, and it is a concern that the gap has not been narrowing over time. As of 2017, the informality rate for women was 44.6 percent, as opposed to 29.2 percent for men. From 2011 to 2015, informality decreased for both genders, but the picture appears to have changed after 2016.

Figure 22 Evolution of informality rate in Turkey, by gender (in percent)


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Workers in the agriculture sector are generally hired as informal, impeding efforts to reduce informality. In general, informality is a more serious problem for wage and casual workers, for whom the informality rate was 12 percent in 2017 (Figure 23). However, given the current structure of the Turkish labor market, it would be more informative to make a distinction between agriculture and non-agricultural sectors. More than 80 percent of the workers employed in the agriculture sector are informal, with 45 percent being unpaid family workers. It is clear that Turkey has not been using modern techniques for agricultural production. As a result, family enterprises are still common, which creates a potential barrier against efforts to reduce informality. As for the non-agricultural sector, the informality rate is higher for wage and casual workers (14 percent).

Figure 23 The share of informal workers in sectoral total employment by employment status and sector, 2017


Profile of the workers

The Eastern regions of Turkey suffer more from high informality. The figure below shows the informality rates in 2017 across NUTS2 level regions.6 The region with the lowest informality rate is Ankara (18 percent), which is the region with the second highest proportion of public employment (Figure 24). The region with the highest informality rate is Agri (Kars-Agri-Ardahan-Igdir) (68 percent). As abovementioned, in Eastern regions, agricultural production still prevalent, due to its genuine structure, agriculture stands as a critical barrier against efforts to reduce informality in Turkey and these are the same regions with high concentrations of low-educated workforce, youth inactivity, and low LFP. Informality is significantly higher in agriculture than in the non-agricultural sectors. It is interesting that Gaziantep and Mardin regions have substantially lower informality rates compared to other East and Southeast regions of Turkey. This is interesting especially given that the influx of Syrians seeking refuge in Turkey, which started after 2011 and peaked in 2015, is largely concentrated in the south-eastern parts of Turkey (Box 2 provides more details). Istanbul has the highest population

6 For NUTS classification of Turkey, please see App 1.

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in Turkey and its informality rate is 21 percent. Like in the south-eastern provinces of Turkey, Istanbul hosts over half a million Syrians under temporary protection, and most of them are working informally.

The share of skilled workers (secondary graduates and above) working informally provides an indication of the types of employment opportunities available. For instance, if labor markets are not dynamic and few jobs are available, workers have few choices of employment locally. But if the worker has few skills to offer employers, despite having a relatively high level of education, his or her choices are limited locally (and likely elsewhere). For instance, in Ankara, only 7 percent of skilled workers are employed in an informal activity, whereas in the subregions of Van-Mus-Hakkari-Bitlis, and Agri-Kars-Igdri-Ardahan, about 30 percent of skilled workers work informally.

Figure 24 Formality and informality rates across regions, 2017


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Box 2 Syrian refugees7 in Turkey and their impact on the labor market

Turkey is the largest refugee-hosting country in the world with 3.6 million Syrians. Syrian refugees started coming to Turkey in 2011 and the numbers increased substantially between 2013 and 2016. There are at least 300,000 more people from other countries (e.g. Afghanistan, Iraq) seeking refuge in Turkey. This rapid increase poses a labor supply shock to the Turkish economy; but the shock is mostly absorbed by the informal economy. Given Turkey’s challenges with economic dynamism in the last few years, the presence of nearly 4 million foreign people, most of them minimally skilled, puts pressure on the Turkish economy (especially on low-skilled Turkish workers engaged in the informal economy). Data shows that most refugees (namely Syrians) are overwhelmingly employed informally in the Turkish labor market. Apart from having low skills, most refugees have no easy access to work permits, which makes their entry into formal work very difficult.

There is a growing literature on the impact of refugees in Turkey. Del Carpio and Wagner (2015) analyze the impacts of Syrian refuges on Turkish labor market. The refugee shock causes large-scale displacement of Turkish out of informal employment for all categories of workers (male, female, young and older, and by educational attainment). On average the impact of the inflow of refugees on the formal employment of Turkish workers is positive. An increase in the supply of informal labor increases the demand for formal jobs for Turkish workers. However, that is not true for all types of Turkish workers. There is no increase in formal employment for either women or high-skilled Turkish workers due to the inflow of refugees. At the same time, consistent with occupational upgrading, there are increases in formal employment for the Turkish. Tumen (2016), Bagir (2017), Ceritoglu et al. (2017) find that refugees penetrate labor the labor market through informal manual jobs and displace natives informally employed in those jobs. Tumen (2018) analyzes the impact of Syrian refugees on high school enrollment rates of Turkish youth and finds that high school enrollment rates increased 2.7 to 3.6 percentage points among Turkish youth in refugee-receiving regions. Also, a one-percentage point increase in the refugee-to-population ratio in a region generates around

0.4 percentage point increase in native’s high school enrollment rates.

Informal workers (including unpaid family workers) tend to be female, older and less educated and work in agriculture, construction or low and medium technology services. The light blue bars in Figure 25 depict informality rates for different groups in the population. The figure clearly indicates that informality is always higher for females compared to male counterparts since females are mostly employed in agricultural sectors as unpaid family workers. As for age groups, the informality rate among the working group, 25-64 years old, was 30 percent in 2017, but significantly higher for youth (15-24 years old) at 46 percent and for the old (aged 65+) at 85%. Informality in the market decreases as educational attainment increases. Since low educational attainment brings the risk of being informally employed, the economic sectors requiring low or medium technology capabilities are more likely to employ low skill and informal workers. Besides agriculture, the services sectors are more likely to hire informal workers. Besides service sectors, construction is the sector with the highest informality rate.

world bank document...tuik agency of statistics under the republic of turkey un united nations wb...

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