Good Jobs in Turkey

World Bank and Ministry of DevelopmentConsultation of the Draft

September 2013

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The report is a part of on-going joint work on labor markets in Turkey

Managing Labor Markets through the Cycle• Crisis Recovery, Structural Challenges and Policy Answers

Good Jobs in Turkey• Inclusion, Productivity, Living Standards and Social Mobility

Activating the Vulnerable into Good Jobs• Barriers to Employment and Activation Strategies

Creating Good Jobs• How and Where to Create Good Jobs

Key messages

1. The post-crisis period of strong economic growth led to significant employment growth; many of the newly created jobs have been of good quality

– Employment growth mainly took place in the services and formal sectors; majority of net employment generation affected both men and women

– However, many middle aged and older females have re-entered informal agricultural sector

2. Labor reallocation in Turkey appears to be growth-enhancing– Movement from agriculture to non-agriculture has contributed to overall productivity

– Movements of labor within non-agricultural sector have been generally growth-enhancing

– There is suggestive evidence of labor reallocation in agriculture towards more productive regions

3. Labor income was the biggest contributor to total household income and growth in labor income contributed to higher living standards among low-income households.

4. Policies supporting the promising developments include, – for individuals (i) expansion of childcare provision, especially in urban centers; (ii) expansion of

services for the elderly, (iii) improved opportunities of skill upgrading and (iv) activation of social benefits, and

– for firms (v) combating informality as for example with the related Action Plan, and (vi) the expansion of flexible contracting and reform of severance pay, as discussed in the 10th Development Plan.

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CONCEPTUAL FRAMEWORK

What are “good jobs”? Where do they come from?

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Jobs have direct and indirect benefits

Good Jobs for Development

Living Standards Productivity Social Cohesion

Income distribution,

Formality

Between sector transition,

within sector transformation

Integration of women and youth in the labor market

Jobs (earnings and benefits)

Social Valuation

Indirect benefits/

Externalities

Individual Valuation

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JOB CREATION AND PRODUCTIVITYThe role of structural change in Turkey

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Agricultural shedding in Turkey has been growth-enhancing

• Turkey – all sectors Turkey – non-agriculture

agr

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beta=1.1427; t-stat=2.74

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Log

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-.5 0 .5 1 1.5 2Change in Employment Share between 1998 and 2011

Note: Area of circle represents employment share in 1998

Note: Beta denotes coeff. of independent variable in regression equation: ln(p/P)=alpha + beta*Change_EmplShare [weighted by 1998 EmplShare]

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-.5 0 .5 1 1.5Change in Non-Agric. Employment Share between 1998 and 2011

Note: Area of circle represents non-agricultural employment share in 1998

Note: Beta denotes coeff. of independent variable in regression equation: ln(p/P_NonAgric)=alpha + beta*Change_NonAgricEmplShare [weighted by 1998 Non-Agric. EmplShare]

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JOB CREATION AND PRODUCTIVITY

The link between job creation and productivity in the non-agricultural sector

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Methodology for assessing linkage between productivity and job creation

• Cross-section regressions– Given the short-run tradeoff between productivity and job creation, the

longer-term relationship is assessed on firms that survived for 6 years (2005-2010)

– These firms are different from other firms (e.g. they have higher initial productivity), so adjustment for sample selection is made using multinomial logit regression

• First stage: DV=P(survival) based on initial productivity, exporter status, and regional dummies (exclusion restriction)

• Second stage: DV=net job creation rate over 2005-2010• Panel regressions

– Assessment of how within-firm productivity changes affect job creation• Decompositions (manufacturing sector)

– Confirmation of panel regression results and benchmarking contributions to productivity growth from different sources

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Productive firms appear to be creating the most jobs, and within-subsector reallocation of labor appears to be the most productivity-enhancing in Turkey

• Three sources of labor reallocation are defined:I. Within sub-sector II. Across sub-sector III. Across sector

LP TFP-10%0%

10%20%30%40%50%60%70%80%

Within-subsector Across sub-sectorAcross sector

Source of Labor

AllocationProductivity definition

I I+II I+II+III

LP 0.0807***

0.146***

0.143***

TFP 0.017 0.021*

0.024***

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Contribution to labor movements

Coefficients with different sector fixed effects

Labor reallocation towards more productive activities happens both within services and within manufacturing but comes from different sources• For services, productive

reallocation of labor occurs only within subsectors

• In manufacturing, movement across subsectors accounts for significant (LP) or all (TFP) productive reallocation

Source of Labor Allocation

Productivity Definition / Sector

I I+II

Manufacturing:LP 0.075** 0.124***TFP -0.008 0.028*

Services:LP 0.060*** 0.051***TFP 0.037*** 0.014**Manufacturing: Services:

-40%-20%

0%20%40%60%80%

100%120%140%

LP TFP

Within-subsector Across sub-sector

-200%

-100%

0%

100%

200%

300%

LP TFP

Within-subsector Across sub-sector11

Productivity growth in manufacturing originated both from the productivity growth of existing firms (“within effect”) and the reallocation of labor from low- to high-productivity firms (“between effect”)

• Turkey has the highest contribution of between-firm effect, implying substantial creative destruction in the manufacturing sector

• Exit of firms has not contributed to productivity growth

Argentina Chile France Latvia Portugal Slovenia USA Turkey-0.6

-0.4

-0.2

1.11022302462516E-16

0.2

0.4

0.6

0.8

1

1.2

Within Between Cross Entry Exit

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List of Contributors

• Executive Summary Rebekka Grun and Sinem Capar• Chapter 1 Rebekka Grun• Chapter 2 Meltem Aran and Nazli Aktakke• Chapter 3 Victoria Levin, Tolga Cebeci,

Levent Yener, and Altan Aldan• Chapter 4 Carola Gruen, Bulent Anil, and

Aysenur Acar