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Opening Remarks for Turkey Labor Market
Study
by
Andrew N. VORKINK,
Country Director for Turkey
The World Bank
Ankara, April 14,
2006
Distinguished Ministers,
Undersecretaries, Participants and Guests.
Good morning.
It
is my pleasure to welcome you to this presentation
of the World Bank's Labor Market
Study. I am particularly pleased to see
the large turnout this morning, reflecting
the importance which the subject
of job creation has for Turkey today.
In
the past several years, Turkey has made
remarkable progress on the economic front
by lowering inflation and interest
rates, attracting record amounts of investment,
moving ahead with a long stalled
privatization program and having a growth
rate over four years of close
to 8% a year, which is one of the highest
in the world. This progress did not
occur by accident but as a result of conscious
decisions by senior policy makers to
embark on a growth oriented economic program,
which has produced major benefits for
Turkey and its citizens as well as improving
the prospects for Turkey's entry into the
EU.
However, notwithstanding
this phenomenal progress, growth in the
economy has not yet produced
a net increase in jobs to offset the number
of young workers entering into the
labor force or existing workers coming out
of sectors like agriculture. The result
is that the unemployment rate
at the end of 2005 remained essentially
the same as at the end of 2002,
even though the economy grew substantially
for four consecutive years and new
jobs have been created in important sectors
like industry, construction and services.
Why
Turkey continues to grow economically but
not in terms of adding enough new jobs
is the subject of the World Bank's Labor
Market Study being released and discussed
here today. We shall discuss
the main findings shortly but I would like
to focus my remarks on the essential
element of job creation. Like economic growth,
job creation is not something
that happens by accident but as a result
of conscious decision making, both of
government policy makers and employers and
employees. Also like economic growth,
jobs can be grown by activist yet prudent
policies. A key challenge for Turkey will
be what mix of policies will
produce not only more jobs but better jobs
- better in the sense of higher
pay, higher skills and higher productivity.
Generating jobs in the economy will be important
for many reasons. Recent opinion polls
in Turkey show that unemployment is listed
as the single most important problem facing
the country today, by a margin of two to
one over any other issue including inflation,
education reform and terrorism. It is no
secret that in Turkey, as in all other countries,
people want jobs, more jobs, and better
jobs with improved conditions and salaries.
It is also no secret that alleviating
concerns about the possibility of large
numbers of unskilled or unemployed
Turkish workers seeking work in Europe will
greatly support Turkey's bid
for EU membership. The employment rate -
which represents the share of the
working age population who have a job --
in the European Union is about 65% while
at present in Turkey it is currently
around 44%. However, even though the EU
employment average is well ahead
of Turkey, there is real concern in Europe
that employment levels in Europe still need
to go up. The target employment rate for
Europe has been set at 70 percent by 2010.
To meet this same target with a still growing
population, Turkey would have
to generate about 14 million jobs by 2010.
Of course that is not realistic in the labor
market conditions of today in Turkey as
under current trends of employment growth,
only about 1.5 million net jobs
would be created over the next five years.
But can Turkey create more jobs
in the short-term as well as over the next
five to ten years? The answer
is yes - if the right policy changes are
made.
Jobs are created when the economy produces
more and more goods and services - through
economic growth. Economic growth is translated
into jobs through the labor market, and
a labor market that is not working well
can hinder job creation. The functioning
of the labor market and recommendations
to improve it is the main subject of
the Labor Market Study.
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The Study argues that current labor market
regulations in Turkey are not performing
well in either of the two critical measures
of a well-functioning labor market - job
creation and worker protection. Much of
the existing labor regulation was originally
designed at a time of high state activity
in the Turkish economy to ensure that workers
have access to full time jobs, and that
workers are not dismissed except in rare
situations. Those days have passed however
and been replaced by competitive markets
in a globalized world. In other words, much
of Turkey's current labor regulations were
designed to protect jobs and not necessarily
workers. The Study suggests that one consequence
has been that labor regulations have actually
limited job creation in the market economy
now existing in Turkey. It turns out, however,
that the regulations also do not protect
workers very well - most workers do not
receive the protection required by the laws,
such as retraining and unemployment insurance
-as they are forced by the rigid formal
labor market to work in the informal sector
where such protections are simply unavailable.
The Study suggests a shift in emphasis -
from protecting jobs to protecting workers
- to encourage job creation while seeking
to ensure that workers actually receive
social protection. This also relates to
other major difference between the Turkish
labor market and those of Europe. I have
already mentioned that only about 44% of
all working age citizens of Turkey are working.
However, among those who are working, less
than half of them are working in the formal
sector, with more than half working in the
informal sector. What does this
mean? It means half of existing workers
in Turkey receive no social benefits or
job protection, half of workers are in the
less productive informal sector and only
about 22% of the entire working age population
of Turkey is funding the portion of the
budget coming from personal income taxes
and social security contributions. Further,
while the proportion of men in Turkey who
are in the labor force is equivalent to
those in the EU, only about 25% of women
participate in the labor force, which is
about half of the rate in Europe. A startling
figure is that there are more women in Turkey
who do not work outside their own homes,
even in agriculture, than there are formal
sector workers in the entire economy. The
number of people in Turkey who are not working
in the formal labor sector thus represents
a huge potential asset for the country if
more of them and their employers can be
persuaded to move into the formal labor
market.
The
Study also notes that without growth and
structural changes in key areas, jobs cannot
be created - irrespective of how well the
labor market is functioning. Two companion
World Bank reports, the Country Economic
Memorandum, and the Education Sector Study,
which were presented at similar events to
this in March, found that while much progress
has been made, reforms were needed in four
broad areas: the investment climate, financial
markets, labor markets, and what we might
call the knowledge economy, including education
reform and skills enhancement. We will spend
a good deal of time talking about the labor
market today, but I would like to take this
opportunity to highlight the importance
of the other three areas which we consider
to be essential for a comprehensive job
creation strategy.
First, the investment climate refers to
the regulatory environment in which firms
operate, and it is an area in which useful
progress has been made. However, there are
still areas of improvement that can help
including such as the costs of registering
or closing a business, reducing compliance
burdens for small firms, changes to the
tax regime, clarifying responsibilities
of the Competition Authority and improving
judicial procedures.
Second,
improvements in the functioning of financial
markets will improve the availability of
financing for firms which will allow them
to expand and hire workers. Lending
to the private sector in Turkey is still
small by international standards. Areas
where improvement is needed include both
residential and commercial mortgage regimes,
better credit bureaus to allow banks to
manage credit risks, a movable collateral
regime to facilitate lending, expansion
of the insurance sector and a better micro-finance
framework that will target the smallest
borrowers.
And the third area of focus in a comprehensive
job-creation strategy would be on better
education from the preschool level through
universities and retraining in the work
force. International tests suggest that
the vast majority of Turkish students have
performed at the lowest proficiency levels
in basic competencies. Problem-solving capacities
in math, reading and science remain well-below
EU levels. Improving educational outcomes,
enrollments and more equitable access to
schools and higher education, and thus the
skills of the work force of tomorrow, will
help position Turkish labor to compete strongly
in the global market place.
Taken together, we believe that such a package
of reforms can generate more and better
jobs in the economy. This goal is an attainable
one for Turkey but one which can become
a reality only if there is a partnership
among the government, the private sector,
employers and employees to translate the
growth of today into the jobs of tomorrow.
Turkey can have growth and more jobs and
improve its chances of EU membership if
there is a willingness of all these partners
to tackle the employment challenge. It can
be done and I am hopeful it will be done.
Thank you.
av 4/12
For more information:
www.worldbank.org.tr/labor2006
Arsev Umur Aydinoglu
Public Information Assistant
World Bank Turkey Office
aaydinoglu@worldbank.org
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