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Productivity and long term growth

Going for Growth 2016: Turkey

 

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‌Turkey still has a large income gap vis-à-vis most advanced OECD countries, reflecting both a relatively low productivity level and a low employment rate, which is the lowest among OECD countries. Encouraging formal employment, especially among underrepresented groups such as older workers and women, would help boost potential growth. This requires reducing labour costs, reforming employment protection legislation and raising incentives to work longer in the formal sector. Product market reforms are also needed to stimulate competition and productivity growth in sheltered sectors.

1. Employment rate is measured as total number of employed divided by working-age population. Hours worked are measured as total number of hours worked per employed. Working-age population is measured as working-age population divided by total population. The product of the three components is a proxy for total hours worked per population.

Source: OECD, National Accounts, Productivity, Employment Outlook and Economic Outlook Databases.

Previous Going for Growth recommendations include:

  • Improving educational achievement at all levels by reducing the persistently large quality gaps among both schools and universities through more autonomy and resources per student, in return for greater performance accountability; by developing pre-school education; and by strengthening vocational education and life-long training in co-operation with the business sector.
  • Reducing the cost of employment of the low skilled by making permanent the cuts granted during the crisis and further reducing social security contributions for low-skilled workers throughout the country and by financing this by a widening of the tax base; by limiting the growth of the official minimum wage and promoting minimum wage settlement at regional level through local consultations between government, employer and employee representatives.
  • Reforming employment protection legislation by replacing the very costly severance payment regime with “portable” severance saving accounts available for all workers; by liberalising fixed-term and temporary work agency contracts; and by broadening the scope and eligibility for unemployment insurance in order to move protection from jobs to individuals.
  • Improving competition in network industries and agriculture by accelerating the liberalisation of all network sectors and by delinking agricultural support from production while shifting its composition away from price measures towards direct support.
  • Encouraging formal work at older ages by making continuing work in the formal sector after official retirement age more attractive and actuarially neutral; by speeding up increases in the statutory retirement age; and by establishing a health insurance contribution for young retirees.

 

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Recent policy actions in these areas include:

  • Turkey has granted permanent social security contribution cuts and wage subsidies for the employment of young workers. The wages of workers receiving on-the-job vocational training will be paid by the government for six months, and the employer social security contributions for these workers will be fully subsidised for up to 3 years, if the training ends up in hiring. Adapting to the 30% increase in the official minimum wage from January 2016 will be a challenge for firms, even though the government is sharing part of the implied extra cost during the first year.
  • Turkey adopted its Vocational and Technical Education Strategy and Action Plan 2014-18 which includes 24 specific goals to be monitored by performance indicators, including revisions of curricula according to national professional standards.   

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality). In the case of Turkey, progress with vocational and life-long education, notably for youth and women, would not only improve productivity and employability, but would also help reduce the still wide income gaps between social groups and across regions.

Economic Policy Reforms 2016 

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