‘Informality' in the Turkish labor market

The largely widespread informality in the labor market is, for sure, one of the major structural problems in Turkey. A number of reports and many articles have been published on the subject, but I think the issue continues to be one of the least known and understood. Let me be precise from the beginning: By “informality” I mean, in the Turkish context, those workers who are not registered with the Social Security Institution (SGK). These workers are, of course, deprived of their health care and retirement rights.
The main reason for the ignorance concerning this informality is due to its very diversified character in Turkey. We frequently hear and read that almost half of the workers in the country are unregistered. Then the majority of people immediately think of the wage earners and blame the greedy capitalists for these “unfortunates.” In fact, wage earners constitute only 37 percent of unregistered workers. The majority of the informality includes, indeed, a conglomerate of different worker categories such as employers, self-employers and unpaid family workers. For these three categories, non-registration with the SGK is an individual decision and avaricious capitalists have nothing to do with that. The motivations behind this decision are another matter, and I will discuss them briefly below. The table below summarizes the latest state of the informality in the labor market in Turkey. Informality (unregistered workers) in Turkey (October 2012) The first point to be highlighted is the widespread informality in the agriculture sector. Approximately 85 percent of workers in this sector are not registered with the SGK. There has been little improvement since October 2005 (88 percent unregistered), which is the earlier comparable statistical series (not present in the table). The second point is the informality among unpaid family workers. The rate of unregistered unpaid family workers is almost 92 percent, albeit lower to some extent in the nonagricultural sectors. This phenomenon is not surprising given the level of dependence of this category of workers (mostly females and young persons in agriculture) on the head of the household, who is very often a self-employed male or employee of a small business. The critical point in Turkish informality is the individual decision of the self-employed to not register. The informality rate in agriculture is 74 percent in this category of worker and 56 percent in nonagricultural sectors. A comparatively lower rate in nonagricultural sectors might be explained by the presence of “modern” professionals like doctors, lawyers and financial consultants, who not only have higher incomes (thus more able to pay social security premiums), but are also more eager to secure their retirement. I should say that since October 2005 there has been no significant improvement in informality among the self-employed. Obviously, in households headed by a self-employed individual with unpaid family workers the decision to pay or not to pay social security premiums depends on multiple factors such as level of income and state of health coverage. This kind of informality must be addressed with other policies than those designed for wage earner informality. Wage earner informality, in other words the rate of unregistered wage earners, was 22 percent in October 2012, and a large majority of them were working in nonagricultural sectors. One informal wage earner out five is not negligible, of course, but I would like to remark that there has already been an improvement in this category. In October 2005, the wage earner informality rate was 30 percent. Admittedly, unregistered employment deserves more attention because it has many factors that adversely impact the economy. These include the problems small enterprises experience in accessing finance. On the other hand, productivity is declining in the markets, and the state loses much money due to unpaid social security premiums. Informality (unregistered workers) in Turkey (October 2012) Number of unregistered workers in thousand; in brackets their percentage in each category Agriculture Non agriculture Total Wage earners 627 (87.2) 3.196 (22.0) 3.823 (25.1) Employers 56 (58.3) 225 (19.6) 281 (22.6) Self employers 1.883 (73.7) 1.180 (56.0) 3.063 (65.7) Unpaid family workers 2.755 (94.2) 314 (75.3) 3.069 (91.9) Total 5.321 (84.6) 4.915 (27.0) 10.236 (41.6)