28 Eylül 2013 Cumartesi

PM has washed his hands of it

This cryptic title simply refers to the attitude of Prime Minister Recep Tayyip Erdoğan regarding severance pay reform, which has been rotting in a drawer for a year.
PM Edoğan and Ministers at the Woking Council
This crucial reform came back onto the economic agenda during the Working Council Meeting in Ankara on Thursday, where the prime minister made a speech about various labor market issues. Concerning severance pay reform, Erdoğan said that the government has no problem with it, but that they are waiting for their social partners to come to an understanding. Knowing the inflexible approach of the workers' unions on the severance pay issue, we can easily say that the social partners will never come to an understanding.
What is at stake? The severance pay system in Turkey was established in the early 1970s, in a period where unemployment insurance did not exist. However, the severance pay system continued without any change even after the introduction of unemployment insurance in the 2000s. The severance pay system provides a lump sum payment of one month's pay for every year worked if the worker is fired for other causes than personal fault or when he reaches the retirement age. The right to severance pay is lost in the case of a resignation. These rules place Turkey among the countries with the highest severance pay -- at least when it is paid.
Indeed, Social Security statistics assert that less than 10 percent of wage earners benefit from severance pay in reality. Minister of Labor and Social Security Faruk Çelik noted this fact during the meeting on Thursday. There are many reasons for this unacceptable situation. First, one out of every five wage earners is not registered in the social security system and therefore not eligible for severance pay. Second, many firms, particularly small ones, fire employees in the end of December and hire at the beginning of January to avoid severance payments, since they require one full year of work. Third, some firms, when they decide to fire a worker, they force the employee to resign; some even require resignation letters from the workers when they are hired. Fourth, when a firm goes bankrupt, it is very rare that its workers will get their severance pay. Actually, it is only those working in state-owned enterprises and in big private corporations who are most likely to receive their full severance pay.
So, the current severance pay system benefits a minority of workers while encouraging informality in the economy. The severance pay reform prepared by the government envisages a regular monthly premium payment to individual accounts but at a lower rate than the existing one (1/12 = 8.3 percent) because it will be paid regularly and without conditions. The reform will not only make severance pay effective for millions of workers but it will have also some positive side effects such as a incentivizing domestic savings through increased financial literacy and the deepening of financial markets since the accrued premiums in individual accounts will be invested in financial assets for the beneficiary.
Workers' unions, representing some 10 percent of wage earners, are strongly opposed to the reform project. They claim that the new system will diminish existing severance pay rights and will facilitate firings. They are threatening the government with a general strike if the reform is implemented. In fact, they are simply defending the interests of their handful of members. As for the employers' organizations, they are ready to accept the reform if it does not incur additional labor costs. Admittedly, a compromise is not possible under these circumstances. However, a possible compromise might be found in giving current formal wage earners the right to choose between the current system with its risks and the new system with its guarantees, as was recommended by Bahçeşehir University's Center for Economic and Social Research (BETAM) in a report on the issue.
When I proposed this compromise during the debates for the 10th five-year plan in the Employment Commission, the representatives of workers' unions objected, claiming that they represent for the whole “working class” and not only their members. Those kinds of pretentions won't ever give way to a compromise. So, Minister Çelik may have to continue to look for “a magic solution,” as he confessed on Thursday. The critical question is: Who will defend the interests of the huge majority of workers that are practically prevented from accessing their severance pay rights? Erdoğan, by stating that he is waiting for the elusive compromise, has in fact, washed his hands of the issue and given up on what is his political responsibility.

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