Billions lost to unregistered employment
Unregistered workers and businesses cost the state 30 billion TL a year in lost revenue, but recent actions by the government appear to be reducing the practice.
By Menekse Tokyay for SES Türkiye in Istanbul -- 31/01/13
Newly released data by Turkey's state-run statistical institute, or TUIK, reveal staggering figures of informal employment, sparking a debate about the amount of unregistered workers and the practice's impact on tax revenues.
Recently released data reveals there are more than 10 million unregistered workers in Turkey. [SES Türkiye]
According to TUIK figures, as of October 2012 there were 10,123,000 unregistered workers that cost the state an annual 30 billion TL in social security and taxes.
The statistics reveal: 3 million people conduct their own business; 3,720,000 are wage or casual workers; 3,141,000 are unsalaried domestic workers; and 256,000 are employers.
In the agricultural sector, there are approximately 5.5 million informal workers, while non-agricultural businesses have around 4.5 million informal workers, TUIK said.
Analysts note informal employment in Turkey is structural, creates problems in the macro-economy and increases the insecurity of workers as employers shift workforce demand to workers coming from the informal market to reduce costs.
Ferhat Ilter, deputy secretary general of the Turkish Employer Unions' Confederation (TISK), told SES Türkiye there are several reasons behind the informal economy.
"High unemployment, the weight of agriculture in employment, inadequate education levels, rigidity in the employment market and the insufficient spreading of flexible labour, the high tax burden over registered companies, social security premiums and compensation, as well as inefficient supervisory systems are leading people to unregister their presence in the labour force," Ilter said.
According to the Labour and Social Security Department, Turkey aims to decrease unregistered employment to 15 percent by 2023 and has taken some steps to achieve this goal. Social security reform in 2008 made formal employment more attractive with premiums and health benefits, resulting in a drop in unregistered employment from 45.6 to 37 percent.
Research conducted by the Economic Policy Research Foundation of Turkey (TEPAV), an Ankara-based think tank, also show formal employment rising, with the number of people registered in the social security system increasing by one million from October 2011 to October 2012.
With the adoption of ambitious employment packages since 2008, the state authorised a decrease in employers' social security premiums provided that all staff is registered. Meanwhile, vocational training has been encouraged. Employers that hire workers with vocational or technical school training have received state incentives.
Ilter recommended that the government continue to lower the tax burden, reduce excessive regulation and premiums to below the Organisation for Economic Co-operation and Development average.
Because informal employment mainly occurs in small enterprises and people conducting their own businesses, Ilter said the government should provide micro-credits to encourage registered employment and help train companies in law, regulations and company management.
However, Yigit Oguz Duman, head of Turkey’s Human Management Association (PERYON), contends that the unregistered economy is one of Turkey's "invisible strengths."
"As a result, if you say you're going to eliminate the unregistered economy, you also need to take the risk that you'll eliminate Turkey's competitive advantage," he told SES Türkiye. "The main reason why in the past 10 years [the informal economy] has only fallen by a couple of points is that the government doesn't take the risk of losing this strength."
He added: "On the other hand, the latest figures of TUIK showing 40 percent unregistered employment create distortions [in the economy]. When half of workers are outside the system the burden of social security payments falls on the formal sector, raising the cost in terms of taxes and social security payments."
Duman also said this creates an unequal playing field for registered businesses that may see an incentive in withdrawing from the formal market.
Unregistered employment particularly affects women in agriculture, household work and similar services that keep them outside the formal economy, Duman said.
"This makes it impossible for women to receive social security and equal work and opportunities," he said.
According to Enis Bagdadioglu, deputy research director of the Turkish Workers Unions Confederation (TURK-IS), the informal economy is one of the main reasons why the unions and the social state are not well developed in the country.
"For different reasons, those working in the unregistered economy are not unionised and are out of the social security system without healthcare, without safety and security at their place of work, unprotected and lacking negotiating power, leaving them open to exploitation," Bagdadioglu told SES Türkiye.
"To sustain economic growth and to create a rule-based economy, it is of utmost important to register the informal economy in parallel with lowering tax burdens over the companies so as to ensure equal competition within the private sector and decent work conditions for all employees," Bagdadioglu said.
Ozan Acar, economist from TEPAV, said that the extent of unregistered workers in a country is related to the structure of production in the country.
"For instance, in Turkey, as the retail sector becomes organised around big chains instead of small groceries, there will be much less tendency towards unregistered employment. So, provided that the business structure of Turkey becomes integrated with the modern economic dynamics, this rate will be lessen," Acar told SES Türkiye.
"One of the most important factors that keep people in the informal sector is the highly rigid structure of the Turkish labour market. Any insufficiencies and rigid management procedures in labour markets tend to push employers to satisfy their labour needs outside the formal labour market," he added.