Contributions to Economics Toker Dereli Y. Pınar Soykut-Sarıca Aslı Şen-Taşbaşı Editors Labor and Employment Relations in a Globalized World New Perspectives on Work, Social Policy and Labor Market Implications
Contributions to Economics For further volumes: http://www.springer.com/series/1262
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Toker Dereli • Y. Pınar Soykut-Sarıca • Aslı S¸ en-Tas¸bas¸ı Editors Labor and Employment Relations in a Globalized World New Perspectives on Work, Social Policy and Labor Market Implications
Editors Aslı S¸ en-Tas¸bas¸ı Toker Dereli Department of Economics Y. Pınar Soykut-Sarıca Isik University Department of Management Istanbul Isik University Turkey Istanbul Turkey ISSN 1431-1933 ISSN 2197-7178 (electronic) ISBN 978-3-319-04348-7 ISBN 978-3-319-04349-4 (eBook) DOI 10.1007/978-3-319-04349-4 Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: 2014936991 © Springer International Publishing Switzerland 2014 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Contents Part I International Trade, Multinationals and Labor 1 New Trends in International Trade and Labor Market Interactions: 3 South–South Trade, Trade in Services and Labor Market Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Can Erbil 2 How Competitive Is Turkey in Meeting International Labor 23 Standards and in International Trade? . . . . . . . . . . . . . . . . . . . . . . Aslı S¸ en-Tas¸bas¸ı 3 Can FDI Be a Panacea for Unemployment?: The Turkish Case . . . 43 Mehtap Hisarciklilar, Derya Gultekin-Karakas, and Ahmet Atil Asici Part II Social Policy 4 New Approaches to Disability in Social Policy: The Case of 73 the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas P. Golden, Ilene Zeitzer, and Susanne M. Bruye`re 5 Higher Education and Social Policy: The Case of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Risa L. Lieberwitz Part III International Labor Standards; Raising the Floor of Labor Rights; Labor Unionism and Industrial Relations 6 Flexicurity and Turkey’s New Labor Act: Problems and Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Toker Dereli 7 Prejudice Against Labor Unions and Effects on Membership . . . . . 159 Eul-Teo Lee and Tuncay Guloglu v
vi Contents 8 Unionization Status and Productivity . . . . . . . . . . . . . . . . . . . . . . . 171 Nurgun Komsuoglu Yilmaz Part IV Labor Market Challenges, the New Workplace, Informal Employment and Skills Training 9 The New Labor Skills in the New Economy . . . . . . . . . . . . . . . . . . 195 Pınar Falcıog˘lu 10 Public and Private Initiatives in Skills Training in Turkey . . . . . . . 207 Y. Pınar Soykut-Sarıca 11 The Importance of Temporary Work Agencies in Turkish Labor Market and a Comparative Study with Spain, Italy and Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Aslı Beyhan Acar and Gu¨ven Ordun 12 Solution for Informal Work Problems: Microfinance for Women . . . 253 Aslı Beyhan Acar 13 Visiting the Iron Cage: Bureaucracy and the Contemporary Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 Ahmet Hakan Yu¨ksel Appendix: Summary of the Empirical Literature . . . . . . . . . . . . . . . . . 291
Introduction This volume of readings on “work” and “employment relations” under globaliza- tion trends is the joint outcome of contributions by some faculty members of Is¸ık University as well as several research papers of academics from other institutions, Turkish or foreign. In designing such a book of readings dealing with various labor market and employment relations issues, the editors have considered recent devel- opments resulting from the globalization process as well as more conventional labor market problems still shaped by globalization and its adjacent novelties such as the rapidly speeding precarious forms of employment. Like elsewhere, globalization with its undeniably increasing speed and spread has made its wide-ranging effects felt by workers and labor unions also in Turkey. Although not based on systematic country comparisons, essays written for this volume were the result of the need for new research on the topics covered. Aided by new forms of technology and global deregulation, capital can now be relocated much more easily than ever in the past. In all the countries to which references have been made in the various chapters of this volume, an observable deindustrialization phenomenon in developed as well as semi-developed countries like Turkey has caused important shifts of manufacturing and also of some services to the newly industrializing countries. Although the main process for these changes has been fueled by finance markets, the employment effects of the concentration of eco- nomic power as such in huge transnational firms have been experienced every- where. As a result of this shift and wide-ranging privatizations, the world has witnessed changes in governmental ideologies and policies tolerant for or even giving encouragement to precarious forms of employment. The basic concept of “social policy of the State” has taken new meanings, the power of labor unions has declined, and the role of the International Labor Organization has tended to be revised under the newly emerging needs. The book’s contents are comprised of original reports or academic papers which contain detailed information considered worthwhile to address a wider audience in the form of a book of readings. It should be noted, however, that in order to assess each chapter from a sound perspective, the readers must have the knowledge and understanding of the fundamental principles and concepts of labor economics and vii
viii Introduction employment relations. Although the chapters have been completed at different dates throughout the 1-year term of the project, they are all of recent origin, involving revisions where developments have had a substantial impact on the contents, meaning that the chapters were revised only where developments were of crucial importance, with a final deadline by the end of January 2014. The book dwells on four major tracks addressed in four separate parts. Each part includes several chapters dealing with different phases of the track. Based on the general theme of international trade, multinationals and labor, Part I contains three chapters. In Part I, Chap. 1, titled “New Trends in International Trade and Labor Market Interactions: South–South Trade, Trade in Services and Labor Market Implica- tions,” Can Erbil discusses the interactions between international trade and labor markets, driven specially by increases in trade between developing countries with emphasis on increases in South–South trade. While previously South was engaged mainly in trade with the North, more recently South has not only been able to produce competitive higher value-added products, but also increased its own consumption of such products. Of special significance here is the role of services where developing South countries are defying traditional notions by investing abroad in services. The increasing trends in services trade have significant labor market implications. As the composition of trade diverges from traditional sectors and the conventional North–South axis, the demand for labor is affected consider- ably. Investigating these newly emerging trade–labor market interactions, the writer aims to offer policy recommendations for labor market reforms to cope with chronic unemployment and underemployment problems, especially among the youth and other under-privileged groups with a view to helping avoid potential bottlenecks and adverse shocks in labor markets. In Chap. 2, titled “How Competitive Is Turkey in Meeting International Labor Standards and in International Trade,” Aslı S¸ en-Tas¸bas¸ı explores the intricate dichotomy between Turkey’s economic growth and her ability to meet international labor standards. Her study aims to find out to what extent the country has been able to resist the temptation of lowering labor standards in the assumption that this could provide her with a greater comparative advantage in international trade. Her chapter analyzes for the last decade the competitiveness of Turkey in global trade by using the empirical measures of comparative advantage while at the same time portraying the country’s position in meeting international labor standards. In Chap. 3, titled “Can FDI Be a Panacea for Unemployment? The Turkish Case,” Mehtap Hisarcıklılar, Derya Gu¨ltekin-Karakas¸, and Ahmet Atıl As¸ıcı inves- tigate the relationship between foreign direct investment (FDI) and employment in Turkey. Referring to the increase in FDI inflows following the financial and economic crisis in 2001, the writers point to the persistence of high rates of unemployment in Turkey and argue that the positive employment effects would be higher if the FDI could take the form of greenfield investment. After a brief introduction, they review the rather limited literature of research in Turkey on the topic and then present their research questions and hypothesis. Following the discussion of their methodology and data sources, the writers present their findings
Introduction ix and conclude by drawing policy implications for Turkey. The preliminary results suggest a negative impact of FDI inflows where mergers and acquisitions as the dominant mode of foreign entry, coupled with the shift of FDI from low-tech to medium and high-tech industries in Turkish manufacturing, could be among the reasons of this negative employment effect. The authors, faced with the dilemma of encouraging high-tech industries and employment creation, conclude by stating that the optimal industrial policy could be encouraging the flow of FDIs to medium and high-tech industries with the highest job creation capacities. In Part II, the book investigates the approaches to the protection of the disabled as well as the challenges posed for the health and safety of vulnerable workers; and the relationship of higher education to social policy in the USA. In Chap. 4, titled “New Approaches to Disability in Social Policy: The Case of the United States,” Thomas P. Golden, Ilene Zeitzer, and Susanne M. Bruye`re refer to the results of disparate policies of the past which have insisted on considering disability and employment as two separate issues, whereby disability standards and definitions frequently operate in contradiction to employment. After detailing in depth a historical overview of the disability policy in the USA the chapter aims to illumi- nate the present policy disconnects vis-a`-vis employment promotion for people with disabilities. In the authors’ view, the present dilemma in the USA is how to craft new employment, disability, and social insurance policies and develop inno- vative programs to provide greater opportunities for disabled people to utilize their remaining abilities, rather than to be forced to seek benefits. In Chap. 5, titled “Higher Education and Social Policy: The Case of the United States,” Risa L. Lieberwitz looks at social policy from an unconventional and broader perspective by analyzing the institutional character of American higher education based on the social policies of public mission and academic freedom both at public and at private higher education institutions. In both sectors of higher education, one of the key policies is the university’s social policy of independence and academic freedom. The chapter explores the consequences of the recent privatization trends for the university’s independence and its public mission. The study addresses, as well, the consequences of these developments for the content of teaching and research, the culture of the university, and the scope academic freedom. In Part III, Chap. 6, entitled “Flexicurity and Turkey’s New Labor Act: Problems and Prospects,” Toker Dereli analyzes Turkey’s search for achieving the right regulatory balance between labor market flexibility and employment security which has culminated in the enactment of the new Labor Act of 2003, no. 4857. The chapter comprises three main parts: first, the unique method used in the law- making process; second, major dimensions of the flexicurity outcomes, and third the evaluation of the main problems encountered in practice as well as the search of the social partners for further ameliorations. The drafting phase has involved the voluntary creation of a tripartite committee of academics representing labor, employers, and government on an equal basis. At this stage the social partners made a commitment at the inception of the process that they would accept those changes on which the nine-members drafting committee could agree unanimously.
x Introduction Interestingly the general structure of the original draft which flowed from various compromises and haggling was mostly accepted, notwithstanding a few alterations in the text and deletions of certain items, e.g., temporary agency work and atten- uation of severance pay entitlements. The writer states that although the job security dimension of the new Act has been working with reasonable efficiency, there are various flaws in the application of flexible working patterns. Through interviews and use of secondary data, the last section of the chapter analyses the likely causes of the problems encountered in practice as well as the ongoing efforts to make flexibility a more viable part of the system. Despite the existing voids and problems, the way this reform was launched shows how the high degree of trust between the social partners was of utmost importance in achieving consensus on many issues over which they could not agree for many years. As Turkey has a large informal labor market which is ironically very flexible, the reader must first grasp the consequences of this informality for the social protection and job security of workers. In fact, Turkey had two reasons to be interested in flexibility: to increase her national competitiveness and to implement the acquis communautaire in pre- paring for accession to the EU. Chapter 7, titled “Prejudice Against the Labor Unions and Effects on Member- ship,” by Eul-Teo Lee and Tuncay Guloglu explores the relationship between prejudices against unions and the negative motives of individuals in avoiding to join a union. Based on the review of literature, the authors suggest that main causes of prejudice against unions are rooted in the social groups’ learning process, which in turn lead to actions of union avoidance and employers’ union-busting behavior. Reports by mass media pointing to the effects of social waste and damage caused by industrial conflict are a significant source of antiunion attitudes. Many individuals who have accumulated a vast array of attitudes against unions through their socialization processes seem to start their employment with a negative stance towards unions. Furthermore individuals’ actual encounters and negative personal experiences with certain union leaders and waste resulting from strikes seem to contribute to the creation of antiunion beliefs and values. The study also dwells on the implications of this tendency for unions’ attempts to develop new recruiting strategies to ensure their survival and growth in modern society. In Chap. 8, titled “Unionization Status and Productivity,” Nurgun Komsuoglu Yilmaz exposes the interesting results of her empirical research on the effects of unions on labor productivity and firm efficiency. Applying different statistical techniques to unionized versus nonunionized firms, she has disclosed an interesting productivity increase tendency successively from the unionized to nonunionized firms. When her statistical techniques were applied to the subsectors of the chem- ical industry, however, productivity differences among firms according to their unionization–non-unionization status were not found to be significant. To clarify her findings further, the author has made in-depth interviews with informants (managers and unionists) in order to probe further for the general tendency of lower productivity—efficiency in unionized firms as well as the somewhat contra- dictory results obtained in the chemical subsectors. Her research findings shed light on the effects of unions in Turkey, albeit limited to a certain sector.
Introduction xi Part IV of the book is a collection of chapters on the labor market challenges, the new workplace, informal employment, and skills training. In Chap. 9, titled “The New Labor Skills in the New Economy,” Pınar Falcıog˘lu aims to review the recent empirical literature on the changing demand for labor skills with particular empha- sis on the effect of technological changes on the skills demanded. As her reviews suggest, although each different type of change (i.e., computer-based, business cycle-related, managerial, organizational, sales, or manufacturing) determines tech- nology as a significant factor of skill-based change, they differ from each other in how each explains the reasons and consequences of the change process. After reviewing various streams of discussions on this topic analytically, she explores the extent to which the demanded skills can be gained through formal training and education and concludes by making suggestions for further studies. In Chap. 10 in her study on “Public and Private Initiatives in Skills Training in Turkey,” Y. Pınar Soykut-Sarıca first makes reference to the priority aims of the Ninth National Development Plan from the perspective of various training pro- grams, all having a linkage to “decent work” in a broad sense. An important venture still active in this area was the joint MESS (Metal Employers’ Union of Turkey) and Tu¨rk Metal (Metal Workers’ Union of Turkey) project whose main objective was to provide a mechanism for continually improving the productivity and competitive- ness of the metal industry as well as to provide ongoing skill’s development for employees. Main objectives of this cooperation were to provide skills development and training for workers and to contribute to the ongoing competitiveness of the industry. As a matter of fact, the lessons learned from this cooperation have served as a basis for creating the norms of the newly established Vocational Qualifications Authority of Turkey. In this paper, the MESS—Tu¨rk Metal joint training project and its contribution to the development of vocational qualification standards within a national qualification framework are evaluated from the perspective of Turkish Active Labor Market Development Programme. Although employment through temporary agency work has received heightened legislative attention and widespread application globally and especially in EU, it still does not enjoy legal recognition in Turkey. Several draft bills have failed to reach the legislative enactment stage due to the strong resistance and active lobbying by labor unions. In Chap. 11, titled “The Importance of Temporary Work Agencies in Turkish Labor Market and a Comparative Study with Spain, Italy and Germany,” Aslı Beyhan Acar and Gu¨ven Ordun attempt to explore Turkey’s compliance level and gaps which exist in this area as well as the benefits which will likely emanate from the legalization of temporary work agencies. The issue stands out as a priority issue on the agenda of the Turkish government. Based on a selected survey sample, the authors present the findings of their empirical research and offer a model with a view to laying down a legal and institutional framework for temporary employment agencies in Turkey. Chapter 12, “Solution for Informal Work Problems: Microfinance for Women,” based on a study by Aslı Beyhan Acar, is an attempt to evaluate the micro-credit programs of various countries aimed at providing loans to poor people for self- employment. In these programs small amounts are disbursed as loans and the
xii Introduction timeframe for repayment is longer compared to commercial banks’ installment- based loans. By the help of these loans especially women disadvantaged in access to credit and other financial services have been empowered to make important con- tributions to economic growth and sustainable livelihoods of their families and communities. In addition to its effect on increasing employment levels of women, micro finance has also proven to be one of the effective means of fighting against informal employment. By making comparisons between Turkey, Bangladesh, Paki- stan, and Indonesia, the authors attempt to show the contribution of micro-credit practices to women employment and the expansion of formal employment. In the final chapter titled “Visiting the Iron Cage: Bureaucracy and the Contem- porary Workplace,” the author, Ahmet Hakan Yu¨ksel, touches on a different dimension of the labor-management relations continuum, i.e., the importance of having to look into the life of the contemporary workplace from the perspective of the theory of bureaucracy. One side of the prolonged discussion on bureaucracy praises this administrative form as the ‘rational’ way to run an organization effectively. It provides needed guidance and clarifies responsibilities, which enables employees to become more efficient. However, the opposite view claims that in a nonlinear world, where industrial organizations are forced to confront the challenging task of sensing and responding to unpredictable and novel situations of highly competitive markets, this organizational form stifles creativity, fosters demotivation, and causes pressure on employees. Therefore, dealing with bureau- cratic form of organization and its consequences now begs for a new context. It would be appropriate to quit ‘taking sides’ and develop a sound analysis of this phenomenon under the conditions of today’s global workplace environment. It is hoped that both academicians and students in final-year undergraduate and graduate courses interested in labor economics and employment relations will find this book of readings helpful and enriching.
Part I International Trade, Multinationals and Labor
Chapter 1 New Trends in International Trade and Labor Market Interactions: South–South Trade, Trade in Services and Labor Market Implications Can Erbil Abstract In light of the current economic developments after the 2008–2009 global financial crises and the political turmoil following the uprisings in the Middle East and North Africa (MENA), South–South dynamics and trade in services have become center of the attention for businessmen, policy makers, academicians and practitioners. Increasingly, every indicator, from the least formal, such as the ever increasing number of Google search hits, to the most established, such as the titles of several panels dedicated to the topic in the International Development Conference 2011 at the Kennedy School of Government, points to the attention the South–South momentum is attracting. Both South–South trade dynamics and the increasing trend in services trade have significant labor market implications, especially for developing countries. As the composition of trade diverges from traditional sectors and the familiar North–South axis, the demand for labor is affected considerably. The relatively higher value- added and skill requirements of services trade is counter-balanced by still relatively less value-added trade in the South–South domain. The purpose of the chapter is to start a promising, but highly challenging research exploration in a phenomenon increasingly shaping the new map of trade, globalization and labor mobility. In addition to presenting new trends in interna- tional trade, the chapter also investigates the recent literature on labor market implications of these trade moves and makes very basic and intuitive predictions utilizing standard trade theory. C. Erbil (*) 3 Department of Economics, Boston College, Chestnut Hill, MA, USA Brandeis University, International Business School, Waltham, MA, USA Bahcesehir University, Institute of Social Sciences, Istanbul, Turkey e-mail: can.erbil@bc.edu T. Dereli et al. (eds.), Labor and Employment Relations in a Globalized World, Contributions to Economics, DOI 10.1007/978-3-319-04349-4_1, © Springer International Publishing Switzerland 2014
4 C. Erbil 1.1 South–South Dynamics1 In light of the current economic developments after the global financial crises and the political turmoil following the uprisings in the Middle East and North Africa (MENA), South–South dynamics have become center of the attention for business- men, policy makers, academicians and practitioners. Political scientists are interested in its possible impact on governance. Optimists claim that South–South partnership will pave the way for emerging democratic powers and “good governance” in the South, whereas skeptics demand a reality check and are satisfied with “good enough governance,” instead. Economists, on the other hand, as more data and empirical evidence driven social scientists, crunch the numbers and analyze the current trends of South–South trade to understand and interpret the dynamics and potentially generate policy recommendations. 1.2 South–South Trade After the global financial crisis, trade between developing countries, South–South trade2 has become more vital and more vibrant than ever. Just as developing countries are becoming increasingly important markets for high-income exporters, so too are other developing countries becoming more important destinations for the exports of developing countries.3 Between 1990 and 2008 world trade expanded almost four-fold, but South-South trade multiplied more than ten times.4 Since 1990, South-South trade has risen from 7 percent of total world trade to 18 percent,5 while North-North trade has fallen from 65 percent to 50 percent.6 According to ITC’s latest figures, almost 45 % of world trade is conducted by developing countries with nearly half of this trade categorized as South–South trade.7 1 Compiled from Erbil and Ozcan (2011). 2 There are also many differences within South itself, with major countries like China, India and Brazil driving these trends. Aggregating all of these countries under the title of “South” may be a simplification, but the author believes it is also useful to give a snapshot of the greater picture and a continuum of the literature which often refers to developing and developed countries as two well- defined separate groups. 3 Development in Trade 2010, The World Bank. 4 OECD. 5 Part of this growth comes from intermediate goods as a result of increased outsourcing and off-shoring activities initiated in the North. 6 IMF DOTS. North refers to developed countries and North–North trade to the trade among developed countries. 7 International Trade Forum, Shifting Markets, Issue 2, 2010.
1 New Trends in International Trade and Labor Market Interactions: South-. . . 5 Fig. 1.1 Weight of South–South trade. Data source: COMTRADE, author’s calculations For the main exporters in the South, the weight of South–South exports in total exports between 1995 and 2009 has gone up between 200 and 1,100 % (Fig. 1.1). In this period, Turkey was among the high performers with an 800 % growth rate. China and India lead Turkey with about 1,100 and 1,000 % growth rates, respectively. United Arab Emirates and Brazil are also among the high performers, followed by the Asian tigers. 1.3 Switch Over In addition to these increases in volume and share of trade, there have also been significant changes in the composition and destination of exports from the South (developing countries). Previously, South was mainly engaged in trade with North, selling them manufactured goods and commodities. More recently, especially after the current financial crisis, South surprised the trade pessimists by not only being able to produce competitive, higher value-added products; but also increasing its own consumption of such products. The developing world can no longer simply be labeled as poor.8 Scholars and practitioners believe that this new dynamic can go beyond helping the South. Developing economies now have the potential to “switch over” to become locomotives in the global economy. Similar arguments create new termi- nology like “reverse de-coupling” and “re-coupling” describing the increasing South–South synergy. 8 The expansion of the middle class in the South has contributed to this process.
6 C. Erbil Lastly, the gains from South–South trade go far beyond the conventional static gains from trade. Its very nature and potential requires special attention and further analysis. 1.4 Trade in Services According to Goswami et al. (2011), “the role of services reform in development is widely recognized. The past two decades have seen exciting changes with devel- oping countries emerging as exporters of services. Some countries have, of course, taken advantage of technological developments that make it easier to trade services across borders. But other avenues are also being exploited: tourists are coming, not just to sightsee but also to be treated and educated; service providers are moving abroad under innovative new schemes; and, interestingly, some developing coun- tries are defying traditional notions by investing abroad in services.” In line with this approach, it becomes highly desirable to identify (and possibly quantify) the (direct, indirect and induced) effects of expanding services exports to the final demand in all of the connected domestic sectors. In addition, the effect of investing in one sector on the final demand of services export has also economy- wide effects. The large share of employment in the service sector, inter-industry input-output relations, technology transfer, knowledge spillover, increasing linkages between goods and services production and of the technological process present a vast potential for trade in services to have a significant impact on the economies of developed and developing countries. Up until the late 1990s, services exports have been the most dynamic component of the world trade and the services exports world share of developing countries have been on the rise. Despite a recent slowdown, partially due to the recent global financial crises, there is an emerging consensus about the importance of services trade in general and services exports in particular. At the same time, services trade is also a source of increasing political unease about the impacts of globalization on labor markets, linked to worries about offshoring and the potential pressure this places on wages in high income countries.9 Trade in services is characterized by the four modes of supply specified by the GATS. • (Mode 1) Cross border trade, which is defined as delivery of a service from the territory of one country into the territory of other country; • (Mode 2) Consumption abroad—this mode covers supply of a service of one country to the service consumer of any other country (for example, tourists or students); • (Mode 3) Commercial presence—which covers services provided by a service supplier of one country in the territory of any other country, and 9 Francois and Hoekman (2010).
1 New Trends in International Trade and Labor Market Interactions: South-. . . 7 Fig. 1.2 Services as a share of GDP (selected countries). Source: World Trade Organization, Time Series on International Trade, adapted from Pasadilla and Chanda (2011) • (Mode 4) Presence of natural persons—which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country. By the virtue of this rather broad definition, trade in services implies the international movement of factors, mainly through foreign direct investment (FDI) and temporary labor mobility. This has in turn labor market implications for trading countries. Global cross-border trade in services—modes 1, 2, and 4—stood at $2.7 trillion in 2006, up from around $400 billion in the early 1980s, representing about 20 % of total trade (Fig. 1.2). In 2006 developing economies produced a quarter of world commercial services trade (WTO, International Trade Statistics). In most of the countries, share of services in GDP continued to increase in 2000s. In the US and EU, it reached almost 80 % and in majority of OECD countries, it surpassed 60 %. This increase was not contained within national borders of countries, but also spilled over to international trade. Trade in services started to become increasingly important for developing countries as a dynamic component of trade and alternative for export diversifica- tion. Besides traditionally traded services such as travel and transport, health, IT and telecom services became the most successful services exports of developing countries. Low cost and high quality services have many additional economy wide benefits. According to Sa´ez (2010), as inputs, services facilitate transactions through space (IT, telecom, logistics) or time (financial services). According to WTO, services exports constitute about 20 % of international trade (Fig. 1.3).
8 C. Erbil 25% Total World Services Exports 20% World Services Exports Less Travel And Transport 15% 10% 5% 0% 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1980 Fig. 1.3 World services exports. Source: World Trade Organization, WTO Services Database Fig. 1.4 Services sector growth (% of GDP) through the last 40 years. Source: World Trade Organization, WTO Services Database About half of this share comes from travel and transport. Although we can easily detect the upward trend, it seems to have slowed down for the total world services exports since the beginning of 1990s. However, we can observe that the untraditional, newly successful services continued to increase their share in the same period. The negative effect of the last global slowdown is clearly identifiable. While the share of services sector in GDP is increasing more rapidly in high- income economies, it is also strong in low-income economies and increasingly so (Fig. 1.4).
1 New Trends in International Trade and Labor Market Interactions: South-. . . 9 Fig. 1.5 Share of services employment in total employment 2000, 2007. Source: International Labor Organization Towards the end of the first decade of the twenty-first century, the services sector became the major source of employment (Fig. 1.5). Besides its contribution to GDP, services sector also continued to increase its importance in employment and job creation, which is one of the main challenges of many developing countries. 1.5 Services Trade in Developing Countries10 1.5.1 India Among developing countries, India stands out by the growth rate of its service sector between 1950 and 2006. After its economic crisis in 1991, India liberalized its services sector and opened its economy up to trade. As a consequence of its targeted service sector policies, India now ranks as the largest exporter of software services from the developing world. The establishment of world-class educational institutes, such as the Indian Institute of Engineering, further allowed India to take advantage of IT innovations. Besides human capital, and infrastructure, institutions also played a key role in the development of the services sector in India. Regulatory and contract-enforcing institutions are especially important due to the nature of services. 10 Compiled from Goswami et al. (2011).
10 C. Erbil 1.5.2 Malaysia Malaysia managed to promote higher education, health tourism and Islamic finance as its potential revenue earners for the country. Relaxation of equity restrictions on foreign ownership helped to attract investors into the country and increased invest- ment in services. Stable political and macroeconomic regime and a relatively business-friendly environment were major factors behind the emerging services exports. Malaysia also benefitted greatly from strong government support to become a first-mover in developing low-cost carriers, MSC and Islamic finance. Malaysia’s natural endowment and a culturally diverse society enhanced its appeal not just in the tourist sector but also in higher education and medical tourism. As in the case of India, liberalization also facilitated services exports, especially in higher education and Islamic finance sectors. Domestic liberalization helped the private sector to grow and become a catalyst. The medical and airline services underwent the same process, in which the private sector initially enhanced domestic capacity and later began to export. Other government policies that significantly supported the emergence and growth of services trade were quality assurance and sound regulatory framework. Malaysian government also supported tourism by providing the necessary infrastructure to facilitate the movement of goods and people. 1.5.3 Philippines In Philippines, the driving force behind the success of services export performance was mainly the proactive private sector, favorable fiscal incentives and effective export zone that the government implemented. In 2004, relatively earlier, compared to other developing countries—and definitely compared to Turkey—the Philippine government recognized service exports as one of the priorities for employment generation and foreign exchange earnings resulting in the formation of a public- private partnership task force. The country has competitive prices and strength in English-speaking tourism, with further potential to expand in the field of medical and retirement tourism. The binding constraints of services trade of Philippines are poor transport infrastructure and weak business environment, mainly due to high corruption. 1.5.4 Egypt Egypt’s geographical advantage of location (Suez Canal) and diverse cultural heritage partially are offset by its low quality of workforce education, lack of skills and weak infrastructure. Tourism and maritime transportation service export are the
1 New Trends in International Trade and Labor Market Interactions: South-. . . 11 leading services exports, whereas information and communication technology (ICT) and banking and financial service exports are relatively newly emerging. 1.5.5 Brazil In contrast to Egypt, Brazil benefited from relatively high skill levels and education, as well as favorable business environment to boast its services export performance. Outward foreign direct investment (FDI) paved the way for cross-border exports in the software service sector. Government institutions, associations, and the private sector routinely offer training and workshops that specifically focus on service exports. The Commerce and Services Secretariat of the Ministry of Development, Industry, and Foreign Trade and the state-owned Banco do Brasil, one of Brazil’s biggest banks, developed a partnership with the goal of spreading a service- exporting culture, strengthening entrepreneurs’ qualifications, and identifying opportunities for the growth of Brazilian service exports. External factors such as the rapid deployment of information technology (IT), the overall liberalization of trade and investment in the world, and the increasing demand for offshoring as a business tool at all levels of economic activity also helped to enhance the performance of Brazilian services exports. 1.5.6 Chile Service export growth has been strong in transportation services, particularly in maritime and air transportation services where Chilean companies such as Compan˜ia Sudamericana de Vapores and LAN Airlines, respectively, have become global and regional players. Health tourism, construction services and engineering service exports (especially in mining engineering services) have been growing strongly. Special incentive programs established by the Chilean government have attracted several multinational firms to set up their operations in Chile. Foreign investment has consistently been strong, and investors enjoy access to a wide set of economic activities. 1.6 Services Trade of Turkey11 Similar to the global trends, trade in services increased in importance in Turkey. Recent statistics show that the total volume of trade in services in Turkey is increasing nominally, doubling both exports and imports in the last 10 years (Table 1.1). 11 Compiled from Erbil and Ozcan (2011).
12 C. Erbil Table 1.1 Services trade of Turkey Units: billions of US dollar 2000 2005 2008 2009 2010 2011 11.375 15.156 17.748 17.316 15.493 18.322 International Services trade balance: trade in exports of services minus 8.088 11.742 17.816 16.606 19.25 20.706 services imports of services 19.463 26.898 35.564 33.922 34.743 39.028 Imports of services Exports of services Source: OECD stats, author’s calculations Fig. 1.6 Trade in services (% of GDP) in Turkey. Source: The World Bank. http://www. tradingeconomics.com/turkey/trade-in-services-percent-of-gdp-wb-data.html However, as a share of GDP, trade in services exhibits a decreasing trend. In the last 15 years, the ratio of trade in services to GDP decreased from almost 15 % to about 7 % (Fig. 1.6). Trade in services, as a percentage of GDP in Turkey is about one third of the MENA average. In 1997, the percentage in Turkey and MENA countries were about the same at roughly 15 %. Since then, the upward trend in MENA countries and the decline in Turkey created a large gap of about 12 % (Fig. 1.7). In 2010, travel, construction services, transportation, personal, cultural and recreational services and communications services categories created positive net trade balance in services, whereas Turkey was a net importer of Computer and information services, Financial services, Insurance services, Royalties and license fees, Government services, n.i.e. and other business services. The travel sector of Turkey dwarfs all the other categories of services trade amounting for more than all of the net services exports of Turkey. “Construction services” is a distant second net export category (Fig. 1.8). There is a steady and rapid increase in the percentage of employment in the services sector for both males and females in Turkey. The ratio tripled for females from 14.4 % in 1990 to 44.7 % in 2010. The increase in the ratio for males was less impressive (from 40.7 % in 1990 to 52.2 % in 2010), but since 2005 the services sector employs for more than half of the male workforce in Turkey.
1 New Trends in International Trade and Labor Market Interactions: South-. . . 13 Share of Trade in ServicesPercentage of GDP 25 TURKEY MENA 20 15 10 5 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Fig. 1.7 Share of trade in services (% of GDP)—Turkey versus MENA. Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World Bank and OECD GDP estimates (Catalog Sources World Development Indicators) Services trade balance in value in 2010, US $ (millions) Other business services Balance in value in 2010,US… Government services, n.i.e. 5,000 10,000 15,000 20,000 RoyalƟes and license fees Insurance services Financial services Computer and informaƟon services CommunicaƟons services Personal, cultural and recreaƟonal services TransportaƟon ConstrucƟon services Travel -5,000 0 Fig. 1.8 Turkey’s services trade balance in value in 2010, US$ (millions)—sectoral decomposi- tion. Source: OECD stats, author’s calculations
Percentage14 C. Erbil Turkish % of employment in services, male and female over years 60 50 40 30 20 10 0 199 199 199 199 199 199 199 199 199 199 200 200 200 200 200 200 200 200 200 200 201 012345678901234567890 TURKEY female 14.4 14.4 16.7 19.6 18.2 19 18.4 21 21.7 21.5 26.4 24.6 26.3 28.1 28.7 33.3 36.5 41.2 42.2 46.8 44.7 TURKEY male 40.7 39.7 40.9 40.6 40.1 40.5 40.6 40.3 41.2 41.6 45 45.6 48.4 49.3 48.2 50.2 51.1 52.8 52.1 53.6 52.2 Fig. 1.9 Turkish % of employment in services, male and female over years. Source: Turkstat, Turkish Statistical Institute The gap between male and female ratios declined from 26.3 to 7.5 %. This picture emphasizes the potential and importance of services trade for Turkey, not only as a propeller of economic growth and a generator of foreign reserves, but also a strong support to employment policies (Fig. 1.9). 1.7 Labor Market Implications Both South–South trade dynamics and the increasing trend in services trade have significant labor market implications, especially for developing countries. As the composition of trade diverges from traditional sectors and the familiar North–South axis, the demand for labor is affected considerably. The relatively higher value- added and skill requirements of services trade is counter-balanced by still relatively less value-added trade in the South–South domain. There is not a developed literature looking into the effects of South–South and Services trade on the labor markets. But we can utilize some of the findings from relevant domains to draw parallels and some even some predictions. Dix-Carneiro (2011) argues that is a large labor market response following enhanced and increased trade volumes, but the transition may take several years and potential aggregate welfare gains are significantly mitigated due to the slow adjustment. Moreover, trade-induced welfare effects are very heterogeneous across the population and retraining workers initially employed in the adversely affected sector may reduce losses incurred by these workers and increase aggregate welfare.
1 New Trends in International Trade and Labor Market Interactions: South-. . . 15 As a policy tool, he suggests that a moving subsidy that covers costs of mobility would be more promising for compensating losers, although at the expense of higher welfare adjustments costs. Artuc et al. (2010) report both slow adjustment of the economy, and sharp movements in wages in response to a trade shock. It is possible that workers in import-competing industries benefit from increased trade where liberalization lowers their wages in the short run and long run. According to Javorcik and Spatareanu (2005), greater flexibility in the host country’s labor market in absolute terms or relative to that in the investor’s home country is associated with a larger FDI flows. Javorcik’s findings indicate that as the labor market flexibility in the host country increases from inflexible (France) to flexible (United States), the volume of investment goes up by 12–26 %. She claims that FDI in services sectors appears to be more sensitive to labor market regulations than investment in manufacturing. Kletzer (2008) argues, “. . . international trade (as the flow of goods and services) and immigration and migration (as the flow of potential labor) are two sides of the same coin from the perspective of measured impact. In both cases, measured impact (net benefit) is a question of distribution: the net benefits of both are unevenly distributed”. A new World Bank working paper by Borchert et al. (2012) reports that “. . .across regions, some of the fastest growing countries in Asia and the oil-rich Gulf states have the most restrictive policies in services, whereas some of the poorest countries are remarkably open.” “Across sectors, professional and trans- portation services are among the most protected in both industrial and developing countries, while retail, telecommunications and even finance tend to be more open.” These regional and sectoral differences are reflected as diverse labor market fluctuations to similar increase South–South trade. Klinger (2009) reports that, “for a group of developing countries, primarily in Africa, Latin America and Central Asia, exports within the South are more sophis- ticated and better connected in the product space than exports to the North, whereas the opposite is true for the faster-growing economies of Asia and Eastern Europe (excluding the Commonwealth of Independent States)”. Arnold et al. (2012) find that banking, telecommunications, insurance and transport reforms all had significant, positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally-owned manufacturing firms, but the effects on foreign firms tended to be stronger. Their result indicate that a one standard-deviation increase in the aggregate index of services liberalization resulted in a productivity increase of 11.7 % for domestic firms and 13.2 % for foreign enterprises. Amer Ahmed (2009) reports that in India, “between 2001 and 2006 in a climate of increasing services trade, rent on capital in the service sector and wages of all workers would have increased as a result of greater services trade, while income from capital specific to agriculture and manufacturing would have declined”. Mrabet (2012) claim that a considerable body of work in the literature looking into the impact of trade liberalization on labor markets actually contradicts the
16 C. Erbil predictions of Heckscher Ohlin Stolper–Samuelson model (HOSS) model, the benefits of increased trade go to the less abundant factor of production. They investigate many different possible reasons and conclude that differences in coun- tries characteristics are the major reason. Their literature review is extensive, but outdated. Their most recent reference is from 2008, which is missing the era of rising South–South trade. According to the traditional HOSS model, a country will specialize in the production of goods relatively intensive in its abundant factor. The more formal definition is “a country will export products that use relatively intensively those production factors found relatively abundantly in the country”. The simple model utilized most commonly to investigate the impact of increased trade on a developing country is a 2 Â 2 Â 2 model; two countries (one developed one developing), two factors (skilled labor and unskilled labor) and two goods (skilled labor-intensive good and unskilled labor-intensive good). The switch from autarky to free trade is the extreme trade openness scenario, which can be used to understand the impact of increased trade. As its comparative advantage dictates, the developing country will specialize in the production of unskilled labor-intensive good, and export it. Similarly, the developed country will specialize in the production of the skilled labor-intensive good and will export it. According to the Stolper–Samuelson theorem “a rise in the relative price of a good will lead to a rise in the return to that factor which is used most intensively in the production of the good, and conversely, to a fall in the return to the other factor”. Empirical evidence also proves that, in general, countries with highly educated workforces tend to export skill-intensive goods, while countries with less educated workforces tend to export goods whose production requires little skilled labor. International trade tends to increase the demand for factors that are abundant in a country compared with other countries, and to decrease the demand for factors that are scarce in that country compared with other countries. As a result, the prices of abundant factors tend to rise, and the prices of scarce factors tend to fall as international trade grows. Hence, the traditional trade theory of utilizing the developing/developed country 2 Â 2 Â 2 model predicts a rise in the wages of unskilled workers in developing countries and a drop in the wages of unskilled workers in developed countries. These results imply that international trade induces decreased wage inequality between skilled and unskilled labor in developing countries, and vice versa, increased wage inequality between skilled and unskilled labor in developed coun- tries, over time.12 As we relax some of the simplifying assumptions of the HOSS 2 Â 2 Â 2 model, the results weaken, but the trend remains the same. 12 See “Factor Price Equalization Theorem” for details.
1 New Trends in International Trade and Labor Market Interactions: South-. . . 17 Applying the same model to South–South trade, we would need to define terms of “relatively developed” or “relatively developing countries”. Results would be the similar, but the magnitudes of trade would be smaller. Moreover, the traditional trade theory distributes the larger share of gains from trade to the smaller trading partner. The dissimilar the trading partners (the further away the relative prices), the more specialization opportunities and hence the larger are the overall gains from trade. Some of the predictions of the traditional trade theory on increased South–South trade would be as follows: – Wage inequality of one trading partner would decrease at the expense of the other one – Trading with China or India, the larger share of the gains would be received by the smaller trading partners – Since South–South trade would happen between more similar countries, the overall gains would be less compared to North–South trade All of these predictions have serious labor market implications. Especially the first prediction would question the wage equality argument of increased interna- tional trade in developing countries. Gourdon (2011) empirically shows that increasing share of South–South trade increases wage inequality for developing countries. A part of the increasing wage inequality due to South–South trade comes from the development of North–South trade relationship within developing countries. South–South trade leads more to a technological change biased toward skill-intensive sectors increases wage inequal- ity for all developing countries. Davis (1996) also supports the argument by developing a theory that developing countries which are labor-abundant relative to developed countries, but are skill- abundant relative to other developing countries may see an increase in wage inequality after trade liberalization. However, there are also potential opportunities beyond the traditional trade theory and gains from trade 1.8 Beyond Gains from Trade13 When we take a closer look at the accelerating momentum of South–South trade, we find out that it offers much more than the standard efficiency and specialization gains of trade: – It relies less on developed country markets, hence it is subject to less volatility coming from the developed country demand. 13 Compiled from Erbil (2011).
18 C. Erbil – Unlike the North–South trade, there is no donor-recipient relation between the trading partners and trade is not driven or shaped by international official development assistance (ODA) commitments. – It is market-driven, transmitted by the international supply chains of the South. – Higher existing trade barriers between developing countries point to more potential welfare gains from lowering those barriers. – Similarly, there is also more potential and a higher rate of return to proactive trade facilitation and aid for trade: • Investments in trade-related infrastructure • Investments in trade information and trade promotion facilities • Institutional capacity building, trade support institutions • Research, awareness, technical assistance, information platforms, clusters, business networks, trade and business facilitation • Lowering technical barriers to trade • Learning process for exports and international procurement • Expanding trade in services – South–South trade can better utilize the demand at the “bottom of the pyramid”. – It has more potential to cut distance related trade costs. – South–South trade can have a greater impact on poverty reduction. – It builds further backward-forward linkages between industries providing an opportunity of sustainable industrialization for the South. – It provides the opportunity to reduce the dependence on commodity exports for many developing countries. – It promotes more trade in services among developing countries, which has positive spillover effects on merchandise trade, skill and capability gaps and beyond. – More cooperation among developing countries results in significant active participation in multi-lateral trade talks. – Expanded South–South trade can help reduce policy barriers among developing countries and have a stabilizing affect in high-tension regions. – Promoting South–South trade will also help reduce “global imbalances”—North reducing their net imports from South after the crisis and South discovering itself as a new source of demand. According to Klinger (2009) “for a large group of developing countries, current export flows to the North are not particularly growth-enhancing, nor do they offer learning opportunities to fuel structural transformation, and for these countries South– South trade flows may indeed be a testing ground for structural transformation.” 1.9 South–South Trade Development Strategy To take full advantage of these existing and potential gains, an effective, pro-poor South–South trade development strategy is critical.
1 New Trends in International Trade and Labor Market Interactions: South-. . . 19 In many aspects, this strategy is similar to a North–South trade expansion strategy. It emphasizes less barriers to trade, taking more advantage of the already existing openness by utilizing trade facilitation and aid for trade tools, and more competition and trade in services. However, there are also more South-specific elements to the South–South trade development strategy: – The bottom-up, demand driven South–South trade needs to be aligned with macro, top-down, national and cross-border initiatives. – Multi-stake ownership, public-private partnerships, interactions of the private sector, governments and international organizations are particularly important for the South. – Cross-border regional integration via preferential trade agreements (PTAs14), bilateral, sub-regional and regional approaches will help South to take advantage of economies of scale and identify comparative advantages resulting from low factor costs and trade linkages. – Promoting export diversification is particularly important for the South. It dampens the affects of external shocks and decreases volatility and vulnerability. – South needs to prioritize liberalizing nontariff barriers, which are the biggest obstacle in expanding trade. – Finding the cohesion between UNCTAD’s Global System of Trade Preferences among Developing Countries (GSTP) and the Doha Development Agenda (DDA) and concluding the Doha process would generate additional benefits for the South and promote the South–South trade expansion. – Simplifying “rules of origin” and making it more transparent would also benefit South in general and the least developed countries (LDC) in particular. – Paying special attention to LDC within the South through pro-development policies like unilateral tariff preference schemes, technical assistance and tech- nology transfer, would strengthen the South–South cooperation and its potential. Of course, this strategy should not undermine the importance of the existing North–South trade relationship and dynamics.15 1.10 Conclusion Thoroughly investigating these newly emerging trade—labor market interactions, backed up with empirical analysis, would offer unique opportunities for policy recommendations for labor market reforms and strategic plans to place and educate 14 PTAs, which can enhance South-South trade, can slow down regional integration if they act as substitutes to regional trade agreements. A careful study is needed to fully assess the dynamic and static effects of a PTA. 15 There are additional benefits of North-South trade, such as technology transfer.
20 C. Erbil potential workers according to the prevailing forces of global trade. The right policies, foreseeing these patterns in trade, could offer a panacea for chronicle unemployment and underemployment, especially amongst the youth and under- privileged, as well as help to avoid potential demographic bottlenecks and adverse shocks in labor markets. More policy oriented empirical research in this field will have major real life implications. I hope this chapter provides motivation to researchers to direct their attention to this topic. Newly established and freely available databases such as the World Bank’s “Services Trade Restriction Database (2012),” “Services Sector Openness Indicators (forth coming)” and the “Global Bilateral Migration Database (2012)” as well as WTO’s I-TIP Services (2013), the services component of the Integrated Trade Intelligence Portal (I-TIP), should facilitate such research. The results would provide valuable insight and much needed policy guidance. References Amer Ahmed S (2009) The impact of trade in services on factor incomes: results from a global simulation model. World Bank Policy Research Working Paper Series 5155, The World Bank Arnold JM, Javorcik B, Lipscomb M, Mattoo A (2012) Services reform and manufacturing performance: evidence from India. Policy Research Working Paper Series 5948, The World Bank Artuc¸ E, Shubham C, McLaren J (2010) Trade shocks and labor adjustment: a structural empirical approach. Am Econ Rev 100(3):1008–1045 Borchert I, Gootiiz B, Mattoo A (2012) Policy barriers to international trade in services: evidence from a new database. World Bank Policy Research Working Paper (6109) Davis DR (1996) Trade liberalization and income distribution (No. w5693). National Bureau of Economic Research, Cambridge, MA, USA Dix-Carneiro R (2011) Trade liberalization and labor market dynamics. Staff Working Paper, World Trade Organization Erbil C (ed) (2011) The light at the end of the tunnel: the South-South locomotive. Policy Brief Political Reflection 2(1):39–42 Erbil C, Ozcan R (2011) The South-South locomotive: focus on Turkey. Economic Bulletin, Tu¨rk Telekom Capital Markets & Investor Relationship, April 2011, pp 33–37 Erhan A, Chaudhuri S, McLaren J (2010) Trade shocks and labor adjustment: a structural empirical approach. Am Econ Rev Am Econ Assoc 100(3):1008–1045 Francois J, Hoekman B (2010) Services trade and policy. J Econ Lit 48:642–692 Goswami AG, Mattoo A, Saez S (eds) (2011) Exporting services: a developing country perspec- tive. World Bank Press, Washington, DC Gourdon J (2011) Wage inequality in developing countries: South–South trade matters. Int Rev Econ 58(4):359–383 Javorcik BS, Spatareanu M (2005) Do foreign investors care about labor market regulations? Rev World Econ 141(3):375–403 Kletzer LG (2008) Trade and immigration: implications for the U.S. labor market. In: Bartik TJ, Houseman SN (eds) A future of good jobs?: America’s challenge in the global economy. W.E. Upjohn Institute, Kalamazoo, pp 119–161 Klinger B (2009) Is South-South trade a testing ground for structural transformation?. Policy issues in international trade and commodities study series, vol 40. United Nations, New York
1 New Trends in International Trade and Labor Market Interactions: South-. . . 21 Mrabet Z (2012) The impact of trade liberalization on labor market of developing countries: what can literature tell us? J Econ Behav Stud 4(6):307–318 Pasadilla G, Chanda R (2011) Employment and people-movement impact of services trade liberalization. In: Services trade: new approaches for the 21st century - ADBI-PECC confer- ence, Hong Kong, 2–3 June 2011 Sa´ez S (2010) The increasing importance of developing countries in trade in services. World Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/11084. License: CC BY 3.0 Unported
Chapter 2 How Competitive Is Turkey in Meeting International Labor Standards and in International Trade? Aslı S¸ en-Tas¸bas¸ı Abstract Turkey has recently emerged as an economy with one of the highest growth rates in an otherwise dismal global environment. The country has become the world’s fifteenth largest and Europe’s seventh largest economy, with a decade- long economic boom and rising exports and imports. This chapter seeks to deter- mine whether Turkey has been able to avoid, during this exceptional performance, the temptation to lower labor standards in the belief that it might provide greater comparative advantage in international trade. In this context, the study analyzes the competitiveness of the country in global trade in the last decade using the empirical measures of comparative advantage and determines the extent to which the country is conforming to international labor standards, on the basis of applicable data. 2.1 Introduction Economic growth that does not improve the lives of people and the conditions under which they work is nothing more than a number. International labor standards are established to assure that economic growth goes hand in hand with the basic minimum standards for work and social policy. On the other hand, boosting international trade, as one of the main components of Gross Domestic Product (GDP), becomes the modus operandi in most cases, for countries aiming to achieve rapid economic growth. In the 1980s, Turkey implemented a number of economic reforms aimed at opening up the economy. Notably, the efforts to liberalize international trade, accompanied by factors such as the country’s accession to the Customs Union (CU) with the European Union (EU), and the liberalization of the multilateral A. S¸ en-Tas¸bas¸ı (*) Department of Economics, Is¸ık University, Universite Sk. Kumbaba Mevkii, Sile, Istanbul, Turkey e-mail: aslisen@isikun.edu.tr T. Dereli et al. (eds.), Labor and Employment Relations in a Globalized World, 23 Contributions to Economics, DOI 10.1007/978-3-319-04349-4_2, © Springer International Publishing Switzerland 2014
24 A. S¸ en-Tas¸bas¸ı trading system, have since contributed to the economy becoming more market- oriented. This chapter argues that the greater acceptance of trade liberalization and the reforms of the trading system which accompanied it have enabled Turkey to perform well in the international trade arena in the last few decades, but that the country has not been equally successful at ameliorating particular labor market conditions. In this context, the chapter analyzes the competitiveness of Turkey in global trade in the past decade, using empirical measures of comparative advantage and establishes a profile of the country in terms of the extent to which it has met international labor standards. By doing so, the chapter aims at questioning the conventional wisdom that countries with lower labor standards obtain advantages in trade. The rest of the chapter is organized as follows. The second section presents the findings of the analysis measuring Turkey’s revealed comparative advantage (RCA) vis-a`-vis different groups of countries, as part of the investigation of the country’s concrete efforts to improve its foreign trade as a growth strategy. The third section provides an overview of the Turkish labor market in terms of its compliance with core international labor standards, trying to understand whether advancement, as such, has been made in working conditions. The fourth section concludes the analysis. 2.2 Turkey’s Performance in Liberalizing Foreign Trade: A Strong Uptrend Prior to the liberalization measures undertaken during the 1980s, the Turkish trade regime had offered a high degree of protection for the import competing sectors through a combination of tariffs and non-tariff barriers. Krishna et al. (2001) state that in 1981, the highest tariffs were applied to final goods and the lowest to intermediate goods, at an average of 49 %. Strikingly, “tariff equivalents of non-tariff barriers were estimated to be over 100%” (Krishna et al. 2001, p. 394). Following the stabilization program announced in 1980, the previous import-substitution industrialization policy was replaced by an export-led growth strategy Taymaz (1999). The export incentive schemes included the maintenance of the exchange rate on a path of depreciation, direct payments to exporters, subsidized export credits, tax exemptions on input imports, and corporate tax allowances. In addition, an import liberalization program was implemented in 1984, lowering both tariff and non-tariff barriers. Reduction of the stamp duty on imports from 25 to 1 %, simplification of the import regulations, reductions in the quantitative restrictions, prohibited commodities (from 500 to 3 items, namely weapons, ammunition, and narcotics) and the number of goods subject to licenses (from 33 to 16) were among the major changes made in the import regime (The Central Bank of the Republic of Turkey 2002) (http://www.tcmb.gov.tr/ yeni/evds/yayin/kitaplar/global.pdf).
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 25 The milestone of this liberalization of the Turkish economy was the CU, which created the Common Customs Tariff and the preferential trade regime. The CU took effect in 1996 and has constituted the major part of Turkey’s trade policy applied to third countries since then. By the acceptance of the CU, customs tariffs, quantitative restrictions and other trade measures of equivalent effect applied to the EU mem- bers were eliminated. The weighted protection rate applied to the EU commodities has decreased from almost 6 % to 0 %. In contrast, the import protection rate applied to the third countries has decreased from almost 11–6 %, with the exception of certain commodities whose duties were lowered gradually to CU levels after 2001. Turkey also adopted the preferential trade agreements between the EU and the third countries with the CU Agreement, which not only brought a change in the tariff structure but also technical barriers to trade. Several studies have investigated the net trade effects of the accession to the CU on the Turkish economy. Evaluating these findings is not within the context of this study; however, one should keep in mind that the CU has enabled “Turkish producers to operate in one of the largest free trade areas,” as Togan put it, and that “they are protected by tariffs from external competition to exactly the same extent as EU producers, which at the same time means fac[ing] competition from duty-free imports of industrial goods from world-class pan-European firms. In return, Turkish industrial producers have duty- free market access to the European Economic Area” (Togan 2012, pp. 23–24). Among the 30 countries with which Turkey has concluded free trade agreements (FTAs) thus far, 11 have accessed to the EU, and become a part of the Common Customs Tariff and the preferential trade regime. As of 2013, Turkey has active FTAs with 16 countries; namely, European Free Trade Association (EFTA), Macedonia, Bosnia-Herzegovina, Albania, Israel, Palestine, Morocco, Tunisia, Egypt, Georgia, Serbia, Montenegro, Chile, Jordan, South Korea and Mauritius. Internal ratification procedures are under way to complete agreements with Leba- non and Kosovo. Turkey has started FTA negotiations with 12 countries and country blocs, namely Ukraine, Colombia, Ecuador, Malaysia, Moldova, Demo- cratic Republic of Congo, Ghana, Cameroon, Seychelles, Libya, the Common Market of the South (Mercado Comu´n del Sur—MERCOSUR) and the Faroe Islands. Moreover, Turkey has launched initiatives to start negotiations with 13 countries and country blocs: the United Stated of America (USA), Canada, Japan, Thailand, India, Indonesia, Vietnam, Peru, Central American Countries, other African Caribbean Pacific Countries, Algeria, Mexico and South Africa (Republic of Turkey Ministry of Economy, http://www.economy.gov.tr/index. cfm?sayfa¼tradeagreements&bolum¼fta®ion¼0). Turkey signed The General Agreement on Tariffs and Trade (GATT) in 1950 and the Uruguay Round Treaties in 1994. Turkey also became a member of the WTO in 1995, accepting the general rules produced by the trade negotiations and the binding tariffs that apply to all members. In 1991, the World Bank classified Turkey as an intensive adjuster on account of the progress it had made in trade policy reform (http://lnweb90. worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/310BE32B5444C 84585256810005082AA).
26 A. S¸ en-Tas¸bas¸ı Table 2.1 Merchandise trade in Turkey as a percentage of GDP 1980 1983 1985 1995 1997 2004 2005 2006 2007 2008 2009 2010 2011 2012 15.7 24.3 28.7 33.8 39.4 41.0 39.4 42.4 42.9 45.7 39.6 41.0 48.5 49.3 Note: Merchandise trade as a percentage of GDP is the sum of merchandise exports and imports divided by the value of GDP in current U.S. dollars Source: The World Bank, http://data.worldbank.org/indicator/TG.VAL.TOTL.GD.ZS Commitments made with regards to further integration into the global trade, both the above mentioned as well as others, have constituted major challenges for the Turkish economy, which the country has voluntarily faced. Turkey has been steadfast and has maintained its momentum in opening up its economy by embrac- ing the outward oriented growth strategy. Indeed, both the volume of trade and its share in GDP significantly increased in Turkey between 1980 and 2012 (Table 2.1). This is reflective of the components of GDP that drive an economy. In order to see the progress in Turkish export performance after the period of trade liberalization, this chapter includes an analysis of Turkey’s comparative advantage vis-a`-vis a group of countries. Although the literature offers a number of alternative methods for measuring a country’s comparative advantage, Balassa’s Revealed Comparative Advantage (RCA) Index (1965) is still by far the most commonly used index in current empirical analyses. In order to detect the compar- ative advantages of Turkey in particular commodity groups, the chapter also uses the “traditional” Balassa Index of RCA. In order to differ from the several studies measuring the RCA of Turkey, the analysis calculates the RCA for the commodity groups where the volume of exports is highest. By doing so, the aim is to assess whether Turkey is really exporting the products in which it has comparative advantage. The model is, À ÁÀ Á RCA ¼ Xij=Xit = Xwj=Xwt where, Xij: Turkey’s exports of commodity j Xit: Turkey’s total exports Xwj: World’s exports of commodity j Xwt: World’s total exports When the value of RCA is greater (less) than 1, country i’s exports of commodity j in its total exports is greater (less) than the share of the world’s exports of commodity j in world’s total exports; and hence, country i has a revealed compar- ative advantage (disadvantage) in commodity j. The definition of the countries and commodities can change depending on the scope of the analysis. Here, Turkey’s RCA vis-a`-vis three different groups of countries is measured: the EU-27, Organi- zation for Economic Co-operation and Development (OECD) countries, and the world as a whole. This is another point where the analysis departs from the existing literature.
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 27 Data sources used for the calculations are United Nations Commodity Trade Statistics (UNcomtrade), European Commission Statistics web page (Eurostat), Turkish Statistical Institute (Turkstat) and OECD statistics. The data covered in the analysis are at the two digit level, according to SITC Rev. 2 and are for the period 2001–2010. First, amongst a set of 75 commodities, the commodity groups in which Turkey has the highest volume of exports in its trade with the world are selected. Then the RCA Index is calculated for these commodities. Table 2.2 shows the RCA Index calculations for Turkey vis-a`-vis the world between 2001 and 2010. All commodity groups except road vehicles and furniture and parts thereof have RCA Index values greater than one. Road vehicles take on values greater than one after 2002, while the furniture and parts thereof take on values greater than one after 2005. When the commodity groups are classified according to the factors of production utilized, it can be seen that all are either labor intensive or capital intensive commodities. Table 2.3 contains Turkey’s RCA Index in relation to OECD countries. Looking at the same group of commodities, it can be seen that Turkey’s comparative advantage patterns are more or less the same for all commodities in this smaller set of countries. The only exception is the articles of apparel and clothing accesso- ries, where the RCA values are almost doubled. Next, Turkey’s RCA vis-a`-vis the EU-27 is calculated for the same commodities (Table 2.4). Calculations show that Turkey’s comparative advantage turns to disadvantage for all product groups, displaying values less than one. In order to find out whether OECD countries or the EU-27 have comparative advantage (or disadvantage) in the same group of commodities, the RCA index for these countries is also calculated. Table 2.5 contains the RCA Indices of OECD countries and Table 2.6 contains the RCA Indices of the EU-27. The EU-27 values of RCA in selected commodities imply comparative advantage vis-a`-vis the world against Turkey’s comparative disadvantage vis-a`-vis the EU-27. 2.3 Turkey’s Performance in Improving Labor Standards: Between Inertia and Zeal? International labor standards are created to improve the working conditions of women and men, with the broader aim of increased freedom, equity, security and dignity. At the heart of the standards lie freedom of association, prevention of forced labor, equality of opportunity and treatment, elimination of the exploitation of child labor, and improvement of working conditions, as stated by the ILO. The implementation of labor standards is not limited to ILO norms and can take forms other than these. Nevertheless, while looking at the evolving trends in the labor market dynamics in Turkey, this chapter is going to take the ILO legislative model as a benchmark since most real cases concern ILO members, including Turkey, and have utilized ILO’s formal agreements. Table 2.7 summarizes the ratification of
28 A. S¸ en-Tas¸bas¸ı Table 2.2 RCA Index calculations—Turkey’s RCA vis-a`-vis the world Vegetables Textile yarn and Iron Furniture Articles of Plastics in and fruits related products and Road and parts apparel and non-primary steel vehicles thereof clothing forms accessories 2001 5.74 5.06 3.72 0.80 0.62 6.50 1.18 2002 4.66 4.79 3.50 0.91 0.78 6.84 1.12 2003 4.35 4.65 2.94 1.09 0.92 6.51 1.15 2004 4.68 4.61 3.21 1.38 0.95 5.94 1.26 2005 5.25 4.73 2.59 1.43 0.99 5.61 1.49 2006 4.60 4.73 2.74 1.61 1.00 5.13 1.74 2007 4.10 4.69 2.59 1.68 1.05 4.78 1.77 2008 3.70 4.45 3.47 1.73 1.17 4.31 1.95 2009 3.99 4.39 3.44 1.70 1.23 4.23 1.98 2010 5.17 4.57 3.22 1.58 1.31 4.38 1.99 Note: Revealed comparative advantage is measured as RCAij ¼ (Xij/Xit)/(Xnj/Xnt) where Xij ¼ exports by Turkey of good j, n ¼ world total, t ¼ total exports Source: Calculated by the author using the OECD Statistics Table 2.3 RCA Index calculations—Turkey’s RCA vis-a`-vis the OECD countries Years Vegetables Textile yarn and Iron Furniture Articles of Plastics in and fruits related products and Road and parts apparel and non-primary steel vehicles thereof clothing forms accessories 2001 6.1 5.91 3.6 0.61 0.59 11.09 0.96 2002 4.96 5.63 3.39 0.69 0.75 11.7 0.9 2003 4.48 5.59 2.88 0.81 0.9 11.21 0.92 2004 4.5 5.67 3.28 1.03 0.94 10.32 1 2005 4.98 5.79 2.59 1.06 0.99 10 1.17 2006 4.33 5.85 2.7 1.17 1 9.52 1.33 2007 3.88 5.89 2.63 1.24 1.08 9.01 1.38 2008 3.37 5.57 3.48 1.24 1.2 7.4 1.46 2009 3.68 5.81 3.19 1.23 1.33 7.36 1.49 2010 4.17 6.37 3.01 1.16 1.54 8.26 1.58 Note: Revealed comparative advantage is measured as RCAij ¼ (Xij/Xit)/(Xnj/Xnt) where Xij ¼ exports by Turkey of good j, n ¼ OECD, t ¼ total exports Source: OECD calculations based on data from OECD, International trade by commodity statistics database, OECD Economic Surveys: Turkey 2012 Available at: http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-turkey-2012/tur key-s-revealed-comparative-advantages-2001-10_eco_surveys-tur-2012-graph26-en fundamental ILO conventions in Turkey, which has been a member of the organi- zation since 1932. What follows is a broad overview of the Turkish labor market with respect to the current state of compliance with the international standards, and an implicit critique of what has or has not been done thus far.
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 29 Table 2.4 RCA Index calculations—Turkey’s RCA vis-a`-vis the EU-27 Years Vegetables Iron Road Furniture Articles of Plastics in and fruits Textile yarn and and vehicles and parts apparel and non-primary related products steel thereof clothing forms accessories 2001 0.44 0.46 0.25 0.05 0.04 0.76 0.07 2002 0.34 0.45 0.25 0.06 0.05 0.80 0.06 2003 0.32 0.44 0.21 0.07 0.06 0.75 0.07 2004 0.34 0.44 0.24 0.09 0.06 0.67 0.07 2005 0.38 0.46 0.19 0.09 0.06 0.64 0.09 2006 0.32 0.46 0.19 0.10 0.06 0.59 0.10 2007 0.29 0.45 0.18 0.10 0.07 0.55 0.10 2008 0.25 0.43 0.26 0.10 0.07 0.44 0.11 2009 0.28 0.46 0.25 0.10 0.08 0.44 0.12 2010 0.31 0.50 0.23 0.09 0.09 0.58 0.12 Note: Revealed comparative advantage is measured as RCAij ¼ (Xij/Xit)/(Xnj/Xnt) where Xij ¼ exports by Turkey of good j, n ¼ EU-27, t ¼ total exports Source: Calculated by the author using the OECD Statistics Table 2.5 RCA Index calculations—OECD countries’ RCA in selected sectors vis-a`-vis the world Years Vegetables Iron Road Furniture Articles of Plastics in and fruits Textile yarn and and vehicles and parts apparel and non-primary related products steel thereof clothing forms accessories 2001 1.43 1.09 1.54 1.01 1.34 1.01 1.22 2002 1.40 1.09 1.45 1.00 1.32 0.99 1.19 2003 1.33 1.07 1.41 1.03 1.36 0.96 1.19 2004 1.38 0.99 1.37 1.05 1.28 0.91 1.19 2005 1.39 0.91 1.30 1.06 1.24 0.86 1.22 2006 1.37 0.80 1.32 1.12 1.19 0.79 1.23 2007 1.34 0.77 1.27 1.12 1.15 0.75 1.23 2008 135 0.80 1.30 1.15 1.14 0.78 1.29 2009 1.32 0.79 1.36 1.18 1.10 0.75 1.30 2010 1.41 0.81 1.43 1.06 0.95 0.75 1.26 Note: Revealed comparative advantage is measured as RCAij ¼ (Xij/Xit)/(Xnj/Xnt) where Xij ¼ exports by OECD of good j, n ¼ world total, t ¼ total exports Source: Calculated by the author using the OECD Statistics 2.3.1 Freedom of Association Freedom of association is a sine qua non condition for sound collective bargaining and social dialogue. However, workers who wish to apply this principle still face difficulties throughout the world. In Turkey, although the constitution provides general protection for workers’ freedom to form and join labor unions, freedom of association is one of the most controversial issues regarding labor rights in the country.
30 A. S¸ en-Tas¸bas¸ı Table 2.6 RCA Index calculations—EU-27’s RCA in selected sectors vis-a`-vis the world Articles of Iron Furniture apparel and Plastics in Vegetables Textile yarn and and Road and parts clothing non-primary and fruits related products steel vehicles thereof accessories forms 2001 1.38 1.14 1.68 0.91 2.19 1.67 1.18 2002 1.41 1.12 1.59 0.93 2.23 1.61 1.16 2003 1.40 1.11 1.56 0.97 2.29 1.57 1.17 2004 1.39 1.10 1.56 0.97 2.18 1.49 1.17 2005 1.34 1.06 1.45 0.99 2.03 1.32 1.20 2006 1.45 1.03 1.46 1.05 1.97 1.17 1.24 2007 1.51 1.03 1.39 1.09 1.88 1.07 1.25 2008 1.51 1.00 1.36 1.10 1.80 1.09 1.30 2009 1.40 0.96 1.34 1.17 1.79 1.02 1.28 2010 1.53 0.95 1.52 1.04 1.65 0.99 1.30 Note: Revealed comparative advantage is measured as RCAij ¼ (Xij/Xit)/(Xnj/Xnt) where Xij ¼ exports by the EU-27 of good j, n ¼ world total, t ¼ total exports Source: Calculated by the author using the OECD Statistics Table 2.7 Ratification of fundamental ILO conventions in Turkey by date Freedom of association Forced labor Discrimination Child labor C087 C098 C029 C105 C100 C111 C138 C182 1993 1952 1998 1961 1967 1967 1998 2001 Note: C087: Convention concerning freedom of association and protection of the right to organize C098: Convention concerning the application of the principles of the right to organize and to bargain collectively C029: Convention concerning forced or compulsory labor C105: Convention concerning the abolition of forced labor C100: Equal Remuneration Convention C111: Convention concerning Discrimination in Respect of Employment and Occupation C138: Convention concerning minimum age for admission to employment C182: Convention concerning the prohibition and immediate action for the elimination of the worst forms of child labor Source: International Labor Organization (ILO) A number of revisions finalized over the past few years have simplified union- formation procedures and expanded the right to organize in Turkey. In 2006, Revisions of Acts No. 2821 and 2821 abolished the prohibition of non-Turkish union founders and granted permission to foreign unions to organize in Turkey. In 2007, Act No. 5620 extended the freedom of association to government employees working on fixed-term contracts, who had been denied the right to join a union under previous legislation. A union must show that it has at least seven members before it can be granted approval to form. Yet, prior authorization or approval by authorities still exists as an important barrier to the establishment of unions. Section 7(d) of the Act No. 6289 on public servants’ unions and collective agree- ment requires that the place of residence of the founders of an organization be
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 31 submitted to the office of the Governor of the province in order to be incorporated (International Trade Union Confederation—ITUC Survey of Violation of Trade Union Rights, http://survey.ituc-csi.org/Turkey.html?edition¼336&lang¼en#tabs- 2). The revision of Article 51 of the National Constitution provides that an individ- ual can become a member of more than one union within the same sector. A certain group of public employees (e.g., senior public officials, prison guards, lawyers, judges, civilian employees of the military, newly-hired workers working in proba- tionary “trial periods,” employees in “positions of trust,” and directors of univer- sities and other educational institutions) are excluded from this Act and are therefore denied freedom of association. The principle of protection from government interference in union affairs is weak in Turkey. With Sections 3–4 of Act No. 2821 and Sections 4–5 of Act No. 4688, the Ministry of Labor is granted the right to determine the branch of activity covering a worksite (International Trade Union Confederation-ITUC Sur- vey of Violation of Trade Union Rights, http://survey.ituc-csi.org/Turkey.html? edition¼336&lang¼en#tabs-2). According to Article 51 of the Constitution and Act No. 2911, unions are required to notify governors of any scheduled meetings, and the government is granted the discretion to attend, record, postpone, and in some cases, cancel meetings to prevent crime or to protect national security, public order, general health, and the rights and freedoms of other citizens. Section 19 of Associations Act No. 5253 grants the Minister of Internal Affairs or a civil administration authority to investigate the financial records of trade unions and demand information from them with 24 h notice (cited by Verite´ from ILO 2012, p. 4). The government also has the authority to unilaterally suspend and dissolve unions that seriously violate laws governing their activities. The police are permitted to attend and record the pro- ceedings of trade union meetings. Article 1 of Convention 98 defines the protection of workers from anti-union discrimination as: “Workers shall enjoy adequate protection against acts of anti- union discrimination in respect of their employment.” Although Turkish law pro- vides general protection against anti-union discrimination and public sector workers are legally protected from anti-union discrimination, businesses with less than 30 employees are exempt from the legal provisions against dismissal based on union activity. As cited by Verite´ from ITUC, due to subcontracting and fixed-term contracts, approximately 95 % of enterprises had less than 30 employees in 2008, thereby eliminating many workers’ protection from anti-union discrimination. Turkish law contains stringent restrictions on the right to collective bargaining. In order to act as an authorized collective bargaining agent, a union must represent at least 51 % of an enterprise’s workers and at least 10 % of all workers in any given sector. Authorization for collective bargaining must be granted by the Ministry of Labor. The negotiation period for collective bargaining is limited to 15 days, which is considered to be too short by ILO to allow for a sound collective bargaining agreement to be concluded. The law prohibits collective bargaining agreements in more than one workplace at the same time. Dinler (2012, p. 1), states that “. . . due to
32 A. S¸ en-Tas¸bas¸ı Table 2.8 Trade union density rates in Turkey (%) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10.6 9.9 10.0 9.5 8.9 8.6 8.2 7.5 6.6 5.8 5.9 5.9 5.4 Note: Trade union density corresponds to the ratio of wage and salary earners that are trade union members, divided by the total number of wage and salary earners Source: OECD Statistics the high number of unregistered workers, the effective ratio of the workers covered by a collective bargaining agreement can be as low as 3%.” Although the constitutional amendments in 2010 included the recognition of a number of labor rights, such as allowing an individual to be a member of more than one union in the same work branch and to participate in solidarity strikes, and giving public sector workers the right to collective bargaining, the legislation necessary to implement these amendments has not been adopted, according to the interviews conducted by Verite´ (2012, p. 7). In 2011, negotiations between the government, trade union federations and the employers led to the decision that the previous “Trade Unions Law” be replaced by the new draft legislation called “Collective Labor Relations Law” no. 2821, and the “Collective Labor Agreement, Strike and Lock-out Strike” no. 2822. However, according to Turkish labor con- federations, “. . . the new law will reduce workers’ rights and is in breach of European and the international labor standards” (Verite´ 2012, p. 7). According to the ILO, in November 2013, there were 36 cases—three active, one follow-up and 32 closed—involving the non-observance by Turkey of the freedom of association. The trade union density rate in Turkey decreased by half, from 10.0 % in 2001 to 5.4 % in 2011 (Table 2.8). This dramatic drop in ten years reflects the discourage- ment of collective action of workers. In addition to the law not providing adequate protectionist measures against anti-unionism, there are actual cases of prohibition or restrictions keeping workers from forming or joining unions, or from holding a union office (Table 2.9). In a survey of workers’ opinions of unions conducted in 2007 roughly half of the respondents stated they did not trust labor unions. Dinler (2012) reports that surveys carried out between 2000 and 2004 showed that the public perceives trade unions to be one of the least reliable institutions in society. As cited by Dinler (2012) from Adaman et al. (2008), in the 2000 and 2004 surveys, the ratio of the population who ranked trade unions greater than five—on a scale of zero to ten—where zero indicates no trust at all and ten full trust, was 34 and 38 %, respectively, In addition, neither unionized nor non-unionized workers believed that unions are sufficiently committed to protecting workers’ rights and improving working conditions. As shown by the findings of a survey conducted in the two major industrialized provinces (Istanbul and Kocaeli) of the Marmara Region, 67.5 % of the non-unionized and almost 56 % of the unionized workers did not believe that the unions worked hard enough for their rights (cited by Dinler from Urhan 2005).
Table 2.9 Union members and employees in Turkey (in thousands) 2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Employees 9,927 10,488 Members 1,054 1,042 10,156 10,625 10,708 10,693 11,435 12,028 12,534 12,937 12,770 13,762 14,876 Source: OECD Statistics 1,011 1,007 957 919 934 902 831 750 748 806 802 33
34 A. S¸ en-Tas¸bas¸ı 2.3.2 Forced Labor Forced labor can take different forms, including migrants kept in debt bondage, trafficking of women and girls for illicit purposes such as commercial sexual exploitation, and farmers being forced to work by illegal means and paid little or nothing. The sectors where forced labor is most widely seen are domestic work, agriculture, construction, manufacturing and entertainment. A new penal code addressing forced labor, which explicitly defines trafficking as a crime, came into effect in Turkey in 2005. “According to the ILO, the penal code establishes prison sentences of eight to 12 years for individuals found guilty of trafficking for the purpose of forced labor and six months to three years for employing homeless or helpless individuals with substandard or no pay for forcing them to work in inhumane conditions” (cited by Verite´ from ILO CEACR 2010). In line with the compliance with the ILO Convention 29, the only exemption is when prisoners have been convicted of the crimes for which they are being held; they can be required to supply work (physical or intellectual) as a civic obligation. In spite of the removal of a number of penalties involving forced labor (e.g., participation in foreign associations without permission of the government, public censuring religious or governmental authorities, insulting public officeholders, publicly affixing posters without the permission of the authorities, and violating prohibitions or obligations under Act No. 671, concerning the wearing of headgear, and Act No. 1353, concerning the adoption and use of Turkish letters) by the Penal Code adopted in 2004, ILO reported in 2010 that these penalties were still being imposed on individuals who participate in illegal strikes or a list of broadly defined political activities. Trafficking of women and children has been a problem for a number of years in Turkey. Besides being trafficked into the sex trade, some women and children are trafficked from Eastern Europe and domestically as forced labor, particularly in the agricultural sector. In 2010, Turkish government attempted to improve its traffick- ing prevention efforts by providing of law enforcement personnel training and public awareness raising regarding trafficking in coordination with the International Organization for Migration (IOM) and established a hotline for victims of traffick- ing and shelters for women victims. 2.3.3 Child Labor ILO Convention No. 182 defines the worst forms of child labor as a matter of immediate concern and requires the ratifying members to eradicate them. When the ILO founded the International Program on the Elimination of Child Labor (IPEC) in 1992, Turkey was one of the first six countries which participated. The same year, Turkey signed a Memorandum of Understanding with the ILO, and is committed to combating the worst forms of child labor. Although incidences have fallen, children
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 35 Table 2.10 Children engaged in economic activities by age group, sex and branch of economic activity (thousands) Economic activity Total Agriculture Industry Services Age group and sex 2006 2012 2006 2012 2006 2012 2006 2012 Total 890 893 326 399 275 217 289 277 6–14 15–17 285 292 152 200 50 40 83 52 Male 6–14 605 601 174 198 225 178 206 225 15–17 Female 601 614 172 236 189 168 240 210 6–14 15–17 190 185 89 117 31 30 71 37 411 430 84 118 158 138 169 173 289 279 154 163 85 49 50 67 95 108 63 83 19 9 12 15 194 171 90 80 66 40 37 52 Notes: Results of the 2006 Child Labor Surveys were revised according to 2008 based population projection Figures in table may not add up to totals due to rounding Source: Turkstat, Child Labor Force Statistics, 2006–2012 are still engaged in many dangerous economic activities in Turkey. Child laborers are most widely employed in agriculture and urban informal sectors, and many are working on the streets. The Turkish government developed a Time-bound Policy and Program Frame- work in 2004, the aim of which was to eliminate the worst forms of child labor by 2015. In 2011 and 2012, the Turkish government showed progress in addressing and combating the problem of child labor. In 2011, the Child Services Directorate General was established within the Ministry of Family and Social Policies to deal with children living and working on the streets. A protocol signed in 2011 is committed to the inspection of child labor employed under the minimum age. In 2012, the Turkish Parliament passed a law which increased compulsory education from 8 to 12 years. Under the new law, children are going to complete their primary education at age 17. One weakness of the labor law in Turkey regarding child labor is that it does not require a minimum working age for agricultural or household workers, sectors where child labor is widely employed. Different sources report varying estimates of figures related to child labor in Turkey. The Turkish Statistical Institute (TURKSTAT) reports that the number of children between 6 and 14 years of age engaged in economic activities increased by 3,000, from 890,000 to 893,000, between 2006 and 2012 (Table 2.10). According to TURKSTAT estimates, between 2006 and 2012, while the share of children working in the industrial and services sectors decreased, the share in the agricultural sector increased. In 2012, 44 % of child laborers were employed in agriculture, 30.8 % in services and 24 % in the industrial sector. In 2013, the UNESCO Institute for Statistics reported that, in 2010, 57.1 % of child laborers worked in the agricultural sector; this contrasts with 14.3 and 27.1 % in manufacturing and services, respectively. There is no generally agreed upon variables through which
36 A. S¸ en-Tas¸bas¸ı quantitative and qualitative data on child labor could be generated, which makes it difficult to determine the extent of the problem. 2.3.4 Equality of Opportunity and Treatment Although the equality of opportunity and treatment for women and men in the labor market is widely endorsed in principle, unequal remuneration and other gender discrimination practices in the workplace still exist and the Turkish labor market is not an exception in this regard. Discrimination on the basis of race, ethnicity, language, gender and political or social beliefs is prohibited by Turkish law. The 2003 Labor Act prohibits discrim- ination on the basis of language, race, sex, political or philosophical beliefs, and religion in employment. However, the prevention of discrimination based on age, color, national origin, social status or sexual orientation is not guaranteed by law. In addition, discrimination during hiring is not prohibited by law, as the ILO reports. The 2010 amendment to the Article 10 of the Constitution provides for the protection of rights of vulnerable individuals, including women, children, elderly and disabled individuals. Overall, Turkey does not have an anti-discrimination law, but protection is provided by the related clauses in the law. Although a Law on Combating Discrimination and Establishing an Equality Commission was drafted in 2009, as of end 2013, it has still not been ratified. Although the Labor Act requires equal remuneration for men and women for work of equal value, as set out in the ILO Equal Remuneration Convention, 1951 (No. 100), female workers in Turkey earned 60 % of their male counterparts for equal work in 2004 (United Nations Human Development Report 2004), 61 % in 2008, 53 % in 2010 (United States Department of State Bureau of Democracy, Human Rights and Labor 2010) and 63 % in 2012 (World Economic Forum, Wage Gap Report 2012). According to the OECD, women labor participation rate in Turkey in 2012 was 28 %, which is less than a half of the OECD average of 60 % and much less than the 70 % employment rate of men (Table 2.11). This implies a 42 % gender difference in labor force participation, which is more than three times the OECD average of 12 % and the highest among the OECD countries. Table 2.12 contains the results of the Global Gender Gap Index, which was developed by the World Economic Forum. The Index provides a comparative measure that can be used to determine gender-based disparities on the basis of economic, political, education and health criteria through the ranking of countries. Throughout the years 2006–2013, there has not been a significant change in the overall score of Turkey. The lowest scores are achieved on the political empower- ment criterion. Generally speaking, the government has not been effective in addressing and preventing discrimination against minority groups. Kurban (2007) cites the Minor- ity Rights Group, which reported that discrimination against minorities was
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 37 Table 2.11 Labor force participation rates as percentage of population 2000 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 Total (15–64) 52.4 49.6 48.3 48.7 48.3 48.0 49.8 46.9 45.9 54.0 42.5 Men (15–64) 76.9 71.6 70.4 72.3 72.2 71.5 74.4 70.1 69.1 76.4 75.8 Women (15–64) 28.0 27.9 26.6 25.4 24.8 24.9 25.7 24.5 23.5 31.5 28.3 Source: OECD Employment Outlook (2000–2012) Table 2.12 Gender Gap Index (GGI) of Turkey Economic Educational Health and Political participation attainment Overall survival empowerment GGI Rank Score Rank Score Rank Score Rank Score Rank Score 0.434 92 0.885 2006 (out of 105 0.585 106 0.431 85 0.969 96 0.052 115 countries) 121 0.577 118 0.412 110 0.854 0.400 108 0.890 87 0.971 108 0.052 2007 (out of 0.386 110 0.892 128 countries) 0.389 109 0.912 0.414 106 0.920 2008 (out of 123 0.585 124 0.427 108 0.930 88 0.971 106 0.068 130 countries) 129 0.583 130 104 0.943 126 0.588 131 93 0.971 107 0.068 2009 (out of 122 0.595 132 134 countries) 124 0.601 129 61 0.976 99 0.077 120 0.608 127 2010 (out of 62 0.976 89 0.097 134 countries) 62 0.976 98 0.087 2011(out of 135 countries) 59 0.976 103 0.087 2012 (out of 135 countries) 2013 (out of 136 countries) Source: The World Economic Forum entrenched in individual attitudes and that laws alone would not protect minorities against discrimination. 2.3.5 Working Conditions People in Turkey work 1,877 h a year, more than the OECD average of 1,776 h. Around 46 % of employees work very long hours, much higher than the OECD average of 9 %, with 50 % of men working very long hours compared with 35 % for women. The findings of the 5th European Working Conditions Survey (2013) reveal more about the work situations in Turkey through a comprehensive exam- ination of different aspects related to work: employment status, working hours, training, physical and psychosocial risks, safety, work-life balance, participation, earnings and health. Table 2.13 contains the results of some selected questions from the survey.
38 A. S¸ en-Tas¸bas¸ı Table 2.13 Selected findings of the 5th European Working Conditions Survey Q: How many hours do you usually work per week in your main paid job? 2005 2010 Less than 30 30–40 More than 40 Less than 30 30–40 More than 40 Turkey 11.2 % 16.6 % 72.2 % 6.6 % 21.9 % 71.5 % EU-27 15.6 % 58.1 % 26.3 % 17.9 % 58.0 % 24.0 % Q: Does your job involve tasks that conflict with your personal values? 2010 Always or most of the time Sometimes Rarely or never Turkey 24.3 15.0 60.7 EU-27 9.2 11.1 79.7 Q: How well informed are you about health and safety risks related to your job? 2005 2010 Not very well or not at (Very) well Not very well or not (Very) well at all well informed informed all well informed informed Turkey 58.0 42.0 32.7 67.3 EU-27 14.7 85.3 10.1 89.9 Q: Do you think your health or safety is at risk because of your work? 2005 2010 No Yes No Yes Turkey 55.6 44.4 73.3 26.7 EU-27 71.4 28.6 75.8 24.2 Q: Subjected to discrimination at work (index) 2005 2010 No Yes No Yes Turkey Male 95.1 4.9 94.7 5.3 Female 87.7 12.3 92.6 7.4 Total 93.1 6.9 94.1 5.9 EU-27 Male 95.8 4.2 94.4 5.6 Female 94.5 5.5 93.1 6.9 Total 95.2 4.8 93.8 6.2 Source: The 5th European Working Conditions Survey, Eurofound 2.4 Conclusion According to the official statement by the Turkish Ministry of Economy, “. . . the main goal [of the ‘Turkish Exports Strategy for 2023’] is to reach $500 billion in exports in 2023,” . . . “with an average 12% annual increase in exports. Becoming
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 39 one of the world’s ten largest economies in 2023 and having a 1.5% share of world trade are also targets. Furthermore, the goal is to reach an 80% export/import ratio by 2023.” (http://www.economy.gov.tr/upload/strategy/strategy2023.pdf). Such an unambiguous and ambitious strategy is not developed overnight. Starting in the 1980s, Turkey chose to follow an outward-oriented growth strategy and has since fulfilled the necessities of achieving this goal, overcoming several challenges and maintaining the openness of the economy even during crises.. Reconstituting its laws and regulations and restructuring its tariff structure, the country has become more integrated with the EU and with the rest of the world. Because of Turkey’s recent rapid growth, it is being categorized by experts as a rising economy. In the bleak global environment of the post-2008 financial crisis, Turkey has been quite resilient, and has performed well, increasing its GDP by 9 and 8.5 % in 2010 and 2011, respectively. The Economist reports that Jim O’Neill, who is the coiner of the abbreviation BRIC to denote the big emerging economies of Brazil, Russia, India and China, has now created another abbreviation for a second group of rising economies, Mexico, Indonesia, South Korea and Turkey (http://www.economist.com/node/21552216). According to Dani Rodrik, in an article that appeared in The Economist, Turkey’s labor productivity has also increased dramatically since 2000, “with average growth rates of 3–3.5% in GDP per person, GDP per worker and industrial output per worker” (http://www.economist.com/node/21552216). This should be evaluated against the backdrop of how labor market dynamics have been evolving during the same period. This is what the chapter critically examines. Using related indicators, it asks whether Turkey has made as much progress in meeting interna- tional standards as it has in getting a larger piece of global trade. Within the framework of this comparative analysis, Turkey’s competitiveness in exports vis-a`-vis the EU-27, OECD and the world are found by calculating Balassa’s (1965) RCA Index at the two digit level, according to SITC Rev. 2. This kind of an analysis is not unique; however, one notable finding of this analysis is that the commodities which Turkey has been exporting mostly to the world are not the commodities in which the country has comparative advantage. Moreover, when Turkey’s RCA vis-a`-vis the EU-27 is calculated for the same commodities are calculated, it is found that Turkey’s comparative advantage turns to disadvantage for all product groups, displaying values less than one. In addition, despite the dynamism of the country’s foreign trade, it can be observed from the structure of the exports that Turkey still specializes in low-technology products. Yet, by looking at the figures, it can be concluded that the liberalization efforts have been quite successful in increasing the share of foreign trade in GDP. Another aim of this chapter is to see if similar effort has been made to enhance the labor market conditions given the strong commitment to liberalizing foreign trade. The policy implementation steps that the government has been taking in the last decade to improve the labor market conditions in Turkey can be characterized as “faltering” since there are significant deficiencies in its effectiveness.
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