Formal versus Informal Labor Market Segmentation in Turkey in.pdf

Formal versus Informal Labor Market Segmentation in Turkey in the course of Market Liberalization 1 Erdal Aydın, Mehtap Hisarcıklılar, İpek İlkkaracan Key Words: Labor Market, Informal Labor JEL Code: O53, O17, J23 I. Introduction The labor market in Turkey has been characterized by increasing segmentation into formal and informal sectors. Alongside the momentum of economic growth and development in the post-1980 market liberalization period, the informal sector continues to account for a substantial and growing segment of the labor market, as high as 56 per cent non-agricultural employment and 36 per cent of non-agricultural wage earners in 2007. The growth of the informal labor market in Turkey has been deemed inevitable by demand-and supply- side factors simultaneously. On the demand side, increasing integration of Turkey into global markets, has intensified price competition and the pressures to minimize production costs in the tradables sectors. This has lead to a demand-lead growth in informal sector employment. On the supply side, massive rural-to-urban migration patterns, combined with privatization and declining share of public sector employment, has provided a work force ready to work under the dire conditions of informal sector employment. This paper attempts to explore the current nature of labor market segmentation in Turkey into formal and informal sectors, and also to trace its transformation through time in a period of integration into global markets. We use Household Labor Force data for the 1988 -2007 period, covering two decades of liberalization policies in Turkey. Based on this data, the p