The Effects of Labor Market Reforms on the Labor Market Dynamics in Turkey

Abstract

The global economic crisis of 2008 had great repercussions on labor markets around the world. In order to mitigate the adverse effects of the crisis on employment, Turkey introduced a number of measures in the last quarter of 2008 and during the first half of 2009, such as a general reduction of social security contributions, targeted reductions for hiring youth and women, an increase in unemployment insurance payments and a more active use of the short-time working compensation program. Using the Income and Living Conditions Survey panel data for 2006-2010, this study aims at examining the role of labor market reforms in shaping the labor market performance in Turkey. To this end, we compute the Markov transition probabilities of individuals moving across three different labor market states: employment, unemployment and not in labor force. The results of the study reveal that the policy measures, in general, helped in alleviating the adverse effects of the crisis on the Turkish labor markets. The measures specifically targeting youth and women were effective in promoting the employment of these disadvantaged groups, the beneficial effects being more pronounced for women. However, the results show that after the coverage of these measures was broadened to include all workers, the advantage of young and female workers disappeared. Finally, the transition probabilities calculated for different education groups reveal that the probability of remaining in employment increases significantly with education