Analyzing the dynamics of informal employment rate in Turkey: A system modeling approach

Abstract

Informal employment problem exists with varying degrees around the world. Especially in developing countries, the extent of the problem is worrisome. Similarly, for the Turkish labor market, the problem has not been solved even though improve ments have taken place recently. The purpose of the study is to build a generic system dynamics model to investigate the driving mechanisms responsible for the informal employment dynamics of the Turkish labor market. By doing this, the governmental target, to decrease the informal employment ratio from 34 percent to 15 percent is ex amined. Additionally, the model seeks to examine some of the policy options related to the informal employment problem. The results of the model suggest that the govern mental target cannot be realized under the current state for the following 15 years. On the other hand, the target will be reached under some scenario and policy conditions. The model verify that the problem can be significantly decreased without making an extra policy while the economy is growing aggressively and continuously. Additionally, the target can be achieved by applying coherent policies under the current economic conditions. The decreasing labor cost gap ratio between the formal and informal sec tors creates significant improvements in the informal employment problem. Moreover, the study finds out that that protecting formal workers against firing risks can be an alternative solution for the informality.On the other hand, the study interestingly sug gests that the more efficient formal market in the job seeker-vacancy matching process cannot be a solution for the informality problem.