Reform in Labor Code in Turkey: Changing the Nature of Labor Market?
Reform in Labor Code in Turkey:
Changing the Nature of Labor Market?
“The first premise of all human existence and, therefore, of all history, [is that humans] must be in a position to live in order to be able to “make history”. But life involves before everything else eating and drinking, a habitation, clothing and many other things. The first historical act is thus the production of the means to satisfy these needs, the production of material life itself. And indeed this is an historical act, a fundamental condition of all history, which today, as thousands of years ago, must daily and hourly be fulfilled merely in order to sustain human life”.
The German Ideology
This paper has been employed to briefly explain the reform attempts in Turkish labor market by changing the Labor Code (Law No.4857). The methodology used throughout the paper is the most important tool of policy analysis: “analysis of whether the objectives are met by the policy”. Appling this methodology following items are discussed: first, general transformations all around the world regarding labor markets; second, the previous Labor Code in Turkey and what has changed after the new law began to be implemented; third, demands and objectives of stakeholders of the law and finally examining the results of the law. When the results are considered, it is hard to claim that the policy has been successful because neither employers nor government made considerable gains from the policy. In other words, the most important goal of the policy, namely creating more flexible labor market has not been met yet. What is more, the government is still far from enacting a law which is convenient to the international norms. In addition to all of these, the new law has had undeniable negative effects on workers; both by decreasing their job security and creating harsher working conditions. Thus, the author claims that rather than making a policy transfer directly, the internal dynamics of Turkish labor market should be taken into consideration and the solutions should be sought accordingly.
“In its simplest form, the labor market – like all markets – is a repeated series of exchanges: in this case between capital and labor. For well-known reasons, though, labor markets – again like all markets – function in a much more complicated fashion. They are affected by a host of cultural, institutional, legal, and political mechanisms. Together these mechanisms constitute what we mean by “labor market regulation” (Betcherman, Luinstra, Ogawa, 2001, p.1). Taking into consideration the direct impacts of labor markets on the welfare of workers and their families, regulating this area has always been an important, visible, and mostly controversial field of public policy and intervention to this area may result from equality or efficiency concerns which are the main legitimization base for intervention to free markets.
Such kind of an intervention to labor markets is often made through statutory regulations as an important tool of public policy which is labeled as ‘institutionalist’ intervention by Freeman (1993). More detailed statutory regulations regarding labor markets can be observed in table 1:
However, as it is well-known, intervention to the free markets is not cost-free and most of the time is problematic; in the case of labor market intervention the potential risks and strength of intervention are summarized in table 2:
Table 2: Some potential strengths and risks of market and statutory regulation
After stating what labor market regulation is and how it is used and positive/negative potentials of it, it is worth to introduce the paradigmatic changes in the labor markets which flourished and constituted the basis of changing nature of labor market intervention. As Goldin puts it (1994, p.28) the discussion is that the labor market in the 19th century was a ‘spot market’ in which workers had respectable job insecurity, slight investment in human capital, had almost insignificant wage growth over their life cycles, were embarked as older workers, were liable to considerable discreetness by foremen and supervisors, and were “disciplined by sticks, such as being fired or fined”. Conversely, “the labor market of the post-World War II era is characterized by greater job security, investment in human capital, internal labor markets, wage growth (but possibly not productivity growth) over the life cycle, firm-related benefits, protection for older workers, strict personnel rules, and discipline by carrots and other incentives”. However, after neo-liberal transformations regarding the policies implemented, after 1980s more particularly, the structure/perception of labor market has again changed and labor markets have been stressed to be free, i.e. absent collective bargaining, government regulations governing hiring and firing of workers, etc., and according to them flexible money wages would reduce unemployment. Thus, according to neo-liberal thinkers/theorists high rates of unemployment has resulted from labor market rigidities (Haque, 2004, p.8).
Keeping in mind these global trends and transformations, scrutinizing Turkish labor market will be beneficial in order to understand the labor code reform which is going to be the main focus of this study. The key facts of Turkish Labor market can be summarized as (World Bank, 2006, pp.: ii-iv):
- Increase in population has outranged employment growth for long years in Turkey
- Labor force has been rising at a slower rate than the adult population
- High unemployment rates for women of prime working age explain much of the variation in unemployment rates between Turkey and the EU
- Older workers are wandering from the labor force
- Educated young people have been facing with difficulties in finding jobs
- The “jobs deficit” is a big obstacle in front of EU accession
- A large informal economy stands as a problem in Turkey
- There is a big tradeoff between fostering job creation and improving worker protection
- The demographic changeover has meant a rapid increase in the working age population over the last two decades
- Job creation has been moderate since 1980, in spite of relatively strong economic development
- An important consideration for the relatively slow employment growth in Turkey has been the high beginning share of agricultural sector
- Relative to output growth, employment growth in service sector from 1980 to 2003 was the slowest in Turkey
- The transforming connection between output growth and unemployment growth is tilled by changes in productivity, but can also be influenced by regulations that have huge impacts on the incentives to hire workers
- Productivity development can increase unemployment growth in the short run, but continuous job creation is impossible without productivity growth
- The high volatility of growth is likely to have increased unemployment growth
- “Low wages have kept labor costs internationally competitive”
- “The minimum wage has been increasing rapidly”
- Non-wage labor costs are high and may be damaging the formality
- Implementing different fiscal policies to decrease unemployment is limited by budgetary concerns
- The decrease in female labor force participation which started in the 1960s has not begun to retrograde itself
- “Availability of part-time work has led to significant increase in labor force participation in OECD countries, but not in Turkey”
- Slow job creation has been influencing female labor force participation
- Slow job creation has especially concerned the young
- Instant labor market regulations are designed for a labor force that is formed by one full-time wage earner per family who stays in the same job for the entire working life
- “Employment protection regulations can affect employment rates and informality even when compliance is weak”
- Long working hours in Turkey propound that severance requirements and favorable tax treatment of overtime work are discouraging creation of new jobs
- The annulment of the minimum pension age in 1992 procured a considerable incentive for earlier exit from the labor force
In parallel to the latest global trends and regarding some problems of labor market in Turkey, the incumbent government has been trying to reform the labor code of Turkey. Beyond the government itself, there are also other internal and external actors who are in the support of such kind of a reform. Stated actors’ demands and the extent to which such kind of a reform has met their demands will be the main concern of this study.
In the light of the brief framework provided above, this paper contains the analysis of law no. 4857 (Turkish Labor code). Paper proceeds by giving brief information about the earlier labor codes in Turkey and due to integrate the globalized world; how labor code changed after neo-liberal policies began to be implemented and finally there will be analysis of the results for the stakeholders of this law.
I – Historical background of labor code in Turkey
A draft law on labor first came to the agenda in 1932 in Turkey and it was became a law in 1936. Law no. 3008 was the first labor code in Turkey and there were several amendments on this law until 1971 when the law no. 1475 was enacted. This labor code can be labeled as the ‘labor code of the import substitution period’ and it contained several articles regarding ideological positions of the governments in that period.
Job security, relatively high wages, definition of employment and unemployment, the active interventionist role of the state to the labor processes were the main logic of the law no. 1475. Another important ideological background of this law was Keynesianism which was the dominant paradigm in the world. In parallel to this broader framework, there were welfare state implementations which broadened the economic and social rights of the workers.
When it came to 1980s, the hegemony of neoliberal paradigm began to be dominant in the policies of the states and the laws enacted began to be changed accordingly. Individualism, entrepreneurialism, trust to free market mechanisms, liberalization, globalization, efficiency and effectiveness, minimum state and strong government became the basis of the laws enacted and policies implemented. Thus, since Turkey had to adopt the changing environment in order to be a part of the globalized world, governments and capitalist class in Turkey began to act as if there were huge problems about the labor code being enacted in Turkey. Furthermore, in order to be more accurate roles of supranational bodies, such as WB, OECD, and EU etc. should also be taken into consideration in this specific policy area.
The most important problems mentioned by the market actors were Turkey’s inability to adopt global competition, cost burden (severance pay, insurance premiums, business benefits, paid leave, minimum wage) of the law no. 1475, the interventions of protectionist state to the labor markets, the inability of Turkish labor market’s adoption to the changing conditions in the world, and the strict rules of the labor market in Turkey. According to the same actors there should be several amendments which provide flexible working hours and payments, efficiency, there ought to be articles that regulate unemployment and minimum wages. Besides, the governments should provide the capitalist class with employment regarding market needs and the minimum wages ought to be determined according to the regions in Turkey; in other words there should be regional minimum wages. In addition to internal actors, effects of external factors should also be stated at this part. As a consensus of supranational bodies on the structure of labor market in Turkey (web.worldbank.org):
- Flexible labor legislation is essential,
- A duty of the labor code and other labor market institutions is to stabilize the requirement to protect the rights of workers with the requirement to enhance flexibility in the labor market, and to constitute a more initiative occasion for the creation of procreative employment scope and the promotion of social dialogue,
- Labor code should guard workers from arbitral or unjust transaction while tackling labor market inefficacies to deliver efficient and equitable outcomes.
II – Reform in Turkish Labor Code
As most of the labor code reforms, the 2003 Labor Code was a contradictive section of legislation with a complicated background. In the year of 2001, identifying that the 1971 Code (Act. 1475) did not thoroughly represent a modern labor relations atmosphere, Ministry of Labor and Social Security constituted a “Scientific Council” of professors to produce a new labor code. The draft of council was submitted to Turkish Grand National Assembly (TGNA) in 2003 but was exceedingly criticized by the union members due to provisions on “job security, flextime, and flexible forms of employment” (World Bank, 2006, p.77). The last Labor Code (Act 4857), accepted in May 2003 and put in force in June, was aimed to be a compromise. The bill brought to TGNA involved both flexible work adjustments and employment protection provisions from the commission’s draft law and the Job Security Act, respectively (There will not be any detailed analysis of this Act. The reason why this is stated at this point is to demonstrate that there were hard tries to reform Turkish labor markets). “However, late in the legislative process, these were moderated as a result of union and employer lobbying” (World Bank, 2006, p.78).
Main adjustments of labor code (Act. 4857)
This section is employed to understand how the stated moderations are achieved by allocating the amendments of the law in two different categories: employment protection (limited job security) and flexibility provisions and in the rest of this article these adjustments will be examined closely.
a) Employment Protection Provisions (Job Security)
Before proceeding it is worth to define what job security is (which is defined in Act. 4857): According to job security system, so as to fire the employees, certain reasons procured by the law have to exist. In case of such reasons does not come into existence or cannot be demonstrated by the employer, the employee shall be returned to his/her duty, if it is possible or if not, “shall be paid a special indemnity” (Pekin&Pekin, p.15). There are some important requisites in order to be able to benefit from job security, which are stated in 18th (justification of termination with a valid reason) and subsequent articles (19-21). Several implications of these articles are:
- In workplaces where 30 or more workers are employed, the employer is obliged to have a valid reason such as inability or manner of the employee or the necessity of the enterprise, workplace or the business. An important lesson should be taken from this provision is that such kind of a requirement for employer was valid for workplaces where there were 10 employees were employed but now it is 30.
- If the job security is considered from the employee side, so as for an employee to be able to take advantage job security, the conditions that should be satisfied are the following (Pekin&Pekin, pp.15-16):
- The employee has to be employed in a workplace employing 30 or more employees (the same information stated above).
- The employee has to have minimum six months of seniority at the workplace.
- “The employee must not have the status of an employer assistant managing the enterprise.”
- The employee shall not have “status of an employer representative managing the entire workplace and having the authority of recruiting and dismissing employees”.
- The cases which are not counted as valid reasons are, trade union membership, being a workplace representative of trade union, applying to legal or administrative authorities, absence from work for female workers when legally they are not allowed not to work, temporary absence from work for six weeks due to illness or accident.
- When it comes to the termination procedures to be abided by the employer, it should be stated that employer shall notify the employee in writing and termination latter should be convenient to stated grounds for termination. In the Act right to object the termination notice has also provided with the employees and the procedure of it is the following: employee has the right to file a lawsuit with the Labor Court within one month from the receipt of termination notification, with the claims of lack of ground for termination or by claiming invalidity of the ground stated therein. The employer is liable to prove the valid grounds for termination and if the employee alleges that termination was due to another reason then the burden of proof is on the shoulders of employee.
b) Flexibility provisions
After stating the employment security provisions that are somehow different from the former one, it is worth to scrutinize the second reform component, which is stated above of Act. 4857. Articles regarding flexibility issue are discussed in details below:
Sub-employer (Article 1) adjustment was made in order to provide the legal basis for such kind of a contract relationship that de facto existed. In other words there were lots of workers that were working for a sub-employer but there were no legal provision and by the law no. 4857 legal basis was presented.
Temporary employment relationship and private employment agencies (Article 7): “If an employer leases employees in order to make a profit, it can be said that leasing employees is the profession of the employer. In this case, the employer, whose profession is to provide employees to other enterprises, enters into a labor agreement with the employee merely to lease the employee.
The employer does not work with the employees who are hired for this purpose, but leases them to others who are in need. The employee never works under the command of the employer, though the employee is contracted to the employer pursuant to the labor agreement. As a matter of fact, in many cases, the leaser employer does not have a workplace where the employee can work. Thus employers, whose profession it is to lease employees, usually operate in an office, and although they do not mediate for employment in a legal sense, they do mediate for employment in an economic sense. The aim of the leaser employer is to make a profit out of the service he is providing.
The only regulation regarding a temporary (leased) employment relationship in New Labor Act is the provision in Article 7, which stipulates that:“the transfer of an employee to another employer temporarily in order to work in another workplace within the body of the same holding or in another workplace affiliated to the same enterprise system”” (Erdem&Erdem, 2009).
Fixed term employment contract (Article 11) provides the employers with employing unlimited workers for unlimited time based on ‘essential reason’. Therefore, this article may cause refusing the responsibility of job security provisions.
Call on work (Article 14) is another flexibility issue that came to the agenda with law no. 4857. According to this article, the employers have the right to employ workers by calling him/her 4 days in advance and for determined time period. If the time period is not determined the worker has the right to be paid for 20 hours.
Overtime work (Article 41) provision of law no. 4857 the employer has the right to force the employees to overwork for maximum of 270 hours in a year. In law no. 1475 this limitation was at most 3 hours in a day and maximum 90 days in a year.
Flexible work hours (Article 63) is another amendment that is made by the new Labor Code. According to this article, employers have the right to make employees work for eleven hours in a day by guaranteeing that in the following 2 months after overwork worker will work less than 8 hours in a day. Therefore, workers may have to work 66 hours in a week without getting overtime pay.
Compensatory work (Article 64): In Employment Law “Compensatory time work” means working period of an employee in lieu of the time which had been taken off due to various reason without receiving any over time emolument for such working period. In the frame of flexible working principle, the Labor Law vested the employers, under certain conditions, the right to require from their employers to perform compensatory time work (Erdem&Erdem, 2011). Compensatory time work is limited to the maximum of three hours per day under the condition that the utmost daily working hours, which is 11 hours, is not exceeded. The compensatory time work is a lawful right vested on the employer in the frame of flexible working principle. However, it has an exceptional nature and should not be abused by the employers to the detriment of employees’ rights (Erdem&Erdem, 2011).
Severance Payments (Article 6): Severance pay is an outstanding matter in labor code reform in Turkey. It has also been contradictive. Although they committed to transform, the drafters of the new Labor Law could not constitute a consensus on severance pay. According to new Code (Transitory Article 6) a fund for severance pay is going to be established but that existing benefits under Law 1475 will remain until such a fund becomes effective. The government made some suggestions about a severance fund; however, they have not been admissible to the social attitudes (World Bank, 2006, 86). In addition to this it should be noted that the latest proposed amendment regarding this issue was made by the government and the severance payment system has offered to be transformed. According to this recommended system:
- In order to afford the severance payment for 30 days there will be salary deduction of 8.3%
- 25% of this, meaning 2 percentage points, will be paid by the state
- 2 percentage point of this cost will be provided through Unemployment Insurance Fund
- The remaining 4% will be paid by employers
However, such kind of an offer was refused by both employers’ and employee unions and the meetings were postponed recently.
III – Stakeholders of labor code (Act 4857) and their demands-objectives
The stakeholders of new labor were employers (via employer organizations), state (government) workers (via labor unions). In order to reach the global standards and adopt competitive environment Labor Code was tried to be enacted by taking opinions of the several stakeholders, and this process was labeled as ‘social dialog’. In order to reach such an environment a science commission was established, as it is stated above, in which there were representatives from Ministry of Labor and Social Security, one representative from Türk-İş, DİSK, and one from Hak-İş, and three representatives from the employer union confederation. All these representatives formed a view about the problems they face in the work places and their opinions regarding labor processes were considered ‘equally’. According to the Employer Union Confederation the problem was that the strict labor code did not fit the conditions that came to the agenda by globalization and technological developments. The problem according to the government was that the law no. 1475 was an obstacle for economic development in Turkey. According to the labor unions, as the other stakeholder, the problem was that the law no. 1475 did not provide job security. Besides these problems, there were international actors who were influential in the new labor code process. The first international actor that was influential in this process was WB and this institution recommended the incumbent government to impose the domination of free/flexible labor market logic (more detailed information about demands of this institution was made in section II) in order to reduce the costs in the labor processes. Another international actor in this process was EU imposing Turkey to enact laws in order to comply with the EU and ILO standards.
After mentioning the demands of the stakeholders and before starting to examine the reform made by law no. 4857 it is worth to examine the process in order to understand how these demands were considered ‘equally’. First, the law that was enacted in 2003 did not satisfy the capitalist class in Turkey which resulted in several amendments in the new Labor Code in order to provide the conditions that the employers demanded from this law. In parallel to this, the insurance premiums were reduced, private employment agencies were established and contract based employment in public sector accomplished. Moreover, the debates on removing severance payments and regional minimum wage are still on the agenda of both government and capitalist class in Turkey. The latest development about severance payment was again delaying the meetings to discuss this issue and taking such kind of a strategic decision in such a strategic period is not coincidence. That is in March 2014 the local elections will be hold in Turkey and considering this issue as an important hint of political economy will not be that surprising. Most important lesson that should be taken from such an environment is that most of the regulatory attempts have been in favor of both capitalist class in Turkey and government itself.
Objectives of the stakeholders by law no. 4857
As stated above, the stakeholders of this law are employers, Turkish government and employees and since this law was made by ‘social dialog’ all stakeholders had the chance to demand rights in parallel to their interests. Therefore it is crucial to examine the objectives of stakeholders in order to make reliable analyses about whether these amendments satisfied the stakeholders.
The first demand of the employers in Turkey was narrowing the provisions of job security. According to them the provisions regarding job were bringing extra costs for them. Moreover, since they were the risk takers, and were the owners of the workplaces; they should have the right of arbitrary dismissals. Secondly, the employers demanded flexibility because the strict rules of law no. 1457 were not suitable for the global conditions and for competition paradigm in neo-liberal era. Thirdly, again since it is an extra cost for them employers demanded abolition of severance payments. The final demand of the employers was regional minimum wage. In parallel to these demands their objectives can be summarized as reducing employment costs and performing their business in a more flexible labor market.
Government, as another stakeholder at this new labor code, demanded, increasing the amount of foreign direct investments (inflows), increasing employment and ensuring the compliance of international norms. Thus the objectives of government were ensuring economic development and accommodating legal structure to the international norms.
On the other side, the demands of the workers were; job security and more qualified working conditions. Taking into consideration these demands, objectives of workers’ (unions) can be summarized as de-commodification of their labor.
IV- Evaluating results of the reform
This section of article is employed to make evaluation of Labor Code reform in Turkey. The methodology of the evaluation will remain limited only to scrutinizing whether objectives of stakeholders are met or not; thus all methods of policy evaluation, such as cost benefit analysis, evaluation of unintended impacts etc. will not be used. In addition to this there will not be any contribution to the literature about whether flexibility is necessary for labor markets or not.
Results from employers’ point of view:
- Narrowing down the job security
In Turkey, 2.3 million out of 4.8 million workers are employed in the workplaces which contain less than 30 workers. As a result, since the law has the provision that the law is valid for the workplaces which has over 30 workers 48% of the workers are taken out of the scope of law. Besides, there are 723 thousand workplaces in Turkey and 698 thousand of these are again out of the scope of this law. In other words, the law will be valid only for 3.5% of workplaces in Turkey. Moreover, in the past law the amount that is going to be paid to the workers was calculated minimum for 6 maximum for 12 months of workers’ wages; however, in the recent law this amount is calculated minimum for 4 months, maximum for 8 months (Çelik, 2003, pp.14-15). Therefore, the employers, especially the small and medium scaled enterprises, reached their objectives.
In order better understand whether objective of flexibility has been reached or not the first thing that should be considered is that in labor markets flexibility should be perceived as composition of two main elements: types of employment contracts and working time arrangements. For types of employment contracts it can be stressed that there are four main types namely, temporary employment contracts, call-on work contracts, part-time employment contracts, and fixed term/open-ended contracts. Normal working time, over time work and work for extra hours, short time work, and compensatory work are the components of working time arrangements (Dereli, 2012, pp. 9-18).
Regarding the stated issues new labor law contains some articles about flexibility in the working conditions and in workplaces. Especially the articles regarding, sub-employment (article 1), temporary employment relationship (article 7), fixed term employment (article 11), call-on work (article 41), overtime work (article 41), flexible work hours (article 63) and compensatory work (article 64) are the main articles that ‘provided’ the employers with flexible working environment in workplaces.
By taking into consideration the definition and arrangements made in the new labor law it is worth to evaluate if these attempts were successful. A detailed and precise evaluation of flexibility issue is provided by Dereli (2012, pp. 18-19):
“As for flexibility, the limited research done so far shows that, perhaps after short-time work in its present form following the recent amendments, compensatory work is the most widely used flexibity measure in Turkish practice. Research conducted by MESS, the largest employers’ union in metal working industries, has yielded disappointing results concerning the effects of flexibility measures of the Labor Act no.4857. MESS research has shown that in 97 percent of the establishments the working time is still distributed equally by workdays, so the practice of compressed work week is only minimal; the balancing act is executed in only 20.1 percent of the workplaces. Shorttime work is not practiced in 97 percent of establishments.(It should be noted, however, that this research was done before the new flexibility rules were brought in 2009 and after.) On the other hand, the most common and popular flexible measure applied in MESS-affiliated establishments proved to be compensatory work”
Dereli (2012, p.20-21) also examines the results of the latest findings and he concludes that:
“A more recent study made jointly by the Ministry of Labor and Social Security and the Turkish Personnel Management Association (PERYÖN) on 216 firms found that, of the 455 thousand employees, only 5.9 per cent were working flexible. Of the female respondents, 3.4 percent stated they were working according to a flexible arrangement; the ratio of male respondents was 2.5 per cent. 30.5 per cent of the respondents indicated that flexible work models help reduce their labor costs; 26.6 percent mentioned increases achieved in their performance levels and competitiveness; 26.6 percent referred to flexible work as being instrumental in adjusting working time to changes in their work load. Other reasons cited by the respondents are as follows: flexible working conditions are more compatible to working conditions desired by new generations; they are better able to solve work-family conflicts as employees are not restricted by official working hours; and they are helpful in planning the monthly working time of the enterprise.
In response to the possible reasons accounting for the limited use of flexible arrangements, it was found that the 56 per cent of the establishments covered were not acquainted with the meaning as well as the pros and cons of flexible work models; 27 per cent believed that flexible work applications lead to losses in wages and employee benefits; 24.7 referred to loopholes in legislation; 26.3 said that flexible work was not compatible with the nature of their operations. In terms of ranking the mostly used flexible work types, ‘compensatory work’ topped the list with 24 per cent of the firms in the sample, followed by ‘short-time work’ with 18 percent. Services and office work is the branch of activity where flexible arrangements were most widely implemented. The research report concludes with a strong emphasis on the need to revise Act no. 4857 with a view to further flexibilize its relevant provisions on flexibility”.
In addition to Dereli’s contributions, EPL and Heckman Pages measures should also be taken into consideration in order to have clearer idea about whether reform in Turkish labor market has reached its objectives in terms of flexibility. EPL is calculated by taking into account eighteen different indications of employment protection in 3 areas: “dismissal regulations for permanent or regular workers; regulations of fixed-term contracts and temporary agency work; and regulations governing collective dismissals and each indicator is scaled between 0 and 6, 6 indicating greater values of employment protection” (World Bank, 2006, p.80). When the results of the survey made by OECD is considered, the EPL score of Turkey in terms of individual and collective dismissals (regular contracts) was 2.39 in 1990 and in 2013 this number decreased to 2.31. When only the individual dismissals is considered the EPL score of Turkey was again fall from 2.39 to 2.31 from 1990 to 2013. In terms of temporary contracts no change is observed from 1990 to 2013 and score of Turkey has been 4.88. Lastly, if we analyze EPL score of the country with regard to collective dismissals (additional restrictions) indicator it is realized that in 2002 the score was 2.88; however after the reform this number increased to 3.13 for the last 10 years. Meaning, the new labor law reform has damaged the flexibility in terms of collective dismissals and the rating of Turkey is 3.5(OECD. Stat Extracts). To get better idea about the extent of flexibility of Turkish labor market it is worth to make comparisons between the EU and OECD member countries (Data was provided for 26 countries). Turkey came out to with second strictest overall employment protection, fallowing only Portugal (OECD Stat Extracts).
In addition to EPL method Heckman-Pages index may also contribute to the evaluation of flexibility in Turkish labor market. The Heckman-Pages (2004) method evaluates employment protection as the cost burden of observance to the regularizations in firing a regular employee for economic justifications. Unlike the OECD technique, it does not regard regularizations which influence the use of non-permanent contracts. However, it is a strong method in theory that it tries to estimate the financial costs in association with compliance to the job security regulations (World Bank, 2006, p.81). The results and the comparison of Turkey with all OECD and Latin American can be observed in figure 1:
Figure 1: Job security cost estimates, Turkey, other OECD countries, and Latin America
Figure one presents the results of Heckman-Pages method’s calculations comparing Turkey with OECD and Latin American countries. Most important implication that should be understood from this figure is that the cost of compliance in Turkey is higher than all other OECD countries. However, similar to the EPL results Portugal again stands before Turkey in ranking of such kind of a measure. On the other hand, it should also be noticed that situation of Turkey is better than all other Latin American countries.
Both of the calculations made by applying the rules of different methods indicate that Turkey’s employment protection legislation is strict even after the reform. Thus it can be concluded that the objective of ‘creating flexible labor market in Turkey’ has not been met by government and also for the employers.
- Minimizing the cost of severance payments
There were several demands by the employers that the severance payments should be removed because it is a ‘heavy load’ for the employers. By this new law there were some amendments regarding this issue and as stated above a new fund was established and the severance payments are made by this fund. Therefore, the new law partially satisfied this objective of capitalist class in Turkey. To add, in order to satisfy the demands of employers in Turkey, the severance payment should be abolished completely or decreased as much as possible; however, as it was stated above, due to the concerns resulting from the local elections which can be explained by political economy literature, meetings were postponed again. Because of the above-stated reasons there will no more contributions which may result in speculations.
- Regional minimum wage
Since there was not any article in law no.4857 regarding regional minimum wage these demands of the capitalist class in Turkey has not been satisfied by the incumbent government.
Results from government’s point of view:
As it was stated in the previous section the objectives of government while enacting this law were increasing the amount of foreign direct investments (inflows), increasing employment and ensuring the compliance of international norms. In this section the evaluation of the results; however, will be limited to only whether the law is proper to international standards or not. The reason for this is that direct effect of Labor Law to such big macroeconomic issues is really hard to measure. The increase in the amount of foreign direct investments (inflows), economical development, and unemployment rate will be provided in the appendix as charts but the effect of the labor law reform on the increase in these three indicators should be a matter of another broader study because it is very hard to measure and deserve detailed econometric. Making such kind of analysis will be irrelevant to the concern of this study.
- Adopting international norms
One of the most important objectives of Turkish incumbent government was that they almost always intended to reach the international norms in order to become one of the members of the supranational institutions. Therefore, this law was a turning point for them and they tried to adopt the regulatory code and also performing structure of production sector in Turkey to the international norms; and main aim of this section is to analyze whether new labor law is convenient to international standards.
Table 3 analogizes EU Directives and the existing Labor Code (Act.4857) and the previous Labor Code (Act. 1475).The main matters and regularizations emphasized in the directive are totalized. A positive sign (+) for the Labor Codes demonstrates thatthey are convenient to the directive. A negative mark (-) stands for either the Lawdoes not gratify the requirements determined by the directive, or the matter is not emphasized in theLaw Code. A question mark (?) indicates the matter has not been emphasized in a well-defined manner, or there are some differentiations between the Law Code and the Directive. The table also procures attributions to related articles of the Labor Code (Taymaz&Özler, 2004, p.9).
Table 3: EU directives and the Turkish labor law
Click on the table for the full-size image.
From the changes made in new labor law the results can be summarized as:
- Atypical employment relationship, such as part-time and fixed time employment has had the legal basis in Turkish legislation from now on; however, law has no direct effect on part-time work because 41.5% of the workers work for 50 or longer in a week so the EU standard which indicates that average weekly working hour should be 48 hours
- Stated regulations made about severance payments has reduced the cost of the firms
- The changed Labor Code has contained most of the articles of the Law Code about Employment Protection (Act. 4773), but decreased the scopeof employment protection by leaving out the corporations that employing less than thirty workers (the Code (Act. 4773) excluded only the one employing less than ten employees). Hence, new Labor Code has legally procured extended flexibility to relatively smaller corporations (Taymaz&Özler, 2004, p.p.23-24).
Thus, it can be stated that although its effect has not been considerable that much, new labor law has some positive impacts on making legal provisions more suitable to EU standards; however it should be amended further in order to reach all of the standards set by this institution. That is, the changes made by the new Labor Code emphasize predominantly the short-term desires of employers to succeed flexibility in labor market; however, extreme consideration of labor market flexibility might result in “‘defensive strategy’ by firms that ignores the importance of human capital entrepreneurship, and innovativeness that theTurkish economy needs tobe equippedwith to tackle the challenges mentioned before” (Taymaz&Özler, 2004, p.25).
Up until this point we examined the compatibility of Act. No 4857 to EU norms in this section, but without analyzing the compatibility of this particular law to ILO we cannot reach a complete conclusion. Moreover, we also have to construct a strict relationship between ILO standards and International Labor Standards (ILS) because ILSs are legal tools prepared and embraced by the “International Labour Conference, the ILO’s highest decision-making organ” (Faundez, 2008, p.1). Regarding compatibility to ILO/ILS standards the first thing that can be stated is the fallowing: the presumption underlined by Article 2 of ILS is that insiders will not misemploy their prerogative to deport classifications of workers. Indeed, according to this article members that exclude workers are asked to provide reasons for exclusion and report on the evolution of their law and practice regarding the categories of workers excluded from the application of ILS. Therefore, the Committee of Experts, in its remarks about the Article 18 of Turkish Labor Code- which excludes enterprises employing fewer than 30 workers from the rule that requires dismissals to be based on valid grounds- requested Turkey to indicate whether the excluded workers were receiving protection equivalent to that offered by ILS (Faundez, 2008, p. 18). Secondly, in Turkey, labor inspection is valid only for enterprises that employ 50 or more employees, which may result in excluding a grand rate of undertakings and a huge count of sensitive workers from the labor inspection regime (Faundez, 2008, p.p.19-20). As it can be inferred easily, the labor inspection is directed to be limitless, but Turkey has some limits on labor inspection regime. Thirdly, in the event of Turkey, the Committee of Experts stated the adverse results for child labor excluded from the range of the Labor Act agricultural and forestry enterprises employing fewer than 50 employees (Faundez, 2008, p. 21). Hence, again excluding the enterprises having fewer than 50 workers caused both inconveniency and a negative consequence on child labor in Turkey. To conclude this section, although after the Act no.4857 enacted in 2003 and has been tried to be amended since that date there are still more than tolerable inconveniencies in the law.
Results from workers’ point of view:
Workers are the most affected stakeholder of this labor code process. The labor code has lots of negative effects on them and in this part there will be analysis of these effects.
- Job security
In Turkey and actually in the world the most important institutions that are representing the rights of the workers are the labor unions. The labor union activism in Turkey is another point to be analyzed but in this article it is worth to state that after the law no. 4857 the representation rate of unions has decreased as it is seen in the below chart.
Table 4: Trade union density in Turkey
The reason of this decline in the representation rate of the unions is that according to the new law a union has to constitute the absolute majority in order for workers to be unionized. Since in almost all workplaces this is impossible the unionization of workers has fallen down meaning that the ‘bargaining power’ of the workers also declined. In parallel to this, the job security is also declined for the workers and it is the first negative effect of law no. 4857. Second negative effect of the new labor code regarding workers’ job security is that since the rate of severance payments are calculated regarding the wage for 4 months of the workers, this rate was 6 months before the law, paying such an amount is easier for the employers so employers has more chance for arbitrary dismissals.
- More qualified working conditions
Another important effect of the new Labor Act on workers is changing conditions of their work and in this section these effects will be analyzed at the end of which there will be evaluation of whether the demands of workers regarding more qualified working conditions have been met. The effects of the new law can be summarized as the fallowing (Özdemir & Yücesan-Özdemir, 2006, pp. 322-326):
- The former Labor Act notified that if the employer blazingly changed the circumstances of employment or was unsuccessful to perform them the employee would have the prerogative to cease a contract without prior notice (Article 16) and he/she would be eligible to get a severance pay (Article 14); however, by the new Labor Code the employer is consolidated to force the worker to work under new circumstances by stating (in a written from) that the alteration is mandatory and is based on valid grounds.
- If we want to analyze the articles of the new Labor Code regarding the regulation of “weekly working time, start and finish times, break times, compensatory work, overtime and overwork, and of reduction in the duration of work” it is noticed that the new Labor Code provides the employer with opportunity to regulate at his or her own discretion the distribution of the weekly working time, to at most 11 hours a day (Article 41) signifying that a worker can legally be charged with working up to 11 hours a day while this duration was 7.5 hours. What is more, the rights of the employer are increased in two different manners by new Labor Code. First, employers have gained the right to designate the starting time of the working day. Second, they have also held the right to specify the length of working day.
- Article 64 of the former Labor Act declared that a break time has to be fifteen minutes long when the working period is four hours or less, and has to be one hour long when the work is more than seven and a half hours. The new Labor Code leaves the regularization of break times to the decision of the employer (Article 67).
- New Labor Code presents ‘compensatory work’ for the industrial relations system (Article 63, 41). Compensatory work is an ‘invention’ to prevent the worker from being paid a wage in certain cases where the employer cannot use the labor power. “Here we see the way the different structural power differentials are shaped by the labor contract and the relevant legislation under the neoliberal discourse of law. In other words, we can observe the correlation between the new legal discourse and the changing content of the labor contract (the right of the individual capitalist to control labor power) within the framework of the codes regulating the labor relations in society” (p. 324).
- Overwork is also a new concept that is introduced by the new Law Code. Although according to the former Code total overtime was limited to a total amount of days (90 days), the new Act changes the limits of total overtime and defines overtime according to total number of working hours (270 hours), signifying that the responsibility of the worker to do overtime might be over 90 days in a specific year (Article 41).
- By the new law employer obtained power to ask particular services from the worker; hence, the concept of subordination is legitimized by the responsibility of the employer to pay wages, but, by the new Labor Code, “the employer is able to socialize the responsibility to pay wages in times of recession”. Two important lessons should be taken from this regulation: The first is related to terms of economic crisis, which can slightly be counted as objective circumstances (Article 65). “In the case of an economic crisis or force majeure, the employer who reduces weekly working hours significantly or suspends work altogether must inform the Turkish Labor Exchange Institution and the relevant trade union, if any”. “The other situation is when the individual employer is unable to meet his or her personal debts (Article 33). In the case of a concordat or insolvency (Article 33), all of which result in the inability to pay workers’ wages, the employer has access to a fund that pays the wages on his or her behalf (Article 33).” When Articles 65 and 33 are considered together with the notions of compensatory work and overwork, it is safe to say that the ‘innovations’ in the new Labour Act aim to empower the employer in the event of any crisis in production rather than creating the conditions of productivity (p.326).
As the final words for this section, it is not hard to claim that workers have lost a lot by this new law and employers have become more powerful. To illustrate this claim some points might be underlined from an interview made with kinsmen of those who were passed away in Soma since it is the last concrete example (METU-Soma solidarity):
- Especially recently, since workers have been exposed to more carbon monoxide some sicknesses; such as dizziness, nausea, loss of appetite, excessive sweating, abdominal pain etc. were began to be observed more than before,
- Workers were complaining about excessive heat,
- There were no rescue chambers because of being too expensive,
- Even in the repairing process, the machines were not stopped so lots of work accidents have been occurred,
- Change shifts were made within 10 minutes even though this duration should be one and a half hour,
- Workers were threatened by remuneration cuts in case of demanding early leave,
- Oxygen masks that each worker should have were got mouldy.
This paper has been employed to briefly explain the reform attempts in Turkish labor market by changing the Labor Code. The methodology used throughout the paper is first stating the general transformations all around the world regarding labor markets, second briefly explaining the previous Labor Code in Turkey and what has changed after the new law began to be implemented; third identifying the demands and objectives of stakeholders of the law and finally examining the results of the law by using the most important tool of policy analysis: analysis of whether the objectives are met by the policy.
When the results are considered, it is hard to claim that the policy has been successful because neither employers nor government made considerable gains from the policy. In other words, the most important goal of the policy, namely creating more flexible labor market has not been met yet. What is more, the government is still far from enacting a law which is convenient to the international norms. In addition to all of these, the new law has had undeniable negative effects on workers; both by decreasing their job security and creating harsher working conditions. Thus, the author claims that rather than making a policy transfer, the internal dynamics of Turkish labor market, which are again stated in the previous sections, should be taken into consideration and the solutions should be sought accordingly. The most important precaution that should be taken in order to create more ‘efficient’ labor market is that the mismatches in the system have to be reduced as much as possible. Moreover, there should be more educational investment to both white and blue color workers in the labor markets; in other words, government should make and implement more active labor market policies.
As the final words to conclude this paper we should give an answer to the question we asked in the topic of this study: has the reform changed the nature of labor market in Turkey? By taking into consideration the discussion made throughout the paper the answer should be that it has had some effects but not been able to achieve a great transformation in Turkish labor market. Additionally, as it was stated above, no intervention to the free market is cost-free and there is no doubt that the cost of this reform has been paid by the working class in Turkey as it was discussed under the last topic of the final section. Therefore, it is not surprising to observe severe exploitation throughout the Turkish history but since it is the most recent one case of Soma deserves to be underlined at this point. In Soma, more than 300 coal miner passed away because of a huge explosion which is discussed to be resulted from lack of ‘proper’ inspection in the workplace. Beyond giving some authorities to workers in terms of inspecting their own workplaces, the responsible bodies for this issue also has not been working as proper as it should be. It is obvious that the explosion was resulted from an important remissness but the reports prepared after inspecting Soma Coal Enterprise by Ministry of Labor and Social Security (MLSS) it was concluded that there was no defective matter in that workplace. Stated inspection was made by business chief inspectors of MLSS (the final report is provided in appendix). Thus, impeachment of only one body/institution might not be enough to see the broader picture; especially if the bodies/institutions/actors responsible for ‘enacting’ and ‘implementing’ laws/policies are also considered.
İbrahim Öker, Centre for Policy and Research on Turkey (Research Turkey)
Please cite this publication as follows:
Öker İ. (September, 2014), “Reform in Labor Code in Turkey: Changing the Nature of Labor Market?”, Vol. III, Issue 9, pp.16-43, Centre for Policy and Research on Turkey (Research Turkey), London, ResearchTurkey. (http://researchturkey.org/?p=6831)
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 Special thanks to my dear friend Derya Koca since she was the one suggesting to write on this topic and cooperating with me while trying to reach conclusions about this topic.
 “Mentioned six-month seniority of the employee is calculated by way of addition of the periods in which the employee works in one or more workplaces of the same employer. Furthermore, in order for an employee to benefit from concerned security he/she must be working under an open-ended contract and such contract has to be terminated by the employer. Term contract and voluntary quit are the obstacles avoiding benefiting from concerned security” (Pekin&Pekin, p.15).
 Due to the relevance concerns and author’s reluctance towards creating new speculations there will be no more contributions to this political economy issue without analyzing this topic in more details. Such kind of tendencies of incumbent government may be concern of another study.
 For details on the methodology, see OECD (2004, annex 2.A1).
 For details on the calculation of this job security cost, including how dismissal rates and discount rates are set, see Heckman and Pages (2004).
 Figure is quoted from Turkish Labor Market Study of World Bank (2006, p.82).
 Table is quoted from Taymaz&Özler, 2004, p.36.
 Calculations are made by using data provided by OECD StatExtracts, Trade Union Density Data.
 For further and more detailed policy recommendations regarding Turkish labor markets see: Erdil, E. 2007, Poverty and Turkish Labor Markets.
Graph 1: Foreign direct investment, net inflows between 2000 and 2011.
Graph 2: GDP growth (annual %) in Turkey between 2000 and 2011
Graph 3: Unemployment rate, total (% of total labor force)
Image 1 – Labour Inspection Report for Soma Mining Corporation – March 2014