EconoMonitor

The Kapali Carsi

Severance pay in Turkey: Chains binding capitalists and proletarians

One of the “best” things about Turkish severance pay is that it literally “binds” employers and employees, although not exactly in solidarity.

Here’s the intro. to my latest Hurriyet Daily News (HDN) column, on Turkish severance pay reform. You can read the whole thing at the HDN website.

For once, I don’t have a long addendum, just a few comments. First, the reader comments to the column should be enough to convince you that this is a very tricky reform. For example, here’s one:

There is nothing wrong with the severance pay setup. It prevents abuses by employers who might otherwise make people redundant at will for no good reason. The method in Turkey ought to be adopted globally. It is one of the better ideas coming out of Turkey

As I told this reader, in the comments to the column, the current system is not really working because not many people are using it- many firms are finding ways around it. As for “the redundant at will” argument, would it be better if companies and workers are stuck with each other because of the high severance. Moreover, it is protecting jobs as much as workers, which is not efficient.

But this resistance towards reform is why BETAM spends a lot of time on how a transition to the new system would be viable. Incidentally, it is also why lowering the severance would not work, as it would be seen as making employees worse off, even if it would increase formality and cost the same (or even more) for the firms as the BETAM fund solution.

BTW, here’s the actual document, if you speak Turkish- I could not hyperlink it in the column, as Daily News does not allow non-English links. There is also a shorter presentation if you don’t have time for the whole document- also in Turkish.

Finally, severance is only part of rigid Turkish labor laws. If you want to do some comparisons, have a look at the World Bank Doing Business indicators.

ADDENDUM:

Here’s what a reader commented:

Severance payment is the only assurance of the workers to keep their jobs. In Turkey, it is hard for many workers, even to afford a lawsuit against an unjust termination of contract. Also the idea of creating a fund for severance payments should be reconsidered, given the misuse of other funds such as unemployment and earthquake. The goal of severance payments is providing job sustainability and easing the situation of workers after being fired. In case severance payments go into a fund, the “labor mobility” will cause the wages to decrease because it will decrease the opportunity cost of replacing workers.

Really good points. Here’s my response:

As I mention in the column, there is evidence that many firms are working around the severance pay anyway.

 The BETAM report makes the very same point about misuse. That’s one of the reasons they suggest a personal account managed by the private sector rather than a pool, like unemployment insurance, managed by the government.

 You are right on target on the wage argument as well, but empirical research suggests it won’t be one to one- there is discussion on that in the BETAM report as well…

These are complicated issues. That’s why the BETAM report is 80 pages:)

2 Responses to “Severance pay in Turkey: Chains binding capitalists and proletarians”

Emre Deliveli edeliveliAugust 20th, 2012 at 8:29 am

Unfortunately, it is the current system in Turkey that is helping plutocrats continue the plunder!:(…