Restrictions on temporary employment and informality among young: evidence from Turkey

• Published in: Economic change and restructuring Vol. 55; no. 3; pp. 1481 - 1496
• Main Authors: Aldan, Altan, Çıraklı, Muhammet Enes
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-08-2022; Springer Nature B.V
• Subjects: Central banks; Contracts; Development Economics; Dismissal; Economic Growth; Economic Policy; Economics; Economics and Finance; Employers; Employment; Employment law; Employment security; International Economics; Job security; Labor force; Labor market; Legislation; Macroeconomics/Monetary Economics//Financial Economics; New employees; Political Economy/Economic Systems; Probation; Probation period; Probation service; Productivity; Regulation; Temporary employment; Workers; Youth employment; Turkey; J28; Turkey; O17; Employment protection legislation; Informality; Temporary employment; J41
• ISSN: 1573-9414; 1574-0277
• DOI: 10.1007/s10644-021-09354-4

Temporary employment is widely used in European countries for new hires to avoid strict employment protection legislation against dismissal of permanent workers. In this respect, temporary employment works as an extended probation period enabling employers to monitor the productivity of new entrants. However, the use of temporary contracts is quite limited in Turkey due to legal restrictions. We argue that the restrictions on temporary employment together with rigid job security provisions for permanent employees lead to a rise in informality among young. To test this hypothesis, we use the variation between industries in terms of the gap between the desired and actual share of temporary workers among young. Since desired share is not observed, we proxy it with the share in Germany, where legislation on temporary employment is loose and informality is negligible. We estimate a probit model using individual level data from the Household Labor Force Survey for the period 2009–2018. We find that restrictions on temporary employment increase informality among male and under-educated workers in Turkey. Our results are robust to using other countries with loose regulations on temporary employment. We should note that our results do not imply that informality merely comes from restrictions on temporary employment.