Essays on informality in the Turkish labor market

Thesis Type: Doctorate

Institution Of The Thesis: Orta Doğu Teknik Üniversitesi, Graduate School of Social Sciences, Department of Economics, Turkey

Approval Date: 2012


Supervisor: AYSIT TANSEL


This thesis investigates the nature, extent and dynamics of informal employment in the Turkish labor market using 2006-2009 Turkish Income and Living Conditions Survey. It is mainly a collection of three essays. In the first essay, an attempt is made to analyze the relevance and implications of three alternative characterizations of informality which include an enterprise-based definition associating informality with small firms, an extended enterprise-based definition incorporating social security protection, and a definition based exclusively on social security coverage. Using probit analysis, we show that social security criterion is the best measure given its ability to capture key relationships between individual characteristics and informality. In the second essay, we compute Markov transition probabilities of individuals moving across six labor market states, then estimate multinomial logit regressions to identify underlying dynamics of variant mobility patterns. Confirming traditional theory which sees formal employment as the ultimate desirable state, we find that formal-salaried individuals are the most reluctant to move and that the probability of transition from informal-salaried state to formal-salaried state is five times that of reverse transition. In the third essay, we examine formal/informal employment earnings differentials. OLS estimation of standard Mincerian equations reveals an informal penalty, half of which can be explained by observable characteristics. Moreover, applying fixed effects regressions, we show that unobserved individual fixed effects when combined with controls for observable individual and employment characteristics explain the pay differentials entirely