According to a country note from a report by the OECD titled “Going for Growth 2010,” Turkey has paid heed to the OECD’s recommendations regarding policies paving the way for long-term and stable growth, though it still has a long and difficult policy road to travel if it seeks to grab the reins of its emerging strength.
The note, which is part of a larger report that lays out policy recommendations for OECD members to enable growth, calls for reforms relating to retirement plans, especially stressing the need for the removal of retiring workers’ entitlement to severance payments. The organization made this same recommendation in 2007 and 2009, and reiterates this in this year’s report. Moreover, the note stated that no action has been taken regarding this inhibitor to growth since its recommendation -- a point all the more striking as it is the only recommendation where the government has not taken any action to resolve the issue. On the topic of retirement, the OECD calls for Turkey to reduce incentives for early retirement and introduce a health insurance contribution for young retirees.
Regarding severance payments in general, which can create a rigid labor market as firms become reluctant to dismiss workers, the note stated that Turkey needs to reform employment protection legislation -- a regurgitation of recommendations in 2007 and 2009 -- by reforming severance payments and facilitating temporary work. On a positive note regarding these reforms, the OECD noted that manpower agencies were authorized to offer temporary work services in 2009. An employment restrictiveness index calculated by the OECD shows Turkey to be 2.5 for regular employment and 4.8 for temporary employment on a scale of 0 to 6, with 6 being most restrictive. The OECD average is 2 and 1.7 for regular and temporary employment, respectively. Most striking, though, is that neither figure has changed for Turkey since 2003.
Fiscal discipline was also on the recommendation table; a hot topic after government spending ramped up significantly during the crisis and as it normally does during election periods. The OECD reiterated its 2005 recommendation of “implementing results-oriented budgeting in core public services,” specifically mentioning justice, education and health care as public services needing budget reform. Although the OECD does give the government credit for passing a law that requires the use of result-oriented budgeting in 2006, it states that it has had “a limited practical effect so far.”
