The macroeconomic impact of informal employment
As of 2017, latest year for which data is available, we estimate that 657,385 (15+ years old) Syrian
employees did not have a work permit in Turkey. The consequences of informal work arrangements for
employees are well known29 and involve denied labour rights and benefits as well as a higher degree of
uncertainty with respect to the future of their jobs.
This research, even though concerned about the impact of informality at the individual level,
proposes to fill a gap in the literature on Syrian refugees by carrying out an assessment of the aggregate
cost of informal employment. Research so far has tended to focus on other macroeconomic indicators;
for example, T¨umen (2016), studied the effect of informal Syrian workers on the price level of goods.
He finds that the goods whose production process intensely employs informal workers showcased a
decline in their prices. He explains this phenomenon by arguing that Syrian workers are replacing
Turkish natives in informal jobs at a cheaper rate, passing some of the lower labour costs onto the
goods’ prices. In addition, the research carried out by Semih T¨umen also finds that natives have lower
chances of finding an informal job, an extent that we confirm with the use of microdata in the textile
and garment industries, while Turkish natives’ opportunities of finding a formal job increase due to
the expansion in the provision of public services caused by the arrival of the refugees.
The present section drifts away from the impact of Syrian refugees on the labour market to focus
on the effect of informal employment on the income of the Social Security Institute, the Treasury,
employers and Syrian refugees. The reason behind this approach is to stress the often overlooked
damage which is brought by informal work to business competition and to the viability of public health
systems. With respect to the former, informal labour constitutes an unfair advantage that diminishes
29See, as examples for the case of Syrian refugees in Turkey Eder & Ozkul (2016) or S¸enses (2016). ¨
22
Syrian refugees in the Turkish Labour Market
the competitiveness of compliant businesses while promoting and rewarding less efficient companies
and economic sectors. In a sense, hiring informal employees is nothing but a subsidy granted by the
wider society without their consent. Something similar happens with the Social Security Institute
of Turkey with regards Syrian refugees;30 informal work does not change their obligation to provide
health care but prevents them from the funds that would be needed to carry out such activities.
The contribution of this study is twofold; first, we calculate the taxes and social security contributions that would have been due, were Syrians formally employed. We do this by taking advantage
of an identification strategy that separates Syrian refugees from other migrants in the HLFS, thus
obtaining access to the refugees’ labour earnings. This, in turn, allows to quantify how much is saved
by Syrians’ employers and how much income is foregone by the Social Security Institute. The second
contribution assesses a number of future scenarios with regards to the prevalence of informality among
Syrian refugees in Turkey. In particular, we combine HLFS microdata with data from the DGMM to
estimate the percentage of Syrians under temporary protection that would not be eligible to apply for
a work permit under the existing hiring constraints.
The section is split into two parts; the first one explains the methodology utilized to calculate the
earnings of informal Syrian employees in a hypothetical setting that assumes they are formally hired.
This section also provides some details about relevant pieces of the Turkish tax system as well as the
social security legislation. The second part calculates the macroeconomic impact of informality in a
number of plausible scenarios for the whole country as well as by subregion and by economic sector.
The section concludes with an evaluation of the current constraints faced by those applying for a work
permit and with some policy recommendations.
3.1 Payroll accounting
The formalization of a worker go hand in hand with changes in the amounts due and received by several
economic actors, including employees, employers, the Treasury and the Social Security Institution of
Turkey. Two major triggers of these changes are taxes and social insurance contributions. Our aim in
this subsection is to build a simplified version of the Turkish tax system of 2017, year the data31 on
earnings used for this analysis comes from, with the purpose of calculating the labour cost of Syrian
refugees had they been hired formally.
Social insurance contributions for private employees. Social security contributions are provided by the social insurance and universal health insurance Act 5510, which states the type of insurances and the extent of the contribution provided by each of the three economic agents involved,
employers, employees and the treasury, see Table 1. Government contributions are calculated as one
30It should be noted that there exists no difference between an ordinary citizen’s informality and a Syrian’s in terms
of social security legislation. Informal employment is a problem that exists independently of whether the worker is a
Turkish citizen or a foreigner.
31Data from the 2017 Household Labour Force Survey. We gratefully acknowledge the provision of the HLFS data by
the Turkish Statistical Institute under reference number 27964695-622.03-E.26626.
23
Syrian refugees in the Turkish Labour Market
quarter of the sum of employer and employee contributions towards the long-term, short-term and
health insurance (unemployment insurance is not included in this calculation, the treasury contributes
1 per cent of the gross income towards this item). In the past, short-term insurance primes were
determined locally, ranging from 1 per cent to 6.5 per cent but they are now fixed at 2 per cent
nation-wide.
The term ‘long-term insurance’ in Table 1 refers to the invalidity, old-age and survivors insurance
premium. Crucial for the type of analysis being performed in this section is Act 5763, which amends
Act 5110 and states that 5 percentage points of the long-term insurance contribution originally covered
by the employer shall be now paid by the treasury as crisis relief. This discount is already reflected in
Table 6. Overall, and after applying the long-term insurance discount, Turkey divides the contributions
almost equally among employees (15 per cent), employers (17.5 per cent) and the Treasury (14.125 per
cent), with employers still bearing an slightly higher burden than the other two agents separately.
Table 6: Social security contributions, 2017
Percentage (%)
Type of risk Employer Employee State Total
Short-term insurance 2 0 0 2
Long-term insurance 6 9 10 25
Health insurance 7.5 5 3.125 15.625
Unemployment insurance 2 1 1 4
Total 17.5 15 14.125 46.625
Income tax. In addition, employees are liable to pay income tax in accordance to appropriately
updated thresholds provided in the article 103 of the Income Tax Act 19332. The income tax brackets
and the tax rates applicable in 2017 are displayed for the reader’s convenience in Table 7. It should
be noted that income taxes in Turkey are paid from the first Lira earned irrespective how low is the
income earned.
Even though Turkey does not have a minimum amount of income exempt of taxes, it does have
a so-called minimum living allowance (Asgari Ge¸cim Indirimi, article 32, Income Tax Act 193), a
monetary compensation that is added to the net income after paying social contributions and income
tax. This allowance depends on the personal circumstances of the employee; for a single employee,
the allowance is 50% of the income tax paid by the minimum wage -which in practice means that
the allowance is tied to the minimum wage level. The allowance increases by 10 percentage points
when the employee is married to a non-working partner and, in presence of dependent children, 7.5
percentage points for the first 2 kids, 10 percentage points for the third kid and 5 percentage points
32See Gelir Vergisi Kanunu, 193, 31/12/1960 and its amendments.
24
Syrian refugees in the Turkish Labour Market
for the fourth and fifth kids can be added to the coefficient. The maximum allowance is set at 85%
irrespective of the family circumstances and if both spouses work, only one33 of them is entitled to
claim an extra allowance because of the children. Last but not least, the Law understands by children
those aged less than 18 under the taxpayer supervision or those aged less than 25 if they are still in
education. Aside from the income tax, employees are also liable for the so-called stamp tax (Damga
Vergisi) which in 2017 was set at 0.759% of the gross salary (not the tax base, which is the one used
for the calculation of the income tax).
Table 7: Income tax, 2017
Range (TRY) Rate (%)
0-13,000 15
13,001-30,000 20
30,001-110,000 27
110,000+ 35
Calculating gross incomes. Assessing the impact of the formalization of Syrian refugees requires
information on the taxes and the social insurance contributions that Syrian refugees, their employers
and the Treasury would need to pay were the former to be registered in the SSI. In order to calculate
said contributions we need to reverse-engineer the payroll accounting so as to convert net incomes, N,
the information that is available, into gross incomes. This is the opposite exercise most accountants
do, though, since generally it is information on gross income, G, what is available. The equation
that transforms gross to net income, f(G), as well as the equation showing the inverse function that
transforms net to gross incomes, f
−1
(N), are presented in Appendix D, including a version that uses
data from the 2017 fiscal year which de facto constitutes a simplified version of a payroll calculator
for Turkey. These two equations are, then, used to calculate the different contributions and taxes paid
and received by the different economic agents under study.
3.2 The impact of formalization
The idea of calculating the changes that public institutions as well as employers and employees would
face if Syrian refugees were to be hired formally is relatively simple and undoubtedly appealing on
the grounds of labour rights compliance. However, in practice, such counter-factual analysis requires
assumptions on how ‘formal’ the employee is going to be, in other words, how many hours is the
employer going to declare to the Social Security Institution. These assumptions implicitly refer to the
negotiations between employers and employees and there are reasons to suspect some employers may
33In the HLFS microdata it is not possible to know which spouse claimed the dependency of the children and the
additional points are allocated at random to one of them.
25
Syrian refugees in the Turkish Labour Market
be buying their employees short since the phenomenon of misreporting hours worked is a relatively
well-established in Turkey. According to the relevant labour legislation, workers cannot be employed
for more than 2,600 hours34 a year, however, 25 per cent of the country’s formal employees report in
the 2017 HLFS having worked more than said limit.
If a significant share of formal employees works more than it is legally allowed, it can be reasonable
to expect Syrian refugees would too. Several reasons support this line of thought; first, informal
workers have less bargaining power and less support to make their rights prevail. Second, informal
Syrian refugees tend to be employed in similar jobs as the ones formal employees who work too much
tend to have. In sum, the structural reasons for which formal workers are asked to work overtime
are likely to make Syrian refugees work overtime too. This factor is augmented in the case of Syrian
employees due to the fact that informal workers are less capable to claim their rights and avoid abusive
conditions. The information from the 2017 HLFS seems to support the previously-discussed ideas as
56.1 per cent of informally employed Syrians (more than double the share of Turkish formal employees
-24.0 per cent-) work more than 50 hours on an average week, while 35.3 per cent do so for 60 hours
or more.
Scenarios. Based on the fact that some employers provide abusive working conditions even to formal
employees, we design three scenarios under which the formalization of Syrian refugees could become a
reality. These scenarios vary on the capacity and the willingness of employers to bear the full cost of
formalizing Syrian employees with the assumptions behind each of the scenarios being summarized in
Table 8. The first scenario, labeled ‘pessimistic’, assumes that employers are able to almost fully evade
the cost of formalizing an employee. In practice, this scenario is built with the assumption that the gross
pay offered by the employers under a formal contract is made equal to the net salary currently earned
by informal Syrian employees. Such behavior entails two consequences; one is monetary, Syrians’
lower disposable income would also lower their contributions to the Social Security Institute. The
other consequence has to do with the number of hours reported by the employer to the SSI; since most
Syrian employees are already (while being informally employed) earning less than the minimum wage,
a reduction in their salaries would need to be accompanied by a proportional reduction in the hours
officially worked.
The second scenario is labeled ‘conservative’ and it is built on the assumption that employers would
formalize Syrian employees while keeping their net wages constant, i.e. they would absorb the due
taxes and the social insurance insurance contributions. In this scenario, the declaration of working
hours by the employer to the SSI works in a similar fashion it does under the ‘pessimistic’ scenario;
as many as possible provided the hourly minimum wage is respected. The only difference comes from
the fact that salaries are higher and, thus, the number of hours declared will increase proportionally.
The last scenario proposes to make Syrian employes as formal as possible by making employers declare as many hours as their employees work to the SSI (within the legal limit of 50 hours a week). As a
34That is an average week of 45 hours + 5 hours of overtime.
26
Syrian refugees in the Turkish Labour Market
result, the so-called ‘optimistic’ scenario, also implies higher salaries and social insurance contributions,
both in line with the number of hours actually declared.
Table 8: Summary of assumptions in each scenario
Scenario
Variable Pessimistic Conservative Optimistic Net income
Derived from gross income
using Eq. D.7 formula.
Same as the net income
earned when informally
hired.
As much as implied by the
number of hours actually
worked (cap at 50 hours
a week) if hourly wage
is lower than minimum
wage. Does not affect
those earning above the
hourly minimum wage.
Gross inc.
Same as the net income
earned when informally
hired.
Derived from net income
using Eq. D.9 formula.
Derived from net income
using Eq. D.9 formula.
Hours declared
As many as the gross
income allows to declare
(cap at 50 hours a week).
Does not affect those earning above the hourly minimum wage.
As many as the gross
income allows to declare
(cap at 50 hours a week).
Does not affect those earning above the hourly minimum wage.
Equal to the number of
hours actually worked
(cap 50 hours a week).
Measuring the impact. Four monetary indicators, one per economic agent involved, are derived
from the calculation of gross incomes with the intention of assessing the effect35 of the hypothetical
formalization of -currently informal- Syrian employees’ working arrangements. For the employees
themselves, we focus on the take-home pay, also known as net salary. In the case of employers, we report
the difference in labour cost (C) between what the employer pays to an informal employee, C = N,
and what the employer would pay once that employee has been made formal, C = (1 + sc)f
−1
(Nh
),
where sc is the share of the gross income the employer contributes to the SS on behalf of the employee
35It should be noted that the calculations performed in this section are an educated guess to the actual taxes and
contributions that would had been paid by the different economic actors under several hypothetical scenarios using a
simplified version of the 2017 Turkish tax system. There are several reasons why these figures are only an approximation,
for instance, the lack of accuracy of the family links in the HLFS data (which affects the minimum living allowance),
the lack of other income information (affecting the applicable marginal tax rate) and/or not knowing the work history
of the person during the fiscal year (which affects the annual gross income).
27
Syrian refugees in the Turkish Labour Market
and f
−1
(Nh
) is a function that calculates the gross income of an employee from a hypothetical net
income, see Equation D.3 for more details (Appendix D). As for the Social Security Institute, we sum
all the social insurance contributions collected, S = (se + sc + sg)f
−1
(Nh
), with se, sc and sg being
the shares respectively applying to employees, companies and the government. Last but not least, we
focus on the Treasury of Turkey which has both, a source of income (income tax, T) and an obligation
to pay (SS contributions on behalf of the employee). The statistic reported is the subtraction of the
two, D = T(Nh
) − sgf
−1
(Nh
), with the functional form of the taxes collected, T(Nh
), being available
in Equation D.8 (Appendix D).
Table 9: Changes induced by the formalization of Syrian employees (TRY per year)
Formality scenarios
Statistic Current Pessimistic Neutral Optismistic
Employer cost -14,638 -17,200 -21,832 -27,067
Hours declared to SS na 1,559 1,895 2,415
Hours actually worked 2,729
Employee gross income 14,638 14,638 18,580 23,036
SS contribution 0 -2,195 -2,787 -3,456
Taxes 0 -738 -1,155 -1,586
Net income 14,638 11,705 14,638 17,994
Treasury 0 -1,329 -1,469 -1,667
Taxes 0 738 1,155 1,586
SS contribution 0 -2,067 -2,624 -3,253
Social security 0 6,824 8,663 10,740
Employee 0 2,195 2,787 3,456
Employer 0 2,562 3,252 4,031
Treasury 0 2,067 2,624 3,253
Informal employees (Syrian) 657,385
Source: HLFS 2017 and author’s own calculations. Notes: The table shows the effect of formalizing the average Syrian
informal employee on a number of statistics for four economic agents, employers, employees, the Treasury and Social
Security Institution. The changes are shown under three scenarios, a) a pessimistic one that makes the gross income
equal to the informal net, b) a neutral one that keeps the net income received by the employee constant and c) an
optimistic one that pays the minimum wage for as many hours as the average informal Syrian employee actually works
(with a cap at 50 hours).
All four indicators are calculated (see Table 9) for the average informal Syrian employee in the
current scenario (i.e. the one where Syrian refugees are employed without a work permit) and in
the three hypothetical setups designed to build counterfactual scenarios where Syrian refugees are
28
Syrian refugees in the Turkish Labour Market
employed with a work permit. For employers, the effect of formalizing Syrian refugees goes from
mild -an increase of 2,562 per employee (annual figures) in the pessimistic scenario-, to extreme –
an increase of 12,429 that almost doubles the original cost of the worker. The sizable differences in
labour cost between the three scenarios are largely explained by the number of hours officially declared
by the employer to the SSI. The reason why employers cannot declare all the hours worked is given
by the fact that many Syrian refugees earn below the minimum wage while working more hours than
the ones legally permitted. As a result, declaring a higher number of hours would be accompanied by
a pay rise so as to prevent the hourly wage from falling below the minimum wage level. It should be
noted, though, that some payroll fraud would exist irrespective of the scenario chosen for the analysis;
from 314 hours misreported per employee a year in the ‘optimistic’ scenario to an staggering 1,170
hours a year in the ‘pessimistic’ one, i.e. there would be work for the labour inspection even in the
best36 scenario under consideration.
While it is clear that the formalization process would be costly for employers, it is also clear that
the main beneficiary of such process is the Social Security Institute of Turkey. The income received
per worker is estimated in the range of 6,824 to 10,740 per worker, with the contributions coming
almost in equal proportion from employers, employees and the Treasury of Turkey. The size of the
latter contribution, sparked by the five percentage points relief the Treasury temporarily took care
of, yields a negative net income for the Turkish public administration. Indeed, the Treasury might
need to ‘pay’ an average of 1,329- 1,667 for every worker formalized because the social contributions
paid by the government greatly exceed the taxes received from low income earners. It should also
be noted that without the five percentage points (originally part of the employers’ long-term social
insurance contribution) that is being currently paid by the government, the Treasury would be close
to break-even -although it would still find itself in the ‘red’.
The effect of the formalization process on the Syrian employees is, perhaps, the most unclear one;
depending on the scenario, the change on Syrian employees’ take-home pay goes from a loss, (-) 2,933
to a gain of 3,356 per year. The ambiguous effect of having a formal job on net income, which is
arguably a major source of concern for this sub-population,37 may lower informal workers’ incentives
for demanding a work permit. Net income is definitely not the only benefit carried by the formalization
of work arrangements and there are other benefits like the right to be represented by a trade union, a
higher level of certainty with respect to contractual conditions, access to a pension after retirement and
health insurance, just to mention the most prominent ones. However, the benefits that in a different
environment would constitute a powerful incentive for a regular worker to desire a formal job, turns
out being not-so advantageous for Syrian refugees who, first of all, already have access to health care
due to the temporary protection regime and, second, might not want to retire in Turkey, thus, lowering
the value attached to their long-term insurance contributions.
36By best it is meant the one with the higher number of hours declared.
37In many Syrian families there is a single income earner due to the low female labour force participation.
29
Syrian refugees in the Turkish Labour Market
Macroeconomic impact. The number of (+15) Syrian employees working without a valid work
permit is estimated at 657,385, that is 4.2 per cent of the total number of formal employees working in
Turkey in 2017. This percentage is large enough to expect a substantial impact in the budgets, profits
and disposable incomes of, respectively, the SSI, employers and employees. In order to improve the
visualization of the macroeconomic impact, Figure 12 reports the changes that would have accrued
to each of the economic agents under all three scenarios for a varying share of Syrian employees
formalized. Some labels have also been added at the point where 80 per cent of currently informal
Syrian employees obtain a work permit; this point is chosen because it roughly corresponds to the
current share of Turkish employees enrolled in the SSI. On top of that, some extra labels are used to
illustrate the full impact under the optimistic scenario.
Figure 12: Impact of formalizing Syrian refugees on four economic actors under three scenarios
(a) Social security, net income (b) Treasury, net income
(c) Employers, profit (d) Employees, take-home pay
Source: HLFS 2017 and author’s own calculations. Notes: The figure shows the macroeconomic impact of formalizing
currently informal Syrian employees for four economic agents, employers, employees, the Treasury and the Social Security
Institution. The impact is shown under three scenarios, a) a pessimistic one that makes the new gross income equal to
the informal net income, b) a neutral one that keeps the net income constant and c) an optimistic scenario where Syrian
employees are paid the minimum wage for as many hours as they actually work (with a cap at 50 hours).
The biggest beneficiary of the registration of informally employed Syrian refugees is the SSI; the
30
Syrian refugees in the Turkish Labour Market
institution could expect 5,648 millions to be added to its budget if the share of formalized employees
matched the current share of formal Turkish employees. SSI’s foregone income is even higher; under
full-compliance its revenue could go up to 7,060 millions or, put differently, the SSI budget could go
up by 2.2 per cent38 nation-wide. Moreover, it is well-known that Syrian refugees are not evenly spread
over the Turkish territory. In practice, they tend to populate neighboring regions with Syria (Adana,
Gaziantep, Hatay, S¸anlıurfa) as well as some of the most-populated cities of the country (˙Istanbul,
Bursa, Konya and ˙Izmir). In some of these subregions the share of informal Syrian employees with the
respect to the formal population of employees more than doubles the national average (see Table 10) as
does the income that the regional branches of the SSI could collect from the formalization of refugees.
For example, the SSI could receive an extra income of up to 433 millions a year from Gaziantep, most
of which at the expense of employers. A slightly lower impact could be achieved in the subregion of
Konya (where informally hired Syrian made up to 8.1 per cent of the formal employment), Adana or
Hatay but still much higher than in the subregions outside the top-8, where Syrian refugees only make
up for 1.2 per cent of all formal employees.
Table 10: Macroeconomic impact due to the formalization of all Syrian employees (optimistic scenario),
by subregion
Informal Syrian employees Impact (millions TRY 2017)
Subregion Total % of all employees Social sec. Treasury Employers
˙Istanbul 288,219 7.2 3,161 -467 -3,288
Bursa 59,754 6.0 645 -103 -786
Adana 58,536 8.6 605 -102 -854
Gaziantep 41,470 10.8 433 -74 -576
Hatay 39,245 8.7 406 -68 -524
Konya 33,672 8.8 373 -58 -454
˙Izmir 21,875 2.1 234 -42 -256
S¸anlıurfa 21,330 6.8 242 -36 -312
Rest of Turkey 93,284 1.2 962 -147 -1,121
Source: HLFS 2017 and author’s own calculations. Notes: The table shows the change in income derived derived from
formalizing the work arrangements of all informal Syrian employees by subregion (NUTS-2) in the optimistic scenario.
It also shows the number and the percentage of informal Syrian employees in each subregion.
Of all the economic activities benefiting from the presence of Syrian refugees, one stands out from
the rest; the textile, clothing, leather and footwear industries39 (hereinafter referred to as TCLF),
which together employ almost a third of the informal Syrian employees. TCLF industries’ attachment
38The budget of the Social Security Insitute stood at 312,734 millions in 2017, source: www.ceicadata.com.
39These industries are defined by the ISIC rev.4 codes 13, 14 and 15.
31
Syrian refugees in the Turkish Labour Market
to informal work is not new, though, and the reasons behind it need to be assessed from a national
and a global perspective. As it can be seen in Table 12, back in 2005 TCLF industries were already
employing almost half million informal workers; by 2014 the informality phenomenon had decreased
in both, the total and the share, with only 379,132 informal workers adding up to 26.4 per cent of
all TCLF employees. The positive trend towards formality came to a halt with the arrival of Syrian
refugees who not only crowded out nationals from informal jobs but also increased the number of
informal employees, bringing it back to the 2005 level.
Table 11: Macroeconomic impact due to the formalization of all Syrian employees (optimistic scenario),
by economic sector
Informal employment
Activity Increase in payroll (mill.) Total Share
Agriculture 768 60,750 9.2
TCLF manufacturing 2,771 218,628 33.3
Other manufacturing 1,279 106,373 16.2
Construction 1,170 99,505 15.1
Transport & comm. 61 6,099 0.9
Trade, hospitality 1,360 105,396 16.0
Business act. 81 6,277 1.0
Education 105 10,401 1.6
Health 58 5,567 0.8
Other services 517 38,389 5.8
Total 8,171 657,385 100.0
Source: HLFS 2017 and author’s own calculations. Notes: The table shows 1) the change in companies’ payroll derived
from formalizing the work arrangements of all informal Syrian employees by economic activity (measured by the ISIC
rev.4) in the optimistic scenario and 2) the number and the percentage of informal Syrian employees working in each
economic activity. TCLF refers to the ISIC rev.4 codes 13, 14 and 15.
Historical reasons by themselves are not sufficient to explain the strong attachment of TCLF
industries to informal labour. Another contributing factor has to do with the strong competition
Turkey-based garment factories face in the international market. Their products have to compete with
those coming from Viet Nam, Bangladesh, Mexico or Thailand just to name a few markets where wages
are at the level or lower than the ones offered in Turkey. In fact, employment growth between 2005 and
2015 in the TCLF industries of 20 countries (including major producers) is highly correlated40 with
the level of wages41 initially held in 2005, adding yet another argument to the hypothesis of highly
40Data from the ILO-Labour Force Micro-dataset v1.5.
41Wages are measured in 2011 constant USD to facilitate the comparison.
32
Syrian refugees in the Turkish Labour Market
mobile capital in response to international competition -also sparked by the expiration of the Multi
Fibre Arrangement’s successor in 2005.42 To sum up, some producers, especially those operating in
the TCLF industries, may have strong incentives to keep an illegal workforce in operation.
Table 12: Type of employment in the TCLF industries, by year
Year
Type 2005 2014 2017
Informal 494,230 379,132 491,278
of which Syrians 218,628
Formal 683,878 1,059,164 1,046,977
Total 1,178,108 1,438,296 1,538,255
Informality rate 42.0 26.4 31.9
Source: HLFS 2005, 2014, 2017 and author’s own calculations. Notes: The table shows the number of formal and
informal employees in the textile, clothing, leather and footwear industries (ISIC rev.4 codes 13, 14 and 15) in Turkey
for three years, 2005, 2014 and 2017. In addition, it shows the year and sector-specific rate of informal employment in
the TCLF industries.
Which scenario and why? The calculations use three intra-firm bargaining scenarios alongside a
continuum of formalized Syrian employees ranging from 0 to 100 per cent of the target population. The
multiplicity of situations opens an obvious yet relevant question, where will Turkey be in the coming
future? The main difficulty when assessing the outcome of the negotiations between employers and
employees with respect to the formalization of work arrangements lies on the fact that this negotiation
has not happened yet, i.e. it is hypothetical. In spite of this difficulty, some light is thrown in by
a similar negotiation that has already happened: the one between current formal Syrian employees
and their employers. The simplest analysis would compare the average net earnings of formal Syrian
employees ( 1,937 a month) with that of those employed informally, 1,185, finding an increase of
752 after formalization. However, this analysis is not only simple, it is also simplistic insofar it does
not take into account the likely differences in skill, educational background and sector of employment
between those employed formally and informally. If these factors were to be taken into account we
would expect the earnings differential to be reduced due to formal employees being employed in sectors
with higher labour productivity and/or in highly skilled occupations.
The results from a linear regression on monthly earnings43 after taking into account differences in
the above-mentioned characteristics as well as others44 actually reduces the counterfactual differential
42In reference to the Agreement on Textiles and Clothing.
43R2 = 0.3515, survey weights used.
44Other characteristics include the year of arrival to Turkey, the number of hours worked, the occupation, the sector,
the company size and the sex of the worker.
33
Syrian refugees in the Turkish Labour Market
to 341 a month. This estimate should be taken with caution due to the existence of other pieces
of information -most notably, the extent of their personal and professional networks- that could be
correlated with employees’ earnings and not taken into account in this regression. For instance, in the
particular case where information on networks is omitted we would expect the earnings differential to
be brought further down. Still, and with this caveat in mind, the result from the regression points
out at the optimistic scenario (which assumes an increase of 275 a month) as being the most likely
scenario to happen of the three presented for the formalization of the employment arrangements.
According to the salary prime associated to the formality of the work arrangements it looks like
formal means fully formal, i.e. employers do not misreport a massive amount of hours so as to lower
the cost of the employee. This brings the discussion to the second dimension under analysis, what
percentage of informal Syrian employees can we expect to receive a work permit in the coming years?
On the one hand, it will depend on the individual incentives of employees and employers; unfortunately,
as things stand no increases in the effort of these agents can be expected. This is particularly so for
employers, particularly those operating in historically informal sectors.
Figure 13: Work permit, non-eligible Syrian refugees under temporary protection
Total non-eligible: 68.9%
Another province
10% rule
19.8% 19.1% 30.0%
∅
Source: DGMM, HLFS 2017 and author’s own calculations. Notes: The Venn diagram shows the percentage of Syrian
refugees informally employed as salaried workers that are not eligible to receive a work permit because 1) they reside in
a different province to the one they are registered in -blue, left-, 2) they work in a company with less than 10 employees,
thus violating the 10% rule -red, right- or 3) both reasons at the same time -combined colour, center-.
An even more important dimension, at least in practical terms, lies on whether Syrian refugees
themselves are eligible to apply for a work permit. According to an UNHCR (2018) information
leaflet, Syrians covered by the temporary protection regime (96.6 per cent of the Syrians that came to
Turkey since the war) can only work in the province where they were initially registered. Moreover,
an employment quota whereby those on temporary protection cannot exceed 10 per cent of the total
number of nationals in their company is imposed to all but agricultural business. In practice, 311,55345
Syrian refugees (49.1 per cent) work in non-agricultural companies of less than 10 employees which
45This figure is the result of assuming that informally employed Syrian refugees who are not under the temporary
protection regime work in similar size companies as the rest.
34
Syrian refugees in the Turkish Labour Market
automatically makes them ineligible for a work permit. To make matters more complicated, 1,196,894
of Syrian refugees under temporary protection (38.9 per cent) are estimated to be living in provinces
other than the ones where they were initially registered by the authorities.46 Obviously, some of
the Syrians affected by the 10 per cent quota might also be living in a different province, making
the sum of the populations affected an inaccurate predictor of the percentage of Syrian unable to
obtain a work permit. Unfortunately, information on the province where the person was registered is
not available in the microdata (the number is a macroeconomic estimate) and a cross-tabulation is,
thus, not available. The solution we propose is to assume that working in a company with less than 10
employees is independent of living in a different province than the one where the person was registered.
The percentage of ineligible refugees based on the above-mentioned assumption is shown in Figure
13. According to these estimates, 68.9 per cent of all Syrian refugees would not even be eligible to
obtain a work permit; 19.8 per cent because they are working in a province other than the one they
registered in, 30.0 per cent because they work in a company with less than 10 employees and 19.1 per
cent because of both reasons at the same time. As a result, and provided the current conditions do
not change, Turkey should not expect more than 31.1 per cent of the informal Syrian employees to be
formalized in the short-run
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