The Ninth Asian Urbanization Conference

Asian Urban Research Association (AURA)Kangwon National University

18-23 August 2007Chun-Cheon City/ REPUBLIC OF KOREA

URBANIZATION AND LABOR MARKET PROBLEMS IN DEVELOPING

COUNTRIES: THE CASE OF TURKEY

Dr. Naci GÜNDOGANAnadolu University / TURKEY

1. Introduction

The twentieth century witnessed the rapid urbanization of the world’s population. The global proportion of urban population increased from 29 percent in 1950 to 49 percent in 2005.

By 2007, for the first time in human history, more people in the world will be living in cities and towns than will be living in rural areas. The global urbanization rate is predicted to reach 60 percent in the year 2030.

In developing countries in particular, the degree of population increase and the progression of urbanization is large and although nearly 40 percent of the world’s urban population was concentrated in developing countries in 1950, this figure is predicted to reach 80 percent in 2030.

As urbanization proceeds in developing countries, the speed and scale of urban population growth generate important challenges for governments. This is especially true in countries where urbanization has not been associated with sustained industrialization and development.

2.Labor Market Problems in Urbanization Process

In developing countries, rapid and uncontrolled migration created by the population moving from rural to urban areas causes serious problems from the viewpoint of labor markets. Increases in rural-urban migration flows is contributing to a larger urban labor supply. This increasing labor supply has produced an increasing urban unemployment rate and a deterioration in the quality of employment.

2.1.The Informal SectorUrbanization and informal sector are joint and rising trends in developing countries. The informal sector represents a significant part of the economy, and certainly of the labor market, in many economies, especially developing economies, and plays a major role in employment creation, production and income generation.

In developing countries, the informal economy tends to absorb most of the expanding labor force in the urban areas. Informal employment is at the core of understanding urban unemployment problems. Due to the lack of social safety nets such as unemployment insurance, the informal sector becomes a necessary and prime survival strategy for poor people.

Table 1- Size of the informal sector, 2004 Informal Workforce as a Share of

Africa Latin America andCaribbean

Asia

Non-agriculturalemployment

78% 57% 45–85%

Urban Employment

61% 40% 40–60%

New jobs 93% 83% NA

In general, new entrants to the city often enter the labor market through the informal sector. Informal jobs are in family rather than formal enterprises, are small scale, often lack a fixed location, involve small investments, have no fixed earnings, involve no formal training. Informal employment is normally unstable and insecure.

Most informal economy employment is self-employment. There is a link between working in the informal economy and being poor. This stems from the lack of labor legislation and social protection covering workers in the informal economy, and from the fact that informal economy workers earn, on average, less than workers in the formal economy.

2.2.Urban Unemployment In the late 1990s, the International Survey of Mayors (UNDP, 1997) regularly announced unemployment as the world's number one urban problem. Indeed, as world urbanization intensifies with dramatic population growth, global unemployment problems move further into cities and towns of the developing world.

Empirical studies indicate that from one-third to half of urban population growth is the direct result of immigration from rural areas. The process, observed all around the world, is assumed to be a historically unique, massive movement of population, resulting in high levels of unemployment.

In developing countries, economic growth has been biased towards the urban sector. Workers gradually migrate to the urban sector causing urban unemployment.

The Harris-Todaro Model provides a powerful explanation of such phenomenon. According to this Model, people migrate from rural to urban areas because of their private interests in improving their economic wellbeing.

In other words, migration is an outcome of the rational economic decision based on the benefits and costs of actions to be taken. This implies that rural-urban migration in a context of high urban unemployment can be economically rational if expected urban income exceeds expected rural income. That is, migrants may be willing to endure a period of unemployment if expected urban income is sufficiently high.

Therefore, migration from rural to urban areas will increase if:

Urban wages increase, increasing the expected urban income.

Urban unemployment decreases, increasing the expected urban income.

Urban job creation increases the number of available jobs in the urban sector, increasing the expected urban income.

Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector, decreasing the expected rural income.

2.3. Working Poverty

In developing countries, rapid and uncontrolled urbanization process has created a new face of poverty in urban areas. This new form of poverty is working poverty. With increasing urbanization, the informal economy tends to absorb most of the growing labor force. The creation of employment through informal sector has generated poor working conditions such as; low wages, insecure jobs.

Region US$1 a day working poverty share

US$2 a day working poverty share

1980

1990

2003a

2015b

1980

1990

2003a

2015b

World 40.3 27.5 19.7 13.1 59.8 57.2

49.7 40.8

Latin America and the caribbean

15.6 16.1 13.5 11.5 41.2 39.3

33.1 28.8

East Asia 71.1 35.9 17.0 6.5 92.0 79.1

49.2 25.8

South-East Asia 37.6 19.9 11.3 7.3 73.4 69.1

58.8 47.7

South Asia 64.7 53.0 38.1 19.3 95.5 93.1

87.5 77.4

Middle East and North Africa

5.0 3.9 2.9 2.3 40.3 33.9

30.4 24.9

Sub-Saharan Africa

53.4 55.8 55.8 54.0 85.5 89.1

89.0 87.6

Transition Economies

1.6 1.7 5.2 2.1 1.7 5.0 23.6 9.8

aEstimates, bProjectionsSource: Kapsos, 2004.

THE CASE OF TURKEY

Turkey is one of the countries with the most rapid urbanization process in the world. Rural-urban migration has been an important determinant of the urbanization process in Turkey. There is a great migration into the cities from rural areas and the urban population is increasing rapidly. The unproductiveness of the agricultural activities and the low income of the farming are some of the facts that cause the immigration from the countryside.

Years Population

Urban Populatio

n

% Rural Populatio

n

%

1927 13 648 270

3 3005 879

24.22

10 342 391

75.78

1940 17 820 950

4 346 249 24.39

13 474 701

75.61

1950 20 947 188

5 244 337 25.04

15 702 851

74.96

1960 27 754 820

8 859 731 33.69

18 895 089

68.08

1970 35 605 176

13 691 101

38.45

21 914 075

61.55

1980 44 736 957

19 645 007

43.91

25 091 950

50.09

1990 56 473 035

33 326 351

59.01

23 146 684

40.99

2000 67 803 927

44 006 274

64.90

23 797 653

35.10

2005 73 193 000

49 248 000

67.30

23 945 000

32.71

2015 82 640 000

59 397 000

71.90

23 243 000

28.12

Years Urban Growth Rate (%)

Rural Growth Rate (%)

1950-1955 5.56 1.69

1955-1960 4.72 1.90

1960-1965 4.15 1.69

1965-1970 4.69 1.22

1970-1975 4.27 1.47

1975-1980 3.36 1.57

1980-1985 5.99 -0.98

1985-1990 4.31 -1.18

1990-1995 2.74 0.29

1995-2000 2.54 0.28

2000-2005 2.17 -0.09

2005-2010 1.98 -0.21

2010-2015 1.76 -0.39

The population is concentrated especially in the large provinces and industrial regions. Provinces such as Istanbul, Ankara, Izmir, Adana, as industrial or trade centres, have dense populations.

The rapid urbanization created by the population moving from rural areas causes serious problems from the viewpoint of employment. The slow pace of employment creation in the modern sector, most notably in manufacturing, means rapid growth in generally low productivity jobs in the informal sector.

3.2.Turkish Labor Market Problems in Urbanization Process3.2.1. Labor Market Situation in TurkeyThe main characteristics:Population growth rate is relatively high (1.35% in 2004) and in connection with this concern, labor supply has been increasing.One-third of total employment in Turkey is in agriculture. Workers in this sector tend to be uneducated and unskilled. Women participation in the labor market at a low level (26% in 2006).Another point for labor market in Turkey is characteristics of employment status. In developed countries, employees are about 80%, but in Turkey is just 50%. The employment problem created by unpaid family workers is very serious.

Unemployment insurance system did not exist in Turkey until very recently. This new insurance is in operation at present, but it covers only 5 million workers, less than one out of four in the workforce and it offers very little compensation when applied.

The migration flow from rural to urban areas against the limited employment creation capability of Turkish economy has generated an increase in unemployment rates in urban areas.

Today, Turkey’s labor market is facing three severe challenges.

Firstly, continuous high economic growth has not created enough jobs, for example, economy grows at an average of above 6% while employment only at 1%. This is characterized by the phrase “jobless growth” in the literature. Because of the slow performance of employment generation capacity of the economy, unemployment is a severe problem, in particular, among the young urban labor force reaching 25%.

Secondly, an increasing number of migrant farmer workers during the progress of industrialization and urbanization, challenges the arrangement of traditional social security. Only in 2005, 1.3 million workers migrated from rural to cities.

Thirdly, the variety of employment patterns and informal employment as the main pattern of employment give rise to new issues regarding public administration.

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,0019

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

URBAN RURAL

Women participation in the urban labor market at a low level

Labor force participation in Turkey is exceptionally low by international standards and has been in long-term decline. The overall participation rate of 48.7 percent in 2004 was the lowest in the OECD and 21.4 percentage points below the OECD average. Participation and employment rates differ significantly with respect to gender and location.

Labor Force Participation Rate (LFPR) and Basic Tendencies: Women in Turkey

2006 :Male LFPR is 71 %

Female LFPR is only 26%

Female LFPR in Urban 19,9% in Rural 33%

Female employment in urban areas: mostly in service sector

Female employment in rural areas:in agriculture/unpaid family labor

mostly in the informal sector

in low-skilled, low-paid jobs

low level of formal education

Table 7- Labor Force Participation Rates in Turkey, Rural and Urban

Years Labor Force Participation (Urban)

Labor Force Participation (Rural)

Male Female Male Female

1990 76,8 17,0 83,0 52,0

1995 74,1 16,8 82,6 49,3

2000 70,9 17,2 77,9 40,2

2001 70,6 17,4 76,4 41,7

2002 70,8 19,1 74,5 41,4

2003 69,8 18,5 72,9 39,0

2004 70,8 18,3 74,7 36,7

2005 71,5 19,3 73,5 33,7

2006 70,8 19,9 72,7 33,0

There are several reasons for the declining trends in the urban female labor force participation rates in Turkey.

First of all, recently, younger populations have been staying in school longer. This contributes to the declining trends in the participation rates of the young.

Second, the changing composition of the labor force away from agriculture towards non-agricultural activities is another reason for the declining participation rates.

In rural areas, men are usually self-employed in agriculture while women are largely unpaid family workers. When women migrate into urban areas they drop out of the labor force and concern themselves with household work.

Social and cultural value systems dictate that men are the primary breadwinners, and women are given a secondary role in the provision of a household’s needs. Accordingly, women are engaged mainly in domestic activities such as childcare.

Informal employment is widespread

In Turkey, as in other developing countries, the informal labor market is a major issue with an impact on economic efficiency, overall labor market performance, income distribution and poverty, as well as on fiscal and budgetary performance.

Therefore, determinants of the informality, scope and outcomes of the informal sector must be carefully considered for a better understanding of the labor market problems.

In an environment where the formal sector has been unable to create enough jobs to absorb growth in the urban labor force resulting from both migrations to cities and births there, informal employment becomes a remedy for the unemployed.

In addition to this, unequal income distribution and widespread poverty together with the costly process of searching for formal jobs appears as major barriers to entry into the formal sector.

As it is known, one-third of total employment in Turkey is in agriculture. Workers in this sector tend to be uneducated and unskilled. When they migrate to urban areas, women are not likely to participate in the labor force at first. Younger women go to school or find employment in textiles until they get married; this is almost the norm in the sector. Young uneducated men work in construction if they can.

This means that low-skilled agricultural employment and urbanization will continue to provide fertile grounds for informal employment in Turkey.

Formal employment-growth performance in Turkey has been very poor relative to the growth in unskilled working-age population.This may be an important reason for the authorities not to crack down on informal employment.

Table- 8 Non-registration of employed labor force in social security, 2004

Distribution of

workers (%)

Sector unregistred Workers (%)

Total unregistred Workers

(%)

All Workers 100 53 53

Urban 54 36 19

Rural 46 73 34

Non Agriculture 66 34 22

Agriculture 34 90 31

Rural employee 43 21 9

Casual employee

8 91 7

Employer 5 24 1

Self employed 25 65 16

Unpaid family worker

20 97 19

4.Conclusion Today, developing countries face greater urbanization challenges than developed countries faced. Rapid and uncontrolled urbanization created by the population moving from rural to urban areas causes serious problems in developing labor markets. This internal migration has produced an increasing unemployment rate and deterioration in the quality of employment (informal sector).

There is no universal remedy for solution of these problems, but it can be said that promoting formal urban employment is probably the most feasible way to reduce urban labor market problems. Urban places should be areas where decent jobs are created. So, it must be concentrated on reforms that will create environment where all positive socio-economic developments lead to enlargement of formal urban employment.

Thanks for your attention

Komapsumnida