Educational and labor productivity problems in Turkey’s economy

A young population has played a crucial role in Turkey’s economic story in a bid to positively differentiate itself in the region. The country, however, faces the serious risk of losing this advantage in a substantial way unless some crucial steps are taken immediately to increase the quality of education and labor productivity. 

Some recent figures have alarmingly showed that Turkey’s labor productivity growth is slowing down at a time when its economy is an urgent need of writing a new narrative that would be based on boosting investments and productivity. 

While the growth in labor productivity was 5.98 percent in Turkey between 2001 and 2007, this figure decreased to 0.59 percent in the 2007-2013 period, according to OECD data. This is one of the steepest declines compared to many others. Total factor productivity growth has been negative for several years in a row, and was -2.3 percent in 2014, the worst among all OECD countries. 

Turkey has been struggling with its transition from a low-cost producing economy to a higher position by raising its efficiency through productivity-enhancing investments in labor skills and innovation. It is, however, largely unknown how the country will do this without making the required structural reforms immediately. 

A recent report by the Bahçeşehir University’s Center for Economic and Social Research (BETAM) has underlined the urgency of these reforms once again. According to a research note by BETAM, based on figures of the 2013-2014 Household Workforce Survey of the Turkish Statistics Institute (TÜİK), one in three young people between the ages of 15 and 19 did not continue education in 2014. In other words, around 2.2 million young people quit their schools. Some 73.6 percent of these young people were primary school graduates at most. Moreover, a majority of them could not enter the workforce, according to the research note. 

Some 900,000 young people were not enrolled at a school or hired. Over 73 percent of these non-schooled or unemployed young people were composed of females. 

In addition to gender inequalities in this sector, there are also huge regional disparities. While the rate of schooling among young people was 50.8 percent in Southeast Anatolia, this figure was 73.2 percent in the Marmara region. In other words, only half of the young people in eastern regions were able to continue their educational life – far fewer than in the country’s western regions. 

The existing educational system also needs a comprehensive revision in a bid to increase creativity and scientific quality. In PISA tests, Turkish 15-year-olds ranked in the bottom third in reading skills and creative problem solving among all OECD countries. In Turkey, which gives the highest share of its budget to education, an educational reform which focuses on improving analytical skills must be a priority. 

Turkey has also been losing its young population advantage as it faces the prospect of a problem common to most European countries – an aging population – as the number of live births and the fertility rate continue to decrease, according to a report by TÜİK. Turkey’s fertility rate decreased from 2.18 children in 2014 to 2.14 children in 2015, according to the April report. The figure was 2.37 in 2001.        

Turkey could face the phenomenon of an older population in just 20 years without realizing its young population advantage effectively. 

A recent IMF survey concluded in April that there were two main directions for structural reforms in Turkey. The first is to deal with the external balance by increasing the domestic savings rate. The second is to increase potential output growth by improving the labor market as the Turkish labor market struggles with rapidly increasing labor costs, stagnant productivity and a low employment rate, especially among women. With the existing policies, Turkey has one of the lowest employment rates for women among countries at the same level of development, and it employs many people in low-productivity sectors. 

It will only be possible for future growth rates to rise if more people enter the labor force and skill mismatches are reduced through policies that will increase labor productivity.