Description:
Informality in Turkey, using various
definitions, and despite the signs of a recent decline in
certain segments of the economy, is widespread. The level of
informality is not excessively high, however, taking into
account Turkey's level of income. While firm
non-registration is not very common, underreporting of
revenues and wages and non-registration of workers with the
social security system are more prevalent. This report
argues that success in reducing informality requires an
integrated policy response. While no single
'sufficient' policy tool will be likely to
increase formalization significantly, a combination of
policies may move the economy to a new equilibrium with
higher formalization. The report discusses the need to
strengthen auditing capacity, effectiveness and targeting,
to ease labor market regulations, and to communicate
effectively with the public on the costs of informality and
the benefits of formalization. This report is organized in
six chapters. The second chapter introduces definitions and
the conceptual framework for the analysis conducted. The
third chapter provides a portrait of informality in Turkey,
outlines certain issues of measurement, and presents the
main trends using various decompositions. The fourth and
fifth chapters discuss the costs (consequences) and the
causes of informality, respectively, with a specific focus
on informal employment. The final chapter presents a
suggested integrated policy approach to reduce informality
and provides concluding remarks.