Growth, Productivity & Employment in Agriculture, Manufacturing & Services

General Outlook

• Source: Pamuk, 2006

Percentage Shares of Sector in GDP

0.05.010.015.020.025.030.035.040.045.050.055.060.065.070.0

1968 1973 1978 1983 1988 1993 1998 2003

Agriculture Industry Services

• Source: Pamuk, 2006

Employment Shares

0%

20%

40%

60%

80%

100%

96 97 98 99 00 01 02 03 04 05

Year

Employment Shares

Services

Manufacturing

Agriculture

0

20

40

60

80

100

2000 2001 2002 2003 2004 2005

Years

Sectoral Contribution to GDP

Services

Industry

Agriculture

Changes in Labor Productivity in Various Sectors

-2 0 2 4 6

1972-1974

1974-1979

1980-1984

1984-1989

1990-1995

1995-2000

pe

rio

ds

%

Agriculture Manufacturing Services

AGRICULTURE

Basic Trends Between 1880 and 2000

• Population has increased from 13 million to 68 million in 2000.

• GDP per capita has increased 6 times.

• Agricultural output in constant prices increased 9 times.

So we can say that agricultural production has managed to meet the increased per capita demand .

Agricultural Shares in Employment and GDP

• Share of population employed in agriculture

• GDP share of agricultural output

1880 1950 2000

80% 80% 35%

65% 53% 13%

• ----- GDP ------ Employment

Employment in Agriculture in Recent

YearsYears

Share Of Agricultural

Employment

1996 42,8%

1997 40,8%

1998 40,5%

1999 41,4%

2000 36%

2001 37,6%

2002 34,9%

2003 33,9%

2004 34%

2005 29,5%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Years

Share of Agriculture in GDP in Recent Years

Years

Share Of Agricultural

Output

1996 17,4%

1997 15,1%

1998 18,5%

1999 16%

2000 15,4%

2001 12,8%

2002 13%

2003 13,4%

2004 12,9%

2005 11%

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%50.00%

Years

Growth Trends1880 -1950 Period

Agricultural output increased only by 1% annually. Most of the increase in agricultural output was attributable to the increase in inputs; labor and land. Availability of land, expansion of area under cultivation are the key factors that were providing increase in agricultural output especially until 1960. Additional government policies provided that agricultural sector is dominated by the small and medium sized enterprises.

Fluctuations due to war years are quite remarkable.

1950 -1980 Period

In this period the annual growth rate of agricultural output is nearly 3% per annum. The growth is mostly leaded by additional cultivated land until 1960 but afterwards the shift from extensive production to intensive production has contributed to growth.

1980 – 2000 Period

Output growth rate slowed down to 2% per annum. Land productivity also decreased but thanks to urbanization labor productivity increased.

Growth Rate for Agricultural Output Level in Recent Years

-8

-6

-4

-2

0

2

4

6

8

10

12

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Years

Growth Of Agricultural

Output Level

1996 4,9%

1997 -2,2%

1998 9,3%

1999 -5,6%

2000 3,8%

2001 -6%

2002 7,4%

2003 -2,4%

2004 2%

2005 5,7%

Productivity in Agriculture

Decomposition of Productivity:

1-Land Productivity 2-Labor Productivity

1880 – 1950 : Both labor and land productivity growth rate is less than 0,5%

1950 – 1980 : Land productivity increases thanks to irrigation methods, fertilizers and aggricultural machinery.

Labor productivity is still low.

1980 – 2000 : Land productivity slowed down but labor productivity increased thanks to urbanization.

Total factor productivity couldn’t be very large until 1950 but after 50’s its annual growth rate was nearly 1,7%, nearly 6 times as of before 1950.

Productivity in Agriculture

• The gap between the land productivity of Turkey and Western countries remained nearly same as 1:3.

• But the gap for labor productivity was much karger and widened during the second half of the century.

In addition to low labor productivity, small and medium sized enterprises promoted the unpaid family workers and people in agriculture sector became the poorest part of the society.

This was mostly due to the fact that Turkey was unable to release the population employed in agriculture and start industrilization and urbanization rapidly.

Productivity in Agriculture

Reasons for late urbaniziation:

• The inability of urban sectors to create new jobs and opportunities for people who are employed in agriculture.

• Problems in educational system brought that undereducated population in the rural area couldn’t pursue new job opportunities in urban areas.

• Source: Pamuk, 2006

STRUCTURAL CHANGE in TURKEY

• Labor market outcomes reflect the interaction of demografic and economic factors.

• Especially population growth and urbanization led structural changes in employment

• Turkey’s 2004 employment rate is 43,7% -one of the lowest in the world- while E-15 has 65% rate

• From 1980 to 2004 working age population increased 23 million, however only 6 million net jobs were created

Source: World Bank, Turkey Labor Market Report (2006)

We see similar trends in all over the world.

Turkey’s job creation performance is not as good as its growth rates. Although it is explained by only high supply of labor because of demografic change, Yeldan (2006) argues it is also because of bad structure of industry in Turkey; that is industry in Turkey is dependent to developed countries and it is composed of subcontracting networks.

Employment Shares by Sector

1980

Services38%

Industry12%

Agriculture50%

1989

Services37%

Industry16%

Agriculture47%

2004

Services48%

Industry18%

Agriculture34%

Services

Industry

Agriculture

• Employment rate differences mostly derive from low FLFP rates in Turkey.

• FLFP rates in agriculture are higher relatively, therefore women did not favor urbanization

MANUFACTURING

General Trends Until 1980

• Turkey has the aim of “ industry based growth” since the beginning of 5 year devolopment plans period.

• Until 1980 import substitution has the main characteristic of the manufacturing sector in Turkey. Import quotas, manufacturing incentives are key elements of period.

Trends After 1980• After 1980 there is significant progress towards

establishing market economy through introduction of export-oriented industrilization.

• Thanks to this progress and incentives for exports, private sector increased its share in production and in investment regarding the manufacturing sector.80% of production and 95% of fixed investment is realized by private sector, after the huge privatizations in recent years. Growth in manufacturing is mostly thanks to the dynamism and investments of private sector.

• Due to 2001 crisis manufacturing output decreased drastically. But after crisis period two elements have been the life savers for manufacturing.a-) Domestic Demand b-) Sustained Export

Performance

Share of Manufacturing in Employment in

Recent Years

0

10

20

30

40

50

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Share Of Manufacturing in

Employment

1996 22.9%

1997 24.1%

1998 23.6%

1999 22.8%

2000 24%

2001 22.7%

2002 23%

2003 22.8%

2004 23%

2005 24.7%

Growth Rate of Manufacturing in

Recent Years

-10

-5

0

5

10

15

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Growth Rate of Manufacturing

1996 7.1%

1997 9.2%

1998 1.8%

1999 -6.3%

2000 5.5%

2001 -7.2%

2002 5.6%

2003 5%

2004 8.8%

2005 8.6%

Share of Manufacturing in GDP in Recent Years

05

101520253035404550

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Share Of Manufacturing

in GDP

1996 27.9%

1997 28.2%

1998 25%

1999 24.6%

2000 25.3%

2001 26.1%

2002 23.7%

2003 21.9%

2004 22.4%

2005 23.7%

Productivity

• Poductivity in manufactıring is divided into 2:

a-) Factor Productivity: Real value added / Labor input

Real Value added / Capital input

This measures only the contribution of one factor of production. It can not differantiate the productivity increase is a result of techncal progress or an increase in other factors.

b-) Total Factor Productivity: Residual after the contribution of all factors is removed from output growth.

Exports and Manufacturing

• After ’80 export orientation can be observed easily. Years

Export Share of Manufactured

Goods

1980 36%

1989 79%

2000 91%

  Annual Growth Rate of Exports

2000 19.2%

2001 7.4%

2002 11.1%

2003 16%

2004 12.5%

2005 8.6%

Export Share of Manufacturing

1980

1989

1994

2001

2005

Years

0.010.020.030.040.050.060.070.080.0

Mill

ion

$

TOTAL EXPORT (MILLION $)

TOTAL MANUFACTURING EXPORT

SHARE OF MANUFACTURING

1980 2.9 1.05 36%1983 5.7 3.66 64%1984 7.1 5.14 72%1985 8.0 5.99 75%1986 7.5 5.32 71%1987 10.2 8.07 79%1988 11.7 8.94 77%1989 11.6 9.17 79%2001 31.3 28.70 92%2002 36.1 33.70 93%2003 47.3 44.38 94%2004 63.2 59.58 94%2005 73.5 68.81 94%2006 85.5 80.21 94%2007 23.1 21.70 94%

Source: State Planning Organization

Export – Productivity Relation

• After CU membership, excluding agricultural goods, Turkey’s share of manufactured goods in exports increased.

• Krueger (1982): Productivity growth is faster in period of liberalization.

• Robinson (1984): Manufacturing productivity increases with periods of export expansion.

• World Bank Report: Industries remarked as as export oriented grew faster both in production and productivity.

Productivity After 1980

We can divide post 1980 period into 3:• 1981 – 1989: An increase in real wages resulting

in TFP increase.• 1989 – 1996: Two forces for TFC increase:

a-) Increases in real wages due to populism in elections.b-) Capital account liberalization

’94 crisis is a huge problem in this period. If we exclude the effects of this crisis we can see that TFC growth rate is 9,5% per annumbetween 1989 and 1993.

Productivity After 1980

• Post 1996 Period: With the CU membership TFP is increasing thanks to the more export oriented manufacturing sector. A huge increase in ’97 can be observed but crises in ’98 and ’99 offset the effect of CU. As we can see the CU didn’t effect TFP much but labor productivity increased a lot thanks to capital accumulation.As we can see TFP and labor productivity doesn’t show a high correlation. This can be given as a proof for the human capital insufficiencies.We haven’t analyzed the capital productivity in manufacuring sector because sector couldn’t internalize the technological progress very well and variability in incentives caused variations in capital flows.

Technological ProgressBefore 1990 technological progress is not very fast especially before 1985.Most remarkable technological progress could be observed between 1993 and 1995 for Turkish manufacturing sector. After the peak in 1995 technological progress slowed down and faced the bottom levels in 2000. After 2001 we again see increase in technology level.

Studies show that the TFP in Turkish manufacturing sector is mostly motivated by technological progress, not by labor or capital productivity.

Average Annual Growth Rate  

1980-1990 16.60%

1990-1995 67%

1995-2000 <0

2000-2002 40%

Hours worked in manufacturing (1997 =100)

020

406080

100120

Year

Labor productivity in manufacturing (1997 =100)

0

50

100

150

200

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

• As we can see labor productivity has increased very much between ’89 and ’06 but this productivity increase can be attributable to the unregistered employment in Turkey.

• Also labor productivty in Turkish Manufacturing sector is mostly related with capital accumulation.

Employment – Capital

• Capital / Labor ratios have increased by 84% since 1984. Especially in recent years this increase is much more remarkable due to foreign capital inflows since 2002. According to Yeldan (2006) the job opportunities created by capital inflows is almost negligible. So unemployment rate for Turkey couldn’t be decreased below 10%.

SERVICES

What are included in the services sector?

• Transportation • Tourism• Communication• Construction• Insurance• Finance• IT

• Patent and copyrights commissions

• Commerce • Technique services• Personal, cultural,

educational and public services

Growth Rates in the Services Sector

-10

-5

0

5

10

15

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

Growth Rate of Services in Recent

Years

-8

-6

-4

-2

0

2

4

6

8

10

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Growth Rate of Services

1996 7.8%

1997 6.9%

1998 3.1%

1999 -2.9%

2000 6.6%

2001 -6.2%

2002 7.3%

2003 6.4%

2004 8.3%

2005 6.5%

Share of Services in GDP in Recent

Years

0102030405060708090

100

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Share Of Services in GDP

1996 54.7%

1997 56.7%

1998 56.5%

1999 59.4%

2000 59.4%

2001 61.1%

2002 63.3%

2003 64.7%

2004 64.7%

2005 64.5%

Share of the Services in Employment

Source: www.dpt.gov.tr Source: www.hazine.gov.tr

• Note1: The rates are 15% and 19% in 1962 and 1967 respectively.• Note2: The red column of the chart on the left is construction excluded.

Years Share (%)

2000 40.1 - 46.5

2001 39.7 - 44.9

2002 42.1 - 46.6

2003 43.4 - 47.9

2004 43.0 - 47.7

2005 45.8 - 51.1

2006 47.3 - 53.0

Years Share (%)

1972-1974 25.6

1975-1979 28.8

1980-1984 32.3

1985-1989 35.6

1990-1994 37.6

1995-2000 39.7

Share of Services in Employment in Recent Years

0

10

20

30

40

50

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Years

Share of Services in

Employment

1996 34.3%

1997 35.1%

1998 35.9%

1999 35.8%

2000 40%

2001 39.7%

2002 42.1%

2003 43.4%

2004 43%

2005 45.8%

Growth of Employment in Services Sector

• Between 1972-2000 average growth of employment is 3.5 %.

• agriculture →services• Inability to create enough

employment after 1980s is partly responsible for the unemployment with the decline in agriculture

• After 2000 the rates are lower

Period Growth of Employment

1972-1974 4.23

1975-1979 4.93

1980-1984 3.03

1985-1989 3.41

1990-1994 2.58

1995-2000 3.28

• Employment generation and value added creation is particularly slow in services relative to manufacturing in Turkey which is in contrast to more rapidly developing countries such as Korea Republic and Ireland

Labor Productivity in the Services Sector

• The average rate between 1972-2000 is 1.1%

• Fluctuations are related to the structure of the sub-sectors : for example in the crisis periods financial sector is affected considerably.

Period Growth of LP

1972-1974 1.97

1975-1979 0.27

1980-1984 1.70

1985-1989 1.18

1990-1994 1.43

1995-2000 0.52

COMPARISON

GDP Shares by Sectors in Selected European Countries

• For Hungary we have employed 2004 figure

0%10%20%30%40%50%60%70%80%90%

100%G

erm

any

96 00 05D

enm

ark

96 00 05S

pain

96 00 05

Eng

land

96 00 05

Gre

ece

96 00 05H

unga

ry 9

6 00 04Ita

ly 9

6 00 05N

orw

ay 9

6 00 05P

olan

d 96 00 05

Tur

key

96 00 05

Services

Manufacturing

Agriculture

Employment Shares by Sectors in Selected European Countries

0%

20%

40%

60%

80%

100%

Germ

any 9

600

05

Denm

ark

96

00

05

Spain

96

00

05

Engla

nd 9

600

05

Gre

ece 9

600

05

Hungary

96

00

05

Italy

96

00

05

Norw

ay 9

600

05

Pola

nd 9

600

05

Turk

ey 9

600

05

Services

Manufacturing

Agriculture

• Job creation has been only moderate since 1980, despite relatively strong economic growth

Female Participation Rates in Selected European Countries

0

10

20

30

40

50

60

70

80

90

1001

99

6

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Year

Germany

Denmark

Spain

England

Greece

Italy

Norway

Poland

Turkey

Group Members

• Özge Sarıgül• Hüseyin Keyik• Emre Tokgöz• Adil Vatansever• Onur Yıldırmış• Recep Köşker• Ceyhun Varol • Erdem Emin Akçay

Thank you for your attention...