TÜSİAD-KOÇ UNIVERSITY ECONOMIC RESEARCH FORUM INTERNATIONAL CONFERENCE ON SUSTAINABLE GROWTH STRATEGIES FOR TURKEY

Istanbul, 17th June 2005

Going for Growth

Jean-Philippe Cotis

OECD Chief Economist 1

Turkey’s gap in the level of per capita GDP relative to the US is very wide

Trend indices, based on 2000 PPPs and 2000 prices 1 Index US GDP per capita = 100 80 40 30 20 70 60 50 Euro area Japan Mexico Turkey 10 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 1. The trend is calculated using a Hodrick-Prescott filter (smoothing parameter set to 100) over a period which includes projections through 2010.

Source: OECD

Annual National Accounts.

2000 2003 2

While not all countries are diverging, the income gap with the US remains significant 1

Gap in the average growth rate, per cent 5 IRE 4

Countries lagging behind but catching up to the US

3 2 1 0 -1

TUR

MEX POL SVK KOR HUN FIN CZE GRC PRT ESP NZL EU15 ITA DEU GBR AUS SWE BEL ISL NLD FRA JPN

Countries lagging behind and not catching up to the US

CAN AUT DNK CHE NOR -2 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 Gap in GDP per capita relative to the US, per cent 20

Note:

EU15, excluding Luxembourg.

1. The average growth rate in GDP per capita is calculated over the period 1994-2003 on the basis of volumes data from national accounts sources. The level of GDP per capita is for 2002 on the basis of 2000 PPPs.

Source:

OECD

National Accounts of OECD Countries

, 2004 and OECD

Economic Outlook

, No. 76.

3

What’s been driving the gap in per capita incomes?

Percentage gap with respect to US GDP per capita Effect of labour resource utilisation 1 Effect of labour productivity 2

United Kingdom Belgium Finland Japan Italy European Union 3 Germany New Zealand Spain Korea Portugal Greece Czech Republic Hungary Slovak Republic Poland Mexico Turkey Norway Ireland Switzerland Canada Austria Denmark Iceland Australia Sweden Netherlands France -80 -40 0 40 -80 -40 0 40 -80 -40 0 1. Labour resource utilisation is measured as total number of hours worked divided by population. 2. Labour productivity is measured as GDP per hour worked.

3. Excluding Luxembourg,

Source:

OECD

National Accounts of OECD Countries

, 2004; OECD

Labour Force Statistics

, 2004 and OECD

Economic Outlook

, No. 76.

40 Norway Ireland Switzerland Canada Austria Denmark Iceland Australia Sweden Netherlands France United Kingdom Belgium Finland Japan Italy European Union Germany New Zealand Spain Korea Portugal Greece Czech Republic Hungary Slovak Republic Poland Mexico Turkey 4

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Product market regulation restrictiveness is converging towards a more liberal stance in all OECD countries...

State control Barriers to entrepreneurship Barriers to trade and investment OECD average 2003 OECD average 1998 Source: OECD Indicators of Product Market Regulation (www.oecd.org/eco/pmr) 5

...but no progress has been made in reforming employment protection legislation

Restrictiveness of protection legislation on regular employment 1

Index scale of 0-6 from least to most restrictive

6 2003 OECD average 5 PRT 4 3 2 GBR NZL DNK CAN HUN BEL IRL ITA AUS FRA GRC POL MEX NOR SWE DEU JPN KOR EU15 FIN

TUR

CHE ESP NLD CZE AUT SVK OECD average 1 0 0 USA 1 2 3 4 5 1998 6 1. EU15, excluding Luxembourg.

Source:

OECD

Employment Outlook

, 2004 6

There is a wide dispersion in older worker employment rates…

Employment of men and women age 55-64 as a percentage of the population age 55-64, 2002 % of population age 55-64 100 90 80 70 60 50 40 30 20 10 0 Ic el an d No rwa y Swe de n Switze rlan Ne w d Ze alan d Ja Un pa ite n d St ates Ko re a De Un nm ite d ark Kin gd om M ex ic o Po rtu ga l Ca na da Au stra lia Ire lan d Fin lan Ne d th erlan Cz ec h ds Re pu bli c Sp ai n Fra nc e Gre ec e Ge rm an y Tu rk ey Italy Po lan Lu xe d m bo urg Be lg iu m Hu Slo ng va ary k Re pu bli c Source: OECD.

7

…which is largely explained by disincentives in old age pension systems…

Implicit tax rates on continued work over next 5 years in current old-age pension systems 1

In per cent 100 90 80 70 60 50 40 30 20 10 0 N ew Zea lan d Ice lan d A ustria U ni ted U Sta ni tes ted K in gd om Po rtu ga l Ir el an d Ca nad a G er m an y

At age 60

Ital y N or w ay Sw itze rlan d A ustral ia O ECD Fi nl an d Sp ai n Sw ed en Jap an K or ea Be lg iu m Fr an ce Lu xemb ou N rg et her lan ds 1. Single worker with average earnings.

Source

: OECD.

8

...and in social transfer programmes

Implicit tax rates on continued work over next 5 years in current social transfer programmes 1

In per cent

At age 55

100 90 80 70 60 50 40 30 20 10 0 N ew Zea lan d Ital y K or ea U ni ted Sta tes Ice lan d Jap an Ca nad a Sw ed en N or w ay A ustral ia Sw itze U ni rlan ted d K in gd om O ECD Ir el an d G er m an y Fr an ce Fi nl an d A ustria Be lg iu m Sp ai n Po rtu ga N et l her lan Lu ds xemb ou rg 1. Single worker with average earnings.

Source

: OECD.

9

Labour force participation rates of population aged 55-64 and the implicit tax on continued work 1

Percentage points gap vis-à-vis OECD average

Gap in participation rates 40 ISL 30 20 10 0 -10 NZL USA CAN AUS SWE CHE JPN NOR KOR GBR IRL DEU FIN ESP PRT FRA -20 ITA AUT BEL -30 -40 -30 -20 -10 0 10 20 30 LUX 40 Gap in implicit tax 50 1. Average of implicit tax on continued work in early retirement route, for 55 and 60 years old.

Source:

OECD

Labour Force Statistics

, 2004; OECD

Economic Policy Reforms: Going for Growth

2005.

10

Suppressing various policy distortions would have a large positive impact on the labour force participation of older workers

(projected labour force participation rates of the 55-64 age group in 2025 under different scenarios) 60 55 50 45 40 35 30 90 85 80 75 70 65 Projection assuming a total suppression of current policy distorsions Baseline projection taking into account the potential impact of recent reforms Au stria Be lg iu Lu m xe m bo urg Fra nc e Au stra lia Ko re a Ne th erlan ds Fin lan d Italy Ge rm an y Ca Un na ite da Ire lan d Ja pa n No rwa y Ic el an d

Source

: OECD.

11

Unregistered employment is widespread in Turkey

Per cent of total employment, 2003 100 90 80 70 60 50 40 30 20 10 0 Ag ricu ltu re M in in g M an ufa ct urin g Util iti es Source: OECD

Economic Survey of Turkey

2004.

Co nstru cti on Trad e National average Tran sp ort Fin an ce 12

There is considerable scope to improve educational attainment in Turkey

Percentage of population aged 25-34 and 45-54

A. Upper-secondary education

100 90 80 25-34 45-54 70 60 50 40 30 20 10 0 Kor ea Nor wa y Japa Cz ec n h r epubli Slovak c Re publi c Swe de n Ca na da Finl and Switze rland United State s De nmar k Ge rmany Aus Ne tria w Ze aland Hunga ry Fr anc e Be lgium Irel and Ne ther lands EU15 ave rage Aus tra lia Gr ee ce Kingdom I ce land Luxe mbour g United Italy Spa in PolandPor tuga l TUR KE Y M exico

B. Tertiary education

100 90 80 70 25-34 45-54 60 50 40 30 20 10 0 Ca na da Japa n Kor ea Nor wa y United State s Finl and Swe de n Be lgium Spa in Ire land Fr anc e Aus tra lia United KingdomDe nmar Ne w k Ze aland Iceland EU15 ave rage Ne ther lands Switze rland Gre ec e Luxe mbour g Ge rmany PolandPor tuga l Hunga ry Aus tria Italy Cz ec h r epubli Slovak c Re publi c M exico TUR KE Y

Source:

OECD

Education at a Glance

, 2004.

13