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Labor Productivity: Large vs Small, Turkey vs EU

Authors:

Abstract

The paper examines the labor productivity gap between firms in Turkey and the European Union (EU) by comparing labor productivities of firms of different sizes. The gap between the labor productivity among large firms in Turkey and the average labor productivity of large firms in the new member states of the EU (called EU10) is quite small. By contrast, the labor productivity of the smallest group of firms in Turkey (those employing less than 20 employees) are less than one half as productive as the average productivity of the same size group in EU10. In addition, the share in employment of this group of firms in Turkey is higher than the average share in EU10.
No.2014
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Labor Productivity: Large vs
Labor Productivity: Large vsLabor Productivity: Large vs
Labor Productivity: Large vs.
..
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Small, Turkey vs. EU
Small, Turkey vs. EU Small, Turkey vs. EU
Small, Turkey vs. EU
Ahmed Ezz Eldin Mohamed
Ahmed Ezz Eldin MohamedAhmed Ezz Eldin Mohamed
Ahmed Ezz Eldin Mohamed,
,,
,
Sabanci University
Sabanci UniversitySabanci University
Sabanci University
1
11
1
December 2014
December 2014December 2014
December 2014
Özet:
Özet: Özet:
Özet:
Bu çalışma Türkiye ile Avrupa birliği arasındaki işgü verimliliği farkını
araştırmakta, bunun için farklı büyüklük grubundaki girişimlerin işgücü verimliliğini
karşılaştırmaktadır. Türkiye’de büyük girişimlerin işgücü verimliliği ile yeni AB üyesi
olmuş ülkelerdeki (EU10) büyük girişimlerin işgücü verimliliği ortalaması arasındaki
fark oldukça küçüktür. Buna karşılık Türkiye’deki en küçük işletme grubunun (20’den az
çalışanı olan) işgücü verimliliği EU10 ülkelerindeki aynı grubun ortalama verimliliğinin
yarısından daha düşüktür. Ayrıca, bu grup girişimlerin toplam istihdam içindeki payı,
EU10 ortalamasının üzerindedir.
Abstract:
Abstract:Abstract:
Abstract:
The paper examines the labor productivity gap between firms in Turkey and the
European Union (EU) by comparing labor productivities of firms of different sizes. The
gap between the labor productivity among large firms in Turkey and the average labor
productivity of large firms in the new member states of the EU (called EU10) is quite
small. By contrast, the labor productivity of the smallest group of firms in Turkey (those
employing less than 20 employees) are less than one half as productive as the average
productivity of the same size group in EU10. In addition, the share in employment of
this group of firms in Turkey is higher than the average share in EU10.
1
Ahmed Ezz Eldin Mohamed was a student at Sabanci University’s Master in Public Policy Program
when he wrote this note.
1
I.
I.I.
I. Introduction
IntroductionIntroduction
Introduction
It has recently been pointed out that productivity gap between small and large firms
is high in Turkey relative to OECD countries.
2
It is also well known that Turkish labor
productivity lags behind many European countries. The question is:
How large is this
gap and what is the contribution to this gap of firms of different size classes?
This study
aims at placing Turkey in comparison to other European countries in terms of
distribution of employment, total value added of labor, and labor productivity of
different size classes of enterprises for the non-financial business sector in 2011.
II.
II.II.
II. Data and Methodology
Data and MethodologyData and Methodology
Data and Methodology
Data for European countries and Turkey are obtained from the Structural Business
Statistics of Eurostat and the Annual Industry and Service Statistics of the Turkish
Statistical Institute (TUIK) databases, respectively. They cover the number of persons
employed in the non-financial business economy by the size class of employment and
the total value added of the non-financial business economy by size class of employment
for the year 2011. Some adjustments are made in order to ensure that the data from
both sources are compatible. First, the definition of non-financial business economy by
the European Commission Database is employed for all data which refers to “economic
activities covered by sections B to J and L to N including S95 according to the NACE-
Rev.2 and the enterprises or its legal units that carry out those activities.” This required
the subtraction of categories P,Q,R, and S and adding S95 to the total values for Turkish
data. Second, the size class of employment is divided into four categories according to
the number of persons employed; (1-19), (20-49), (50-249), and (250+). This involved
adding relevant entries for employment of (0-9) and (10-19) for European data, and
(50-99) & (100-249) and all sizes above (250) for Turkish data. Third, the value added
statistics for Turkish economy are reported in Turkish Liras. We convert them to million
Euros by dividing by 1,000,000 and then convert them to Euros. The bilateral average
annual exchange rate for the year 2011 is specified by the European Central Bank to be
2.3378 TL/Euro. Fourth, some data are missing for some countries due to the
2
See OECD (2014) and the comment by Sak (2014).
2
unavailability of statistics for one or more category or confidentiality, as stated by
EuroStat, and so they are deleted from the countries’ list. These countries are Denmark,
Germany, Ireland, Greece, France, Cyprus, Malta, Netherlands, Switzerland, and Romania.
Apart from these adjustments, data from both sets follow the same definitions and
categorizations. We also define two sets of European countries: EU 20 and EU 10. The
first includes Belgium, Bulgaria, Czech Republic, Estonia, Spain, Croatia, Italy, Latvia,
Lithuania, Luxembourg, Hungary, Austria, Poland, Portugal, Slovenia, Slovakia, Finland,
Sweden, United Kingdom, and Norway. The EU10 are the recent-accession countries
which includes Bulgaria, Czech Republic, Estonia, Croatia, Latvia, Lithuania, Slovakia,
Slovenia, Hungary and Poland. The idea behind creating the group of EU10 is that this
group consists of mainly transition economies or countries that are closer to Turkey in
terms of per capita income and may act as a more relevant set of comparator countries.
The paper starts by comparatively looking at the distribution of employment and
value added of each size class of enterprises for the studied countries. Then, we contrast
Turkish labor productivity with other countries and European averages.
III.
III.III.
III. Findings
FindingsFindings
Findings
III.
III. III.
III. 1.
1.1.
1.
Distribution of
Distribution of Distribution of
Distribution of
Employment
EmploymentEmployment
Employment
across size groups
across size groupsacross size groups
across size groups
Figures 1 and 2 compare the percentage distribution of employment by size groups
of the enterprises. Figure 1 shows that the employment share of smallest firms in
Turkey is higher than the average of both EU20 and EU10; the difference is about 5
percentage points. At the same time, however, Figure 2 shows that there is substantial
variability in the employment share of the smallest group of firms across countries, from
about 57 percent in Italy, to only 25 percent in the UK. Note that while the employment
share of the smallest group of firms in Turkey is relatively high at about 47 percent, that
share is higher in Italy, Portugal and Spain.
3
III.
III. III.
III. 2
22
2.
. .
. Labor
LaborLabor
Labor
Productivity
ProductivityProductivity
Productivity
across size groups
across size groupsacross size groups
across size groups
Labor productivity is calculated by dividing the value added for each category per
country by the number of persons employed within the category. We start the analysis
with Figure 3 which shows that average labor productivity in Turkey (about 13.5
thousand Euros in 2011) is about one third of EU20 (43 thousand Euros) and 67 percent
of EU10.
Figure 4 displays labor productivity by size classes for all the countries included in
this note. Again, the large degree of variability of labor productivity across countries
and size classes is visible. Among the studied countries, Norway has the highest
0
10
20
30
40
50
EU 20 EU 10 Turkey
Percentage of Persons Employed
Figure 1: Distribution of Employment:Turkey versus EU
250+
50-249
20
-
49
1
-
19
0
10
20
30
40
50
60
70
Italy
Portugal
Spain
Turkey
Slovakia
Hungary
Poland
Belgium
Slovenia
Bulgaria
Estonia
Czech Republic
Croatia
Latvia
Norway
Austria
Lithuania
Sweden
Finland
Luxembourg
United Kingdom
Percentages of Persons Employed
Figure 2: Distribution of employment: Country-level data
1-19
20
-
49
50
-
249
250+
4
productivity of labor which is skewed towards its small enterprises. Similarly,
Luxembourg’s labor productivity is skewed towards small enterprises. For the rest of
the countries, including Turkey, the largest group of enterprises has the highest level of
labor productivity.
Figure 5 provides additional insight about where the productivity gap between
Turkey on the one hand and EU10 or EU20 on the other, is originating from. Comparison
with EU10 is especially telling. While the gap in the productivity of large enterprises
between EU 10 and Turkey is relatively small (about 28 thousand Euros vs 26 thousand
Euros, respectively) the productivity gap between small enterprises is much larger
0
5
10
15
20
25
30
35
40
45
EU 20 EU 10 Turkey
Thousand Euros
Figure 3: Average Labor Productivity
0
20
40
60
80
100
120
140
160
180
200
Norway
Luxembourg
Sweden
United Kingdom
Finland
Belgium
Austria
Italy
Spain
Slovenia
Estonia
Slovakia
Czech Republic
Portugal
Croatia
Hungary
Poland
Latvia
Lithuania
Bulgaria
Turkey
Labor Productivity (Thousand
Euros)
Figure 4: Labor Productivity by size groups
250+
50-249
20-49
1
-
19
5
(about 6 thousand Euros in Turkey vs. 13 thousand in EU10). Figure 6 provides a
different perspective on the same finding. The Figure displays relative labor
productivity, which is calculated by dividing the productivity of each size category of
enterprises with the productivity of small enterprises It shows that while in Turkey the
ratio of average labor productivity of large firms to that of small firms is about 4.5, it
only 2 in EU10, and less than 1.5 in EU20.
Given that in Turkey small firms have a relatively large share in total employment,
one can conclude that the gap in overall productivity of Turkey and EU10 is primarily
explained by the extremely low productivity of small firms.
0
10
20
30
40
50
60
EU 20 Average EU 10 Average Turkey
Labor Productivity (Thousand
Euros)
Figure 5: Labor Productivity of Turkey versus the EU
250+
50-249
20-49
1
-
19
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
EU 20 Average
EU 10 Average
Turkey
Labor Productivity Relative to
Small Enterprises
FIgure 6: Relative Labor Productivity
250+
50
-
249
20
-
49
6
III.
III. III.
III. 3
33
3.
..
.
The situation in manufacturing
The situation in manufacturingThe situation in manufacturing
The situation in manufacturing
It will be interesting to point out that the interaction between size and productivity is
even more interesting in the manufacturing industry. Figure 7 shows average labor
productivity in manufacturing industry in EU19 (same as EU20 minus Luxemburg for
which data was not available), EU10 and Turkey. Average labor productivity (17.5
thousand Euros) in Turkey a bit lower than that in EU10 (21 thousand Euros) and about
40 percent of EU19. Figure 8 provides labor productivity by size classes, again in
manufacturing. The figure shows that the largest groups of firms are actually on average
more
productive in Turkey relative to EU10. Labor productivity in all other size classes
is lower in Turkey, but the gap is especially large for the smallest group of firms (5
thousand Euros in Turkey, 11 thousand Euros in EU10 and 26 thousand Euros in EU19).
A closer look at the data reveals that In Turkey, the productivity of 250+ firms is 6.2
times as productive as small firms, whereas this ratio is only 2.3 for EU19 and 2.5 for
EU10.
0
5
10
15
20
25
30
35
40
45
50
Turkey
Figure 7. Labor productivity in manufacturing
Figure 9
displays the di
classes, but now for manufacturing only. T
(29 percent) is much higher in Turkish manufacturing than in EU10 or EU19 (about 20
percent in both)
with a differ
share of large firms is lower.
of the smallest class of firms of Turkey and those of EU10 or EU19 is large in
manufacturing compared to the whole
above. In any case,
what is true for the whole of business sector seems to be especially
true for the Turkish manufacturing industry: productivity gap between Turkey and EU
countries is primarily explained by th
Turkey, and plus, in manufacturing, it seems that this group of firms carr
weight in employment in Turkey relative to European countries.
3
Again, the employment share of the small group of firms varies significantly across countries in
manufacturing as well, and Italy, Spain, and Portugal have la
0
10
20
30
40
50
60
EU 19
Labor Productivity (Thousand Euros)
Figure 8: Labor Productivity by size in manufacturing
7
displays the di
stribution of employment among firms of different size
classes, but now for manufacturing only. T
he employment share of small firms in Turkey
(29 percent) is much higher in Turkish manufacturing than in EU10 or EU19 (about 20
with a differ
ence of about 9 percentage points
, and the employment
share of large firms is lower.
Notice that the difference between the employment shares
of the smallest class of firms of Turkey and those of EU10 or EU19 is large in
manufacturing compared to the whole
of non-
financial business economy discussed
what is true for the whole of business sector seems to be especially
true for the Turkish manufacturing industry: productivity gap between Turkey and EU
countries is primarily explained by th
e relatively very low product
ivity of small firms in
Turkey, and plus, in manufacturing, it seems that this group of firms carr
weight in employment in Turkey relative to European countries.
3
Again, the employment share of the small group of firms varies significantly across countries in
manufacturing as well, and Italy, Spain, and Portugal have la
rger shares compared to Turkey.
EU 10 Turkey
Figure 8: Labor Productivity by size in manufacturing
stribution of employment among firms of different size
he employment share of small firms in Turkey
(29 percent) is much higher in Turkish manufacturing than in EU10 or EU19 (about 20
, and the employment
Notice that the difference between the employment shares
of the smallest class of firms of Turkey and those of EU10 or EU19 is large in
financial business economy discussed
what is true for the whole of business sector seems to be especially
true for the Turkish manufacturing industry: productivity gap between Turkey and EU
ivity of small firms in
ies a larger
Again, the employment share of the small group of firms varies significantly across countries in
rger shares compared to Turkey.
0-19
20-49
50
-
249
250+
IV.
IV.IV.
IV. Conclusion
ConclusionConclusion
Conclusion
The analysis presented i
observers
4
, namely t
hat Turkey seems to
group of large, highly efficient modern firms a large number more traditional, low
productivity small firms.
At the same ti
me, one should be aware of the limitations of the evidence presented in
this note. In particular, labor productivity is not the best indicator of productivity.
Estimates of labor productivity do not control for capital, and more capital intensive
sectors
naturally have higher labor productivity. Hence, differences in aggregate labor
productivity could simply reflect different sectoral compositions. Total factor
productivity would be a better
data for
capital stock. Still, the data presented above does strongly suggest that a closer
look at
employment and
insights on why aggregate productivity in Turkey is lower than compa
4
See, for example,
especially McKinsey (2003) and the OECD (
productivity gap between small and large firms is greater in Turkey compared to a sample of OECD
countries.
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
EU 19
Percentage of Persons Employed
Figure 9: Distribution of employment by size groups in
8
The analysis presented i
n this note seems to confirm a point
made by various
hat Turkey seems to
contain a dualistic business
group of large, highly efficient modern firms a large number more traditional, low
me, one should be aware of the limitations of the evidence presented in
this note. In particular, labor productivity is not the best indicator of productivity.
Estimates of labor productivity do not control for capital, and more capital intensive
naturally have higher labor productivity. Hence, differences in aggregate labor
productivity could simply reflect different sectoral compositions. Total factor
productivity would be a better
measure; however the data sets used here do not contain
capital stock. Still, the data presented above does strongly suggest that a closer
employment and
productivity dynamics at smaller firms may provide useful
insights on why aggregate productivity in Turkey is lower than compa
ra
especially McKinsey (2003) and the OECD (
2014). The latter also points out that the
productivity gap between small and large firms is greater in Turkey compared to a sample of OECD
EU 19
EU 10 Turkey
Figure 9: Distribution of employment by size groups in
manufacturing
made by various
contain a dualistic business
structure with a
group of large, highly efficient modern firms a large number more traditional, low
me, one should be aware of the limitations of the evidence presented in
this note. In particular, labor productivity is not the best indicator of productivity.
Estimates of labor productivity do not control for capital, and more capital intensive
naturally have higher labor productivity. Hence, differences in aggregate labor
productivity could simply reflect different sectoral compositions. Total factor
measure; however the data sets used here do not contain
capital stock. Still, the data presented above does strongly suggest that a closer
productivity dynamics at smaller firms may provide useful
ra
tor countries.
2014). The latter also points out that the
productivity gap between small and large firms is greater in Turkey compared to a sample of OECD
0-19
20
-
49
50
-
249
250+
9
References
ReferencesReferences
References
McKinsey (2003). Turkey: Making the Productivity and Growth Breakthrough,
http://www.mckinsey.com/insights/europe/turkey_making_the_productivity_and_gro
wth_breakthrough
OECD (2014). OECD Economic Surveys-Turkey 2014, Paris: OECD.
Sak, G. (2014) “Türkiye’nin büyük işletmeleri dünyadan, KOBİ’leri bir başka
gezegenden” http://www.tepav.org.tr/tr/blog/s/4991
ResearchGate has not been able to resolve any citations for this publication.
Türkiye'nin büyük işletmeleri dünyadan, KOBİ'leri bir başka gezegenden
  • G Sak
Sak, G. (2014) "Türkiye'nin büyük işletmeleri dünyadan, KOBİ'leri bir başka gezegenden" http://www.tepav.org.tr/tr/blog/s/4991