Declining Labor Market Informality in Turkey: Unregistered Employment and Wage Underreporting

This paper examines the labor market informality in Turkey at two margins, unregistered employment and wage underreporting. We first document the stylized facts about the informal employment and its change over the 15 years from 2004 to 2018. While doing this, we examine the heterogeneity in the informality across regions, sectors, firm properties and worker characteristics. Second, we decompose the change in the informality rate into its components using the Oaxaca-Blinder methodology. We find that the workforce composition change in gender, age, education, occupation, and industries explains half of the decline in the informality rate from 2004 to 2018. Finally, we analyze the wage underreporting behavior in the Turkish labor market using both survey data and social security registry. We show that there has been a wide gap between the wages earned and the wages declared to the Social Security Institution among registered employees. However, this discrepancy declines significantly in recent years.