The Impact of the Informal Employment on the Social Security Deficits in Turkey

Abstract

This study examines the impact of the formalization of the labor market on social security deficits in Turkey. After a brief discussion on the causes and consequences of the informality of the economy, the paper reveals the effect of possible developments in the labor market, --such as the reduction in informal employment, the decrease in contribution evasion, and the increase in youth employment and womens employment-- on the deficits, which has increased since the early 1990s. To assess the effect, we utilize a simple actuarial model to project the deficit through 2050 under different scenarios. The results point to the importance of increasing female labor force participation, preventing evasion of social security contributions, and show the effect of an ageing population.