Why has there been no reform of severance pay in Turkey?
In the previous blog entries, we discussed the difficulties of social policy reform. We suggested that the case of severance pay in Turkey is a good example for this. First legislated in 1936, severance pay consists of a lump-sum payment by the employer to the employee in the event of a termination of contract. The policy was expanded in scope and generosity in the 1960s and 1970s and has become a functional equivalent to unemployment insurance in Turkey. Even though, in the post-1980 era, various governments declared an interest for reform, since 1983, no policy change has been made. In the following, we will explore reasons for this puzzling lack of reform in severance pay.
According to one of the leading theories of welfare state research - power resources theory - labour unions and centre-left political parties generally support the expansion of social policies, while business groups and centre-right political parties generally support retrenchment (Korpi 1983). In the case of severance pay in Turkey, the statements of political parties, labour unions and business groups largely confirm these expectations. Proposals to reform severance pay generally focus on creating a severance pay fund or on cutting benefits. Labour unions, such as the Türkiye Devrimci Isçi Sendikalari Konfederasyonu (Confederation of Progressive Trade Unions of Turkey, DISK), the Türkiye Isçi Sendikalari Konfederasyonu (Confederation of Turkish Trade Unions, TÜRK-IS) and the Hak Isçi Sendikalari Konfederasyonu (Confederation of Turkish Real Trade Unions, HAK-IS), generally strongly oppose such reforms. Business groups, such as the Türkiye Isveren Sendikalari Konfederasyonu (Turkish Federation of Employer Associations, TISK), the Türk Sanayicileri ve Is Insanlari Dernegi (Turkish Industry and Business Association, TÜSIAD), the Müstakil Sanayici ve Isadamlari Dernegi (Independent Industrialists and Businessmen Association, MÜSIAD) and the Türkiye Odalar ve Borsalar Birligi (Union of Chambers and Commodity Exchanges of Turkey, TOBB) have long demanded such reforms (Çelik 2015, MÜSIAD 1997, TÜSIAD 2009: 12, TISK 2016: 58). With regard to political parties, centre-right parties such as the Anavatan Partisi (Motherland Party, ANAP) or the Adalet ve Kalkinma Partisi (Justice and Development Party, AKP) started countless initiatives to reform severance pay while in power. Considering that for most of the last 35 years Turkey has been ruled by centre-right governments and considering that the balance of power between labour and business in most of these years has favoured the latter, one would strongly expect severance pay reform to have taken place.
While scholars of Northern welfare states generally emphasize domestic factors in explaining policy outcomes, scholars of social policy in the Global South emphasize the importance of the supra-national level. In particular, researchers stress the role of international financial institutions in countries like Turkey that have implemented structural adjustment programmes. It is true that under certain circumstances international financial institutions support particular forms of social policy, e.g. conditional cash transfers (Leisering 2019). Yet, in the case of severance pay, the World Bank and the International Monetary Fund (IMF) consistently support retrenchment of severance pay to increase labour market flexibility (World Bank 1995: 89-90, Blanchard et al. 2013: 24-25). Given that key policy suggestions of the World Bank and the IMF, such as privatization of state-owned enterprises, were implemented in Turkey, one would expect severance pay reform to have taken place.
Welfare state theories would thus expect severance pay reform in post-1980s Turkey. However, no reform has taken place. This case illustrates that welfare state reform can be complicated. While there does not appear to be a persuasive and concise explanation for the absence of severance pay reform in the literature, it is likely that part of the solution to this puzzle lies in what scholars call the 'new politics of the welfare state' (Pierson 1996).
Until the 1990s, welfare state research used to assume that 'a theory that seeks to explain welfare-state growth should also be able to understand its retrenchment or decline' (Esping-Andersen 1990: 33). Yet, since the 1990s scholars have increasingly emphasized that the (new) politics of welfare state retrenchment is different from the (old) politics of welfare state expansion. According to the 'new politics' hypothesis reform is difficult because of path dependence and because retrenchment is unpopular with voters (Pierson 1996). The absence of severance pay reform fits into this picture (Özkan 2016). Severance pay is quite popular among employees and labour unions. This means that reforms would be quite unpopular with voters. Successive governments might have shied away from forcing through policy changes for fear of electoral setbacks. Overall, it thus appears that the institutionalization of severance pay has created a context where change becomes difficult even if the domestic balance of power and external pressures would suggest that reform is likely.
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