Responding to the COVID-19 Labour Market Shock: A Comparison of Unemployment Protection Policies in Turkey and Germany

The economic shock caused by COVID-19 is a serious test for social protection systems around the world. Unemployment protection systems are particularly sensitive to ravaged labour markets. Many countries responded to the crisis in similar ways. Yet, stark differences remain among some cases. For instance, we find diverging approaches in unemployment protection responses in Turkey and Germany. Although these policies are still work in progress, their divergence is clear.

In Germany, the prospect of mass layoffs was bound to overwhelm the unemployment protection system. The government responded by expanding existing policies to ensure most people remain protected. It strengthened short-term work compensation, an instrument that is devised to prevent employers from firing employees during an economic crisis. Furthermore, it eased access to the minimum income protection system (ALG 2), which functions as unemployment protection for those who do not qualify for unemployment insurance (ALG 1). It remains to be seen what costs these expansions entail and how successful they will be (Sozialpolitik aktuell 2020).

In Turkey, the COVID crisis came on top of a protracted economic crisis that had already strained the country's social safety net. In contrast to Germany, Turkey's response appears to be creating new policies instead of building on existing ones. For instance, the government launched a National Solidarity Campaign to collect donations from citizens and companies, presumably, to support the poor (Birgün 2020). This new campaign was launched although the social assistance system already relies on donations for funding as we have shown (Öktem and Erdogan 2019). In the language of Mahoney and Thelen (2010), the campaign was, therefore, 'layered' on top of existing policies.

Recent policy changes are not limited to layering, however. Existing policies are effectively replaced, too. This can be observed in the case of unemployment insurance, which has been in existence in Turkey for two decades (Öktem 2020). Instead of using existing unemployment insurance instruments to cushion the effects of mass layoffs, the government aims to temporarily replace unemployment insurance with a new policy: temporarily prohibiting layoffs and allowing employers to put employees on unpaid leave. Employees on unpaid leave will receive a benefit from the Unemployment Insurance Fund (UIF) that amounts to one half of the minimum wage. This policy will likely supplant regular unemployment insurance, as there would be no new unemployed. Additionally, short-term work compensation, which already more than 3 million workers applied to (Aile, Çalisma ve Sosyal Hizmetler Bakanligi 2020), is likely to be weakened by the new unpaid leave benefit.

Why did the government create this new instrument? The state of public finances might illuminate this question. Although the UIF has huge financial reserves on paper, it has long been rumored that it lacks the ability to employ these funds during crises. Millions of new unemployment insurance beneficiaries might overwhelm the UIF financially. The government may also aim to lower the costs for employers. Both firing employees and shifting to short-term work entail additional costs for employers. In particular, firing senior employees means hefty severance payment. Unpaid leave avoids these costs. In any case, the fact that the state, through these policies, puts unemployment insurance on hold is significant. The overall response by the Turkish government shows that, when crisis hits, employees cannot count on unemployment insurance to protect them.

Unsurprisingly, the government's initiative has received widespread criticism (Celik 2020). The picture is complex, however, with regards to the distributional consequences. On the one side, regular employees, who would have been laid off, are worse off under the new policy. They receive fewer benefits than they would have received through unemployment benefits. In particular, for senior employees, unpaid leave replacement rates are extremely low. Employees, who would have been shifted to short-term work, are even worse off, as short-term work benefits are higher than unemployment benefits. On the other side, many junior and seasonal employees are, effectively, better off. They would have not qualified for severance or unemployment benefits anyway. Obviously, unpaid leave benefits are better than nothing. A third group of employees might be the biggest losers of the new policy: employees, who would not have become unemployed in the crisis. Being employed, they would have continued to receive their wage. Now, it is possible that they will have to rely on unpaid leave benefits.

The two countries thus responded differently to the economic crisis. Arguably, this divergence is not too surprising. In a way, the cases confirm Dani Rodrik's (2020) observation that the 'crisis seems to have thrown the dominant characteristics of each country's politics into sharper relief'. Germany's crisis response appears to be shaped by path dependence and institutional stability. Turkey's crisis response appears to be shaped by the creation of new policies that partly exist alongside existing ones and partly replace them.

 

FURTHER READING:

Aile, Çalisma ve Sosyal Hizmetler Bakanligi (2020). Bakan Selçuk: '3 Milyonu Askin Sigortalimiz için 270 Bine Yakin Firmamiz Kisa Çalisma Ödenegi'ne Basvurdu', accessed at: https://www.ailevecalisma.gov.tr/tr-tr/haberler/bakan-selcuk-3-milyonu-askin-sigortalimiz-icin-270-bine-yakin-firmamiz-kisa-calisma-odenegi-ne-basvurdu/

Birgün (2020). Erdogan'in yeni önlemi bagis kampanyasi, accessed at: https://www.birgun.net/haber/erdogan-in-yeni-onlemi-bagis-kampanyasi-293900

Celik, A. (2020) Covid-19'un çalisma hayatina etkileri: Ücretsiz izin degil, gerçek bir isten çikarma yasagi gerek, accessed at: https://www.birgun.net/haber/covid-19-un-calisma-hayatina-etkileri-ucretsiz-izin-degil-gercek-bir-isten-cikarma-yasagi-gerek-296167

Mahoney, J., & Thelen, K. (2009). A theory of gradual institutional change. In J. Mahoney, & K. Thelen (Eds.) Explaining institutional change: Ambiguity, agency, and power (pp. 1-37), Cambridge: Cambridge University Press.

Öktem, K.G. (2020) Explaining the Belated Introduction of Unemployment Insurance in Turkey: A Political History, How 'social' is Turkey? Working Paper III.

Öktem, K.G. and Erdogan, C. (2019). Between Welfare State and (State-organised) Charity: How Turkey's Social Assistance Regime Blends Two Competing Policy Paradigms, International Journal of Sociology and Social Policy, 40 (3/4), 205-219.

Rodrik, D. (2020). Will COVID-19 Remake the World? Project Syndicate, accessed at https://www.project-syndicate.org/commentary/will-covid19-remake-the-world-by-dani-rodrik-2020-04

Sozialpolitik aktuell (2020). Kurzfassung der sozialpolitischen Covid-19 Gesetze und Maßnahmen, accessed at: http://www.sozialpolitik-aktuell.de/tl_files/sozialpolitik-aktuell/_Politikfelder/Sozialstaat/Thema_Monat_04_2020.pdf