Some companies in France are making keen efforts not to employ one more person to increase the number of employees to 50.

According to a recent story in Bloomberg Businessweek, France has 2.4 times as many companies with 49 employees as with 50 employees. Some part of these makes keen efforts not to employ one more person to increase the number of employees to 50. Why? Evidently due to the structuring of a series of labor market regulations. According to the labor code, a company that has at least 50 employees has to create worker councils to which the company has to give an account of management issues. In France, the number 49 had a special meaning because of the labor code. Here is what I thought having read this story: Have you ever checked the distribution of Turkey’s companies by the number of employees? Let’s check it together and derive some lessons. The number of businesses in Turkey as of the end of 2011 was 1,436,000. The number of employees registered in the Social Security Institution database was 11,031,000. Brace yourselves: 98 percent of formal businesses employ fewer than 49 people. Sixty-five percent of the total labor force work in businesses that have fewer than 49 employees. Thus, the ratio is much higher in Turkey than in France. There are around 10,000 businesses in Turkey that employ more than 250 people and 16 percent of the labor force is employed by such businesses.

Let’s start with the common features of France and Turkey. According to the Global Competitiveness Report of the World Economic Forum, France and Turkey rank 113^th and 133^rd in terms of labor market flexibility. The Bloomberg Businessweek story is more evidence of the fact that Turkey’s labor market regulations are copied from those of France. So let me note this first. What is the feature that Turkey has taken from France? Here it goes: when the state decides to do something good for somebody, it designs the process so that it puts an extra burden on a company rather than designing an incentive to encourage the company to cooperate. It loves saying, “If you employ 50 people, you have to employ a disabled person,” instead of saying, “I will grant you a tax rebate if you employ a disabled person.” In the end, companies become attentive to not increasing the number of employees from 49 to 50. If the size of your workforce reaches the magical number, you have to deal with a series of additional obligations. God forbid! That is, the magical number 50 is not directly related to the managerial skills of companies. This is the second point.

So, are the labor markets of France and Turkey as alike as two peas in a pod? Not at all. France has a well-educated labor force while the quality of Turkey’s labor force goes through the floor. France ranks 18^th in terms of competitiveness while Turkey ranks 59^th. France has a better physical infrastructure and well-running courts. It ranks 28^th in basic education and 34^th in the quality of education while Turkey ranks 100^th and 94^th, respectively. The chief bottleneck for France is the rigidity of its labor market regulations whereas for Turkey the educational attainment of the labor force and the quality of education are far more critical challenges. I think that the labor force gains bargaining power as a protection against market conditions as it becomes better educated. Turkey’s uneducated labor force composed of sixth grade dropouts does not have the bargaining power to fend for itself. Then, is the solution to make labor markets more rigid? It is the skills quality of employees that will protect the labor force.

Finally, let me stress another point that stuck in my mind after checking the workforce of companies: If more than 60 percent of the labor force of Turkey is employed in businesses with 49 employees or fewer, many companies will face difficulty in shouldering the new burdens to be introduced by the Turkish Commercial Code. Many companies will be hurt. I’m just saying.

This commentary was published in Radikal daily on 25.05.2012