Skill-Gap, Middle-Income Trap and the External Actors, a Comparative Look at Labor Market Institutions in Turkey and Mexico

Skill gap is considered one of the major sources of the middle-income trap, as many middle-income countries are clustered at a fragile equilibrium of low-skills, low-productivity and low-value-added production. Yet, several countries, particularly those in the upper-middle income group, have recently begun to adopt new policies and institutions to facilitate skill-formation and development in their respective labor markets. In some cases, external actors are directly or indirectly involved in these initiatives undertaken to get rid of the middle-income trap. Process of accession to regional and supranational blocs have affected the ways in which such policies and institutions are adopted and implemented in practice. Yet, the empirics demonstrate the varying impact of different blocs on different markets.

Turkey and Mexico make interesting cases of comparison in this respect. Two similar markets situated on the fringes of major markets, namely Europe and the U.S., and highly dependent on those, with similar levels of income per capita nearly on the verge of passing the high-income threshold for a long time, these cases have suffered considerable skill-gaps. Recently, both have adopted certain measures to overcome the concerning gap with varying levels of success. Their accession to supranational and regional blocs has had a differential impact regarding labor market institutions in general, and skill-development in particular. Turkey became part of the Customs Union in 1995, and its membership negotiations with the European Union (EU) were launched in 2005; whereas the North American Free Trade Agreement came into effect in 1994. Undoubtedly, the EU´s transformative impact on domestic policy space, dubbed as Europeanization, has been much greater than that of NAFTA´s, as it entailed institutional changes in diverse policy areas. Even if Turkish membership process has stalled for a long time, the impact of the EU has been significant in diverse policy areas. This paper will only focus on the respective impact of the EU and NAFTA on the labor market and more specifically on the skill-formation and development, including vocational training. Examining the ways in which these two markets have gone through varying paths of institutional change regarding their skill systems, the paper will analyze the varying impact of the EU and NAFTA on Turkey and Mexico respectively. By doing that, it hopes to contribute to a research agenda which extends across regions.