New Technology, Work and Employment 14:2ISSN 0268-1072

New technologies andemployment: industry andfirm level evidence from

Turkey

Hacer K. Ansal and DilekCetindamar Karaomerlioglu

Here the authors investigate the impact of new technology onemployment at country, industry and firm level using evidencefrom a study of the Turkish chemical and engineering indus-tries. They conclude by attempting to outline policy consider-ations related to the long term negative impact of technologyon employment in developing countries.

The 1980s and 1990s have been marked in most OECD countries by the steady spreadof new technologies (NT) and, slower economic growth together with persistent andrising unemployment rates, which reached their highest levels since the 1930s(OECD, 1993). The severity of the unemployment problem and the labour-savingnature of technological changes that generate improvements in labour productivity,led many economists to study the causal links between technical change, growth,and employment in developed economies.

Although the most mainstream economists reject technical progress as a possiblecause of unemployment, international agencies, in the early 1980s, started to expresstheir concern at the likely unemployment deepening effect of NT on Third Worldcountries which had been largely passive recipients of these technologies. On theother hand, some initial studies (Jacobsson, 1985; Fransman, 1984) have illustratedhow adoption of NT by East Asian producers of machine tools helped them toexpand their market shares in the world markets and hence their employment levelin these industries. The study of direct impact of adopting new technology (NT) onemployment in the Third World, overall, has so far received very little attention fromresearchers. Although the diffusion has not yet been very extensive, the problem oftechnological unemployment particularly is of concern for developing countries like

❒ Hacer K Ansal is Professor of Economics at Instanbul Technical University. Dilek CetindamarKaraomerlioglu is a Visiting Scholar in the Department of Economics at Case Western Reserve Uni-versity, Cleveland, USA.

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Turkey which try very hard to restructure their industrial sectors in order to gaininternational competitiveness.

The main purpose of this article is to understand the impact of adopting techno-logical changes on employment in developing countries, with a belief that a betterunderstanding of this impact is very important for building sound policies to tacklethe unemployment problem. For this purpose, the article will intermesh macro-leveland industry-level data with firm-level empirical investigations in two industrial sec-tors, namely the Turkish engineering and chemical industries. These two sectors werechosen not only because they are known to have adopted new technologies in thelate 1980s, but also because they have together accounted for more than 40 per centof the total investments made in the manufacturing industry in the 1980s, reaching52.1 per cent in 1992. Moreover, as the engineering and chemical industries exemplifybatch and continuous production, respectively, we explore how different types ofNT, in other words the technologies applied in batch and continuous production,affect employment on two distinct production forms. Engineering industry has anadditional importance in terms of the purpose of this study, for being both a tech-nology producer and technology user sector.

It should be noted that we will use the concept of new technologies to refer totwo types of change taking place in production: the application of microelectronicbased equipment; and new organisational techniques (such as just-in-time and totalquality management) that have generally been more successful by utilising this newequipment. This article will mainly focus upon quantitative employment conse-quences of NT. Hence, the changes taking place in the qualitative aspect of employ-ment, such as change in skill requirements, will be kept outside the framework ofthis article.

After discussing the main stream economists’ treatment of the relationship betweenNT and unemployment, we will explore the employment trends in the Turkish econ-omy and manufacturing industry in the following section. Then, after discussing thechanges taking place in the engineering industry, we will show the diffusion of NT,output, and employment growth in the Turkish engineering industry. Next, at thefirm level, we will analyse nine engineering firms in detail to assess the direct impactof NT adoptions on employment. Lastly, we will carry out the same analysis for theTurkish chemical industry and seven chemical firms. In the last section, we will drawconclusions and outline some policy considerations related to the impact of NT onemployment in developing countries.

Theoretical discussions on technology and employmentAccording to neo-classical theory, the prices of labour and capital will ensure a bal-ance of supply and demand for both factors in the long run. As long as employershave flexibility to change levels of wages and fringe benefits and hence, have freedomto hire and fire labour, the equilibrium in the labour market occurs by itself. Sufficientnew jobs are generated, there is no need for an extra mechanism to create employ-ment.

Technological progress, on the other hand, is treated as an exogenous variable. Itis not taken into consideration as a possible cause of unemployment for whichendogenous determinants can only be responsible. Even in the case where labour-saving technical change is introduced into the analysis, technological unemploymentis considered to be a temporary and irregular problem. Because, neo-classical econ-omists argue that unemployment following the introduction of new labour-savingtechnologies is compensated by other mechanisms to reabsorb dismissed workers.These market compensation forces work as follows (OECD, 1996; Vivarelli, 1995):

1. Although process-technical changes imply the opportunity to produce the sameoutput with fewer workers and are therefore potentially dangerous for employ-ment in user industry sectors, they create new jobs in the capital goods sectorwhere new machines are produced;

New technologies in Turkey 83 Blackwell Publishers Ltd. 1999.

2. Displaced workers entails a decrease in total cost and hence a decrease in pricesthat will create an increase in demand and finally an increase in production andemployment in that sector;

3. Following a decrease in prices and increase in demand, extra profits are accumu-lated. These profits are invested in new productions to create new jobs both inthe capital goods sector and other consumer sectors;

4. Technical change can assume the form of creation and production of new pro-ducts. Hence, new industries emerge and totally new jobs are generated;

5. The decrease in wages induces a reverse towards labour-intensive techniques toreabsorb the dismissed workers.

As a whole, neo-classical theory concludes that technology, in the long run, doesnot have adverse effects on employment. Although recent neo-classical studies havedeveloped some parametric conditions for the success of compensation, the mainframework of the above mentioned mechanisms has been sustained (Vivarelli, 1990).

Keynesian economists believe, on the other hand, that general equilibrium in theeconomy may not necessarily be a full employment equilibrium. Although they gen-erally accept the reality and effectiveness of the compensation mechanisms, theydeny both interest and wages as the self-regulating equilibrium function that areassumed by the neo-classical approach. They also emphasise the lack of effectivedemand to sustain full employment unless some monetary and fiscal policies areadopted systematically.

Hence, the compensation mechanisms that are claimed to operate both at the microand macro level are still very much alive in the economic theory. The question ofhow much these mechanisms actually work in developing country conditions, needsto be empirically evaluated in examining the impact of NT on employment, as thisarticle aims to do.

The neo-classical approach, moreover, does not take into account local conditions,institutions, and social factors in analysing the impact of NT on employment. As themarket is a social institution, new technologies may increase or decrease employmentdepending on the particularities of the country in which they are adopted. The appli-cation of technology, on the other hand, is a dynamic process, and its impact onemployment is the product of a complex array of factors such as the macro-economicconditions of the country (eg. its growth and the distribution of sectors), the indus-trial structure (eg. the size of sector and its technological investments), and the firmstructure (eg. its level of technological diffusion).

Therefore, the relation between technical change and employment should be dis-cussed at different levels -the machine level, the firm level, the national and to someextent, the international level (Edquist and Jacobsson, 1988), because analysing therelationship only at one level has numerous drawbacks and obscures the complexityof the issue (Kaplinsky, 1987).

So, in order to evaluate the degree of compensation generated within the specificsectors, which are affected by the technical change, we will examine the impact oftechnology on employment in a broader framework by incorporating the develop-ments at the country, industry, and firm level. First, we will explore the Turkisheconomy in relation to output growth and technological investments. Second, wewill analyse the diffusion of NT and its impact on the engineering and the chemicalindustries at the macro level. Third, we will analyse the impact of NT on individualfirms at the micro level.

Employment growth in the Turkish economyImport substituting industrialisation dominated the trade and industrialisation poli-cies in Turkey in the pre-1980 period. Then, an export-oriented industrialisation pol-icy was announced in 1980 accompanied with an austerity programme. One of theaims of this strategy was to change the system of incentives toward exports throughdecisive moves in the direction of trade liberalisation. The difficulties in importing

84 New Technology, Work and Employment Blackwell Publishers Ltd. 1999.

Figure 1: Annual average employment growth in Turkish sectors 1965–95Source: Statistical Indicators (1923–95) and Economic and Social Indicators (1950–92), s.92, State

Institute of Statistics (SIS)

raw materials and other inputs to the manufacturing process were greatly alleviatedby the new liberal policies. The austerity programme resulted in lower inflation ratesand a slow resumption of economic growth.

Following the austerity programme real wages were sharply depressed during theperiod of 1980–88. The index of real wages in the Turkish manufacturing industrydeclined from 100.0 in 1980 to 74.4 in 1988 (Yeldan, 1994). The annual averageemployment growth rate, however, was only 3.2 per cent for the manufacturingindustry in the period of 1981–88. The failure to generate rapid employment growthdespite significant reductions of wages was partly attributed to weak investmentperformance in this sector. To a lesser extent, it was also attributed to the emphasisof export incentives on sectors with relatively high capital intensity (Senses, 1990).The reasons why the reduction in the real wages has not initiated a process ofincreased labour intensity may be related to two main factors, namely, the non-avail-ability of an international stock of labour-intensive technologies and the difficultiesto attain international competitiveness on the basis of these technologies and lowwages (Senses, 1996).

Exports have shown a remarkable improvement from 2,910 million US $ in 1980to 12,959 million US $ in 1990 that helped to overcome the foreign currency shortage.Export increases were generally accepted to be associated with significant contractionof internal demand in the 1980–88 period, exchange rate policies (continued till 1989),and excessive export subsidies (Boratav, 1990). The growth of exports does not seemto be related to the investments made to the production capacities but to theincreased capacity utilisation rates. According to the Istanbul Chamber of Industry,the rate of utilisation of productive capacities reached 90 per cent by the end of 1988.Investments does not show a significant increase until 1988. Hence, the export successof the 1980s did not result from a successful transformation of industrial production.

An industrial transformation seemed to have started in the late 1980s with theadoption of NT. Factors such as tax rebate rates that were gradually lowered afterthe mid-1980s and finally abolished in 1989 significantly overvalued the Turkish Lira(TL). The sharp increase in real wages constrained manufacturers in maintaining orachieving competitiveness in world markets and forced them to invest in newtechnology.

The real wage index in the Turkish manufacturing industry increased from 74.4in 1988 to 93.2 in 1989, 110.4 in 1990 and 146.6 in 1991 (Yeldan, 1994, p. 62). Theannual average employment growth has dropped to 1.1 per cent in the industrialsector and to—0.19 per cent in the manufacturing industry in the period of 1989–93as shown in Figure 1. According to the Manufacturing Industry Statistics, whichcovers only the registered workers reported by the firms, moreover, the drop has

New technologies in Turkey 85 Blackwell Publishers Ltd. 1999.

Figure 2: Total production output and employment index 1980–93

Figure 3: Employment change per unit of investment 1980–93

been even more significant by—0.93 per cent in the same period. The employmentindex decreased from 100 in 1989 to 86.1 in 1993 (Aydin, 1995).

This drop in employment growth, however, cannot be related to the contractionin production levels, which could happen due to the rise in real wages, since theproduction output in the manufacturing industry increased sharply after 1988 (Figure2). The apparent decrease in employment levels in contrast with the rapid outputgrowth sheds a considerable doubt on the link between growth and employment inthe long run.

Furthermore, as shown in Figure 3, the employment change per unit of investment[DE/I = (en11 2 en)/In] reveals that investments of the period of 1980–85 were, in gen-eral, capital widening in nature. In other words, investments were the same tech-nology vintage of pre-1980 period (with a limited employment generating effect),since the labour productivity of the 1980–85 period exhibits no significant improve-ment. However, the employment generated by each unit of investment has mostlydeclined after 1988, having a negative value in 1991. Although each unit of invest-ment created less employment in spite of the sharp rise obtained in output growth,the Turkish economy experienced a dramatic increase in labour productivity in com-parison to the previous periods (Korkmaz, 1995, p. 16–17). The declining trend ofDE/I, especially after 1988, coincides with the investments made on the new tech-nology, and hence it can be interpreted as a sign of the negative impact of NT onemployment.

With the background of the developments in the Turkish economy provided inthis section, let us now turn to the study of the chemical and engineering industries.

86 New Technology, Work and Employment Blackwell Publishers Ltd. 1999.

The Turkish engineering industry

Industry level investigation of the employment effect of new technologies

The main production process in the engineering industry (International StandardIndustrial Classification—ISIC – 38) is batch production where products consist ofdiscrete or individual items. Batch production is considered to be highly affectedby microelectronic-based applications, since computer numerically controlled (CNC)machine tools, flexible manufacturing systems (FMS), computer aided design (CAD),computer aided manufacturing (CAM) and industrial robots are rapidly (Mody andWheeler, 1990; Hoffman and Kaplinsky, 1988).

Main production processes in the engineering industry (EI) involve the transform-ation of metal castings into a wide variety of parts which are assembled into a rangeof various products including general equipment, consumer goods, customised pro-ducts, etc. Although all the parts do not go through the same manufacturing stages,the machining of metal castings is the most important stage of the production processin which the impact of CNCs has been very significant, including cutting, drilling,milling, boring and grinding operations.

The Turkish EI can not be considered a well developed sector of the manufacturingindustry. Even, its share in manufacturing value added showed a slight decreasefrom 18.1 per cent in 1980 to 16.6 per cent in 1989. But since then it is showing asteady rise to 19.5 per cent in 1990, 20.4 per cent in 1991, 21.1 per cent in 1992 and22.7 per cent in 1993 (Kisaer, 1995). This level of value added share is still consider-ably low in comparison to some other developing countries’ EI (Edquist and Jacobs-son, 1988, p. 152).

The EI uses technology produced in two local industries, namely, the manufactureof metal and wood working machines industry (ISIC 3823) and the manufacture ofoffice, computing and accounting machinery industry (ISIC 3825). The shares of thesesubsectors in total value added of non-electrical machinery industry (ISIC 382) were4–6 per cent and 0.6–4 per cent, respectively, and hence were too insignificant to beable to contribute considerably to the diffusion of NT in the EI in the 1980s and theearly 1990s.

The Turkish EI’s demand for new technology has been met primarily by imports.Although it is very difficult to clearly identify the diffusion level of NT at the macrolevel in the EI, data from commodity-based Foreign Trade Statistics on import ofmachine tools and automatic data processing machines shows that NT stocks in thecountry are rapidly growing due to increased import after 1989 (Ansal, 1998). Thechanges made in the import regime in 1990 have been claimed to have affected thedemand rise in NT. The EI’s investments increased about 3.8 times, from 329 billionTL in 1989 to 1,243 billion TL in 1994 at 1987 prices.

As it is not statistically possible to find the exact number of NCMTs and industrialrobots that were introduced in the Turkish EI, the labour saving effect of the diffusionof NT cannot be estimated on the bases of machine level as done by Edquist andJacobsson (1988, p. 119) for certain OECD countries. However, output and employ-ment indexes (in Figure 4) reveals that the output growth in the EI significantlyaccelerated after 1989 whereas employment growth stayed virtually the same. Theemployment figures show that 45,140 jobs were created between 1981 and 1988, but5,105 jobs were lost in the 1988–92 period in spite of the impressive growth in output.Labour productivity in terms of value added per employee, gained a dramaticincrease after 1989 that may well be the result of NT adoption.

The employment change per unit of investment [DE/I = (en11 2 en)/In] data for the1982–93 period shows a slightly downward trend until 1987. Then, as shown inFigure 5, it falls sharply and becomes negative in 1988. Although investments in 1991and 1992 have generated positive employment, it must be noted that DE/I shows adeclining trend in the 1988–93 period in comparison to the statistics for the first halfof the 1980s. There is also a great mismatch between the rate of output and employ-

New technologies in Turkey 87 Blackwell Publishers Ltd. 1999.

Figure 4: Total production output, employment and labour productivity (value added/employment) index in the Turkish engineering industry 1980–93

Figure 5: Employment change per unit of investment in the Turkish engineering industry1981–92

ment growth after 1989 as seen in Figure 4, most probably due to the introductionof NT.

The industry level investigation carried out in the Turkish EI has enabled us toobserve the overall relationship between output growth, employment, and invest-ments. Although it gave a feeling about the possible employment consequences ofNT, it was difficult to pinpoint the precise or direct impact of NT on employment.Now let us turn to the firm level investigation and observe a more precise employ-ment effect of NT applications.

Employment effect of adopting new technologies in the case study firms inthe Turkish engineering industry

With the aim of examining more the direct employment impact of NT, nine casestudy firms were selected from the Turkish EI which are known to have adoptedNT in recent years. Size distribution in terms of number of employees is taken intoconsideration as well as the ownership properties (local/foreign) in the selectionprocess. A dramatic rise in demand for motor vehicles after 1989 forced the auto-motive main and parts supplier firms to increase their production capacity. Together

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with the increased labour cost and quality improvement requirements due toincreased competition of imported vehicles, these firms have become the mostimportant buyers of NT. Also these firms were the main leaders in their sector. Thistendency led us to choose six automotive parts supplier firms for our case studysample. In addition, two firms from general equipment and parts (like pumps andvalves) sector and one firm from the molding sector were included in the list.

The main characteristics of our case study firms (including form of ownership,machinery after the introduction of NT, per cent machining done by CNC for differ-ent products, the year NT was introduced, employment level before and after NTadoption and product range) are shown in Table 1.

In our case study firms, the acquisition of NT has started at different dates andreached to different rates of diffusion as indicated in Table 1. Four out of nine casestudy firms started their plant modernisation process stages with the introductionof CNC lathes in the first half of the 1980s. After getting acquainted with the equip-ment, the modernisation process continued with purchasing more CNCs, includingCNC machining centres and acquiring computers for administration, accountancy,purchasing, stock control, etc. In two of these four firms, Firms F and l, the modernis-ation stage initiated in the second half of the 1980s, included some organisationalchanges such as total quality control technique and just-in-time inventory system.The application of these systems, however, has been possible by the capabilities cre-ated by CNCs and/or computers that were adopted by the firms.

The rest of the case study firms have started modernisation in the late 1980s. Theadoption of CNCs has also been accompanied by some organisational improvementsthrough total quality control and just-in-time techniques.

For the majority of the firms, the reasons behind the adoption of NT were to raisethe plant production capacity in relation to the increased demand in the sector; toimprove quality in order to be competitive in international markets; and to reducelabour cost in the face of increased wages in the late 1980s.

The production performances of the sample firms have significantly improved bythe introduction of NT. For example, set-up and machining times have reduced aswell as scrap rates. Flexibility, quality, and product mix capacity are increased whilesavings in labour and floor space have occurred (Ansal, 1998).

Machine productivity increase, which was associated with the reduced resettingand machining times of CNCs, led to substantial output growth and increase inproduction capacities as shown in Table 2. Outputs, measured by the volume ofmachined castings in tons and/or by the number of parts machined (total numberof individual items), increased at varying degrees depending on the percentage ofmachining done by CNCs for different products in our sample firms.

The sample firms’ output changes are also shown in Table 2. When we comparethe percentage changes in output with sales, we see that percentage changes in salesare substantially higher than the output changes. The higher increase in sales wereexplained as the indication of higher unit prices as a result of increased quality,sophistication and accuracy of the new products.

The percentage change in employment, which is obtained from the employmentdata before and after the firms’ adoption of NT, indicates the labour saving effect ofNT in most of our firms (see Table 3). It is difficult, however, to completely concealthe technology effect on employment as in the case of Firm A, however, the ‘sizing-up’ in terms of employment is not directly associated to the adoption of NT, sinceit expanded its production from a small workshop to a larger scale plant, includinga larger building in a different location. Firms F and I have also expanded their totalemployment by 7 and 11 per cent, respectively.

The adopted NT greatly decreased the number of operations that were carried outin different machines, and hence total machine adjustment times and processingtimes were significantly reduced. As a result, production capability in one workingday became much higher with NT that led to an increased labour productivity inour sample firms. When we examine labour productivity in terms of output/workerand sales/worker, we can clearly see that it has substantially increased in all firms

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Table 1: Main characteristics of the case study firms in the Turkish engineering industry

% Work Year NT Employment EmploymentFirm Ownership Machinery after introduction of NT done by NT introduced before after

A1 Local family company 12 CNC lathes, 5 CNC machining centres, ICNC 15–20 1990 152 278induction hardening center, 252 various types of CMT

B2 Local family & private 13 CNC lathes, 7 machining centers, 4 NC individual 50 1982 508 466individual machine tools, 63 various types of CMT

C3 Local individual 6 CNC lathes, 30 various types of CMT 40 1985 162 154D4 Member of a domestic 18 different types of microelectronic-based machine 25–30 1990 350 225

conglomerate tools and equipment, 122 various types of CMTE5 Member of a domestic 4 CNC lathes, 70 different types of CMT 20–35 1988 335 204

conglomerateF6 Member of a domestic 14 CNC lathes, 2 CNC machining centers, 112 various 15–30 1984 224 240

conglomerate types of CMTG7 Local family company 3 CNC lathes, 1 CNC machining center, 2 CMT 100 1987 70 55H8 Member of a foreign 19 CNC lathes, 3 machining centers, 180 various types 0–60 1989 935 680

conglomerate of CMTI9 Member of a domestic 8 CNC lathes, 4 CNC milling machines, 4 CNC 75–85 1983 295 328

conglomerate machining centers, 1 CNC electrical dischargemachine, 1 CNC deep-hole drilling machine, 158various types of CMT

CMT – Conventional machine tools.1Firm A product range: Rear axles, front spindles, differential, housings, splined shafts, hubs, brake disks, shaft levers, pivots, pulleys and variousother parts and components produced from castings for automotive industry.2Firm B product range: Grey and modular iron castings and machining wide range of parts and components for automotive and engineering industries.3Firm C product range: Various types and shapes of valves.4Firm D product range: Shock absorbers, washing-drying machine, dampers, sintered components and complete brake systems.5Firm E product range: Industrial and domestic types of oil boilers, submersible and standard circulation pumps and water heating systems for buses.6Firm F product range: Propeller shafts and universal joints.7Firm G product range: Brake drums for buses, trucks and trailers.8Firm H product range: Piston rings and cylinder liners.9Firm I product range: Glass moulds, spare parts for machinery used in hollow ware glass production and parts to other sectors than glass industry.

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Table 2: Changes in output, production capacity, machining done by CNC, and sales in theengineering industry/firms

Change in output Change inVolume (%) No. of parts production Machining done Sales Change

Firms machined machined capacity (%) by CNCs (%) (%)

A 183.4 147.2 172.0 15–20 184.9B 163.4 167.5 160.0 50 1197.7C 160.1 157.5 160.0 40 1156.8D – 1141.0 166.7 25–30 148.4E – 120.0 125.0 20–35 1138.8F – 150.9 130.0 15–30 167.9G 192.9 151.5 1150.0 100 1129.2H – 12.5 170.0 0–60 155.4I 154.9 n.a. 170.0 75–85 1271.1

Source: Interview data

Table 3: Change in employment (%), total change in actual employment levels and calculatednumber of replaced in the sample firms

Change (%) Change in Actual Calculated No. ofFirms Total empl. No. of workers employment replaced

A 182.9 143.5 1126 240B 28.3 29.6 242 255C 24.9 25.2 28 212D 235.9 238.7 2125 236E 239.1 247.9 2131 28F 17.1 17.0 116 234G 221.4 231.8 215 29H 227.3 232.4 2255 247I 111.2 17.8 133 240Total 2401 2281

Source: Interview data

after the application of NT, including the ones with increased employment as shownin Table 4.

In further examining the employment displacing effect of NT at the machine level,the firms reported that each CNC machine tool replaces 2 to 3 conventional machinetools (MTs), whereas CNC machining centers replace 3 to 4 conventional MTs, eachused by one operator. Calculating from the number of CNC machines that wereadopted in the sample firms, on the bases of an assumption of one NCMT replacing2 and one CNC machining centre replacing 3 operators, gives the number of replacedemployees in each firm as shown in Table 3. In the cases where cellular productionis introduced, one operator quite commonly operates two CNC machines. This nat-urally magnifies the labour-saving effect of CNCs.

The number of replaced employees calculated from the stock of NT introduced inthe sample firms adds up to be 281, as indicated on Table 3. The net number of jobslost in the sample firms following the process of NT adoption, on the other hand,turned out to be 401 which is much more than the calculated number of 281 job lossat the machine level. This leads us to question the validity of compensation mech-anisms at the micro level.

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Table 4: Change in Labour Productivity (%)

Change inFirms Output/worker sales/worker ($)

A 127.8 (tons) 13.9B 151.8 (tons) 1229.5C 168.8 (tons) 1171.1D 1293.1 (units) 1142.1E 1195.4 (units) 1324.3F 141.0 (tons) 156.9G 1183.0 (tons) 1236.1H 141.8 (units) 1113.8X 67.0 (units) 140.2Y 43.7 (hours) 1243.9

Source: Interview data

As we are aware that the danger of widening a micro-level conclusion to macro-level would be very misleading, it is not possible to arrive at any sound conclusionfrom the observed difference between the actual and the calculated labour savingeffect of NT in our sample firms. Concentration on the displacing effects at the microlevel neglects the significance of the indirect employment-enhancing effects whichmay be numerically important. But the loss of 5,105 jobs in the Turkish EI during the1988–92 period, as mentioned before, prevents us to be optimistic about the indirectemployment-enhancing effects of NT, although our observation is limited to intra-industry impact of NT in the EI at a relatively short time span.

The Turkish chemical industry

Industry level investigation of employment effect of new technologies

The chemical industry (ISIC 35) has widely applied microelectronics-based techno-logies (Morrai, 1992; Benson, 1992). As production equipment of continuous pro-duction have not changed for more than 20 years due to existence of similar pro-duction processes, the impact of microelectronics on continuous production has beenexperienced not through production equipment as in the case of batch production butthrough its impact on control equipment. Process control technology (PCT), involvingsensors and computers, has been essential for safety, environmental, productionspecifications, and operating constraints in the chemical industry (CI) (Sawyer, 1993).Thus, microelectronics-based developments in PCT significantly affected continuousproduction in the CI.

The main production processes in the CI involve the chemical transformation ofinputs into a wide variety of chemical products such as polymers, urea, and ethylene.The applications of PCT lead to changes in continuous production such as improve-ments in process and quality control (reproducibility, accuracy, safety); savings inlabour, energy and raw materials through better controls; enhancement of productionmanagement; improvement in operating speeds arising from more sensitive andaccurate monitoring equipment; increase in capacity utilisation due to reduced down-time and fewer rejects; production of a wider range of products through finer controlof composition (Brisk and Walker, 1992).

Moreover, PCT represents a powerful tool offering important benefits not only inproduction per se, but also in the integration of production and all managementactivities. Elements of PCT have common base so that they can be controlled froma centre through a common software (Bessant and Rush, 1998). Through the appli-cation of computer integrated manufacturing, all functions of a firm are integrated

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with each other via a range of networks and communication software. These inte-grations provide gains arising from high degree of production automation. Besides,organisations are restructured through the facilities obtained by new technologies.

The Turkish CI is a well developed sector, providing 25 per cent of the manufactur-ing value added in 1993 (Aydin, 1993). However, the supporting industries of theCI such as PCT producing industries did not develop in Turkey. That is why mostof the technology used in this industry is imported from Europe and USA.

The CI’s investments increased about 3.6 times (from 938 billion TL in 1988 to14,343 billion TL in 1993 at 1994 prices) during the period of 1988–93, while manufac-turing industry’s total investments experienced only an increase of 0.9 times duringthe same period. However, there is no data available on the distribution of invest-ment, particularly investment in technology. Most of the CI firms cannot distinguishtheir technology investment from total investment, for they have turn-key contracts,which embody technology investment within production-enhancing investment.

Regarding production output, the CI had a constant increase during the 1980s andthe early 1990s. As shown in Figure 6, the total CI output reached 560 million TL in1993 which represents a 1.6 times increase from its 1980 value of 348 million TL.Although output showed a significant rise, employment growth was only 34 percent, increasing from 75,553 in 1980 to 101,262 in 1990. The steady rise in employmentthroughout 1980s reversed in the early 1990s and a loss of 7,601 jobs occurred duringthe period of 1990–93 that may be related to the adoption of NT.

The impact of new investment in the CI on labour productivity, measured by valueadded per employee, shows that labour productivity declined around 30 per centduring the period of 1981–87 (from 1,917 in 1981 to 1,352 in 1987). However, asshown in Figure 6, this fall in labour productivity ended in 1987 and a steady increasewas experienced since then reaching to 3,013 in 1993. Similar to the EI, one of themain reasons of this dramatic increase after 1987 is associated with the introductionof NT.

The employment change per unit of investment [DE/I = (en11 2 en)/In] has showna great variation during the 1980s and the early 1990s. As shown in Figure 7, themain reductions experienced during the periods of 1981–83 (144 per cent) and 1989–90 (341 per cent), since the CI investment dropped significantly in 1993 and 1990.Even though investment generated positive employment between 1984 and 1989,their value is smaller than the employment change per unit of investment in totalmanufacturing industry. But more importantly, DE/I shows a declining trend since1989 with an exception in 1991. Considering that the main NT investment took place

Figure 6: Total production output, employment, and labour productivity (value added/employment) index in the Turkish chemical industry 1980–93

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Figure 7: Employment change per unit of investment in the Turkish chemical industry 1981–92

in the late 1980s, we can conclude that NT reduces employment in the CI. This resultis also confirmed by the mismatch between the rate of output and employmentgrowth after 1980 as shown in Figure 6.

After this brief industry level investigation, the next section will analyse the firmlevel changes taking place in the CI.

The employment effect of adopting new technologies in case study firmsin the Turkish chemical industry

We selected seven case study firms that have adopted NT in recent years and areleaders in the CI. Table 5 shows the main characteristics of these case study firms,including form of ownership, machinery after the introduction of NT, the percentageof machining done by PCT for different products, the year NT was introduced,employment level before and after NT adoption and product range.

Most of the firms, except firms J and L, invested in distributed control systems,the state-of-the-art PCT. Even though distributed control systems allow the manage-ment to combine both production and firm activities under one computer system,only three firms extensively used this technology for their firm level activities suchas administration and stock control. The others had a separate computer networkfor these activities. Except firm L, all other case study firms started their modernis-ation process in the late 1980s. For many firms, modernisation also included someorganisational changes such as total quality control techniques and just-in-timeinventory systems.

The Turkish CI is a highly competitive industry, since many multinational corpora-tions are active in Turkey. So, most of the firms invest in technology in order tosurvive in the home market. According to the managers of case study firms, NThelps them reduce their production costs and improve their production performanceand quality.

The case study results showed that reliability, accuracy, safety, and quality of pro-duction increased. Also, as shown in Table 6, output and capacity utilisationincreased because of fewer stoppages, lower scrap rates, less off-specification pro-duction, and input savings. The largest changes took place in firms M and P becauseof capacity enhancement. NT accounted only a small portion, but we could not calcu-late it due to the lack of data.

Table 7 shows the percentage change in direct and indirect (ie. engineers,accountants, . . .) employment arising from the application of NT. Three firms—J, K,and L-experienced reductions in their employment. In fact, their reductions wereactually even more, since their production increased between 20–30 per cent (asshown in Table 6) while their employment decreased. Two state-owned firms, M andO, told us that even though they could have reduced almost 25 per cent of theirworkforce due to technology, they could not do so due to political reasons involved.Firms N and P, however, had the same number of employees, even though they

94 New Technology, Work and Employment Blackwell Publishers Ltd. 1999.

Table 5: Main characteristics of the case study firms in the Turkish chemical industry

% Workdone by Year NT Employment Employment

Firm Ownership Machinery after introduction of NT NT introduced before after

J10 Local family company Programmable logic control systems 25 1994 635 550K11 Member of a domestic Distributed control system; 2 25 1994

conglomerate Programmable logic control systems 845 700L12 Local individual Programmable logic control systems 30 1983 240 220M13 State-owned Distributed control system 75 1990 930 930N14 Member of a domestic Distributed control system 90 1989

conglomerate 550 550O15 State-owned 3 Distributed control system and 100* 1989

Programmable logic control 5 systems 3000 3000P16 Member of a domestic Distributed control system 100 1988

conglomerate 120 120

*There are 11 factories within the plant site, and only one of them is investigated and the Distributed control system is applied for the whole factory.10 Firm J product range: Edible and industrial oils, soaps, oleochemicals, esters11 Firm K product range: Soda.12 Firm C product range: Silicats.13 Firm D product range: Fertilizers.14 Firm E product range: Acrilic fibers.15 Firm F product range: Petrochemical products.16 Firm G product range: Dimethylamine, dimethylasetamine, dimethylformamine, and carbon monoxide.

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Table 6: Output and changes in plant output, and capacity utilis-ation in chemical industry firms

Change inOutput Change in output Capacity

Firms (1000 ton) (%) Utilisation (%)

J 100 130.0 110K 470 120.0 110L 33 125.0 15M 760 1100.0* 0N 190 125.0 115O 2294 15.0 120P 67 1160.0* 0

*Although output has been increased, this was not due to PCT appli-cation.Source: Interview data

Table 7: Change in direct and indirect employment (%), change in actual employment,change in Labour productivity in the sample firms

Change in (%) Change in Change in LabourDirect Indirect Actual Employment Productivity

Firms Employment Employment (#) (Output/worker) (%)

J 218 25 285 138K 215 225 2145 145L 210 0 220 136M 0 0 0 1102N 0 0 0 126O 0 0 0 16P 0 0 0 1162Total 2250

Source: Interview data.

increased their production 25 per cent and 160 per cent, respectively. As we don’tknow the production functions before and after NT applications, it is difficult tocomment on the actual employment loss arising from NT. But, it is clear that althoughall firms increased their production, their employment either dropped or stayed thesame. That is why labour productivity increased significantly in all firms. The highestproductivity increases were experienced in firms M and P with an increase of 102per cent and 162 per cent, respectively.

The observation of our case study firms and the macro trends in the CI indicatea clear trend that NT has a strong labour saving effect in the CI. It is important tonote that this labour saving effect would be higher if only firms could integratetheir technological changes with organisational ones. As most of the managers wereunwilling to reorganise organisational structures, they could not realise some of thebenefits of technologies which would lay off some middle-managers or engineers.

We are aware of the danger of widening a micro-level conclusion to macro-level.But we observed that the actual number of employees either stays same or declineswhile output increases significantly. This picture prevents us being optimistic aboutthe employment impact of NT on the Turkish CI.

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Conclusions and some policy implications

Developing countries have increasingly invested in new technology, since they com-pete with industrialised countries not only in world but also in home markets. Astechnology becomes an important leverage in competition, they realise that their lowwages are no longer an advantage to compete in world markets. Our study showedthat the pressure of competition was the main determining factor in introducingtechnological changes in the Turkish engineering and chemical industries. Eventhough real wages declined in Turkey in the 1980–89 period, firms did not invest inold vintage labour-intensive technologies. Investments and substitutions of scrappedequipment generally embody the most modern techniques that have a decisive lab-our-saving effects.

Our study indicated, moreover, that the compensation mechanisms, which areassumed by the neo-classical theory to work automatically both at the micro andmacro level, do not seem to have been working in Turkey, at least at the time spanthat we have investigated. At the micro level, the negative impact of NT on employ-ment was clear. Our industry level investigations showed that the intra-industryemployment effect of different NTs—such as CNCs and PCT—has been negativeboth in the Turkish EI and CI. Since the annual average employment growth hasbeen 20.93 per cent in the manufacturing industry in the 1989–93 period when capitaldeepening investments along with NT investments made, compensation mechanismsdid not seem to have worked at the inter-industry level either, at least for this rela-tively short time span.

Regarding the relationship between production forms and technological appli-cations, our study showed that the application of NT resulted in labour-saving inboth batch production (in the EI) and continuous production (in the CI). These twoproduction forms also experienced similar production performance improvementsarising from NT applications, including increased output, quality, and labour pro-ductivity. As much as similarities, the impact of NT on these production types weredifferent too. For example, the impact of NT on the EI is mainly related to batchproduction characteristics such as improvements in machine adjustment time, pro-cessing time, set-up time, and increased flexibility in producing more variety of pro-ducts. The impact of NT on the CI, however, is experienced mainly in qualitativefeatures of production processes such as improvements in safety, operating con-straints, and increased flexibility in terms of production management. Anotherexample how NT affects production types in different ways is related to the diffusionof NT. In the EI, NT diffused not only in large companies but also in small andmedium sized companies, since the production is not capital-intensive and large vol-ume. However, due to capital-intensive and large-scale production characteristics ofthe CI, the diffusion of NT took place only in large companies.

Although the study provides a good sense of what is happening in individualindustries by focusing on a broad category of manufacturing industry as well as itstwo elements, namely the EI and CI, this does not imply that compensation is notworking at the level of the whole economy and that we can generalise the labour-saving effect of Turkish technological progress at the macro level.

Let us now try to evaluate the validity of the neo-classical compensation mech-anisms that are claimed to reabsorb the labour-saving impact of technical changesin the long run in developing country conditions in the light of our firm and industrylevel investigations.

The first compensation mechanism, the employment generation in the capitalgoods sector, does not work in Turkey, since the majority of NTs applied in theEI and CI are imported. Therefore, the industry has only been under the negativeemployment effect of process-technical changes.

The second compensation mechanism that is related to the employment generatedfrom increased demand as a result of decreased prices does not seem to have beenoperating either. Our firm level empirical data in the EI indicate that displaced work-ers due to the introduction of NT do not entail a decrease in prices. The increased

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quality, sophistication, and accuracy of the new products resulted in higher unitprices. Higher capacity utilisation rate, however, can lower the unit costs in the longterm (Ansal, 1998). In spite of the higher prices, output increased significantly dueto the introduction of NT after 1988 in both EI and CI, as well as the manufacturingindustry in general, while generating no employment growth.

As for the third compensation mechanism, extra profits accumulated in the specificsectors may have been invested in expanding production facilities as we haveobserved in some of our sample firms. However, the net employment result of theseinvestments, which generally involve labour-saving NTs, do not seem to be bigenough to compensate for the labour-displacing effect of NT in both industries thatwe have investigated, as well as the manufacturing sector in general.

The fourth compensation mechanism which relies on the application of producttechnologies had no significant contribution to employment in our industries. At themacro level, although it requires further investigation to obtain exact statistical fig-ures, new jobs generated, which are related to the new technology products, couldnot have been significant in manufacturing industry, since employment has beendecreasing after 1989.

Our firm level investigations also indicated that there is no direct relationshipbetween wage decrease and employment growth. Although wages were significantlydeflated in the 1980–88 period, the annual average employment growth was muchlower than the 1965–77 period when there was a strong upward trend in real wages.The decrease in wages, moreover, does not generate a reversal towards labour-inten-sive techniques, and hence increase in employment, as the fifth compensation mech-anism assumes. This is due to the fact that the introduction of NTs becomes compul-sory for firms in their efforts to gain international competitiveness.

In sum, the optimistic conclusion of neo-classical theory regarding the impact ofNT on employment is inconsistent with the realities of life in developing countriesat least in the short run. Therefore, instead of relying on the market system to solvethe unemployment arising from NT applications, governments should adopt activepolicies to counteract technological unemployment. Otherwise, technological unem-ployment under developing country conditions seems to be inevitable as our firm-level and industry-level study of the Turkish engineering and chemical industriesindicate. The technological unemployment was neither compensated nor reabsorbedwithin these industries in spite of their heightened production and productivityresulting from the adoption of NT.

One of the main tasks of governments should be to determine the extent of theemployment effect of NT on each industry and its inter-related industries. By con-ceiving technology as multi-dimensional sets of techniques combining both equip-ment and organisational changes, governments can analyse the wide range of prob-lems associated with the application, diffusion, and improvement of NT. Using thisbackground information, governments can reorganise the market and local insti-tutions in such a way that it can support technological development but at the sametime prevent long-term unemployment. For example, based on this long-term infor-mation at industry level, governments can develop unique incentive policies for eachsector to create new jobs. Also, they may motivate firms to train or reallocate theirworkforce according to the expected technological changes.

Another task of governments should be to activate the compensation mechanismsthat fail to work in developing countries’ market systems. For example, governmentsshould support or develop the capital goods sector in order to locally produce NT,and hence create employment in these sectors. Another task of governments couldbe to apply measures to increase employment levels such as reducing working hoursper week which was lately discussed in European Union countries. Moreover,governments may alleviate the adverse impact of employment by planning employ-ment changes, undertaking training, reassigning displaced employees to alternatejobs, encouraging geographic mobility, promoting job search and job motivation.

Furthermore, governments have to have long-term technological and industrialpolicies which complement each other. Depending on the industrial development

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projects, governments can plan what technologies will be needed. Then, governmentneeds to decide whether to promote domestic technological development or toimport technology. If in-house development of technologies is decided, new sectorswill be established or existing ones will be enhanced. Only these active governmentpolicies can lead to increase in employment levels in the short and long run andcompensate the labour-displacing effect of NTs.

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