The Employment Effects of the January 2016 Minimum Wage Increase

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The Employment Effects of the January 2016 Minimum Wage Increase

The 30 percent increase in the minimum wage in Turkey in January 2016 was on the country’s economic and political agenda for quite a while. It was expected by many that this raise, which brought the monthly cost of an employee to an employer to nearly 2,000 Turkish Liras, would affect economic growth positively by increasing household consumption, but would have negative effects on the labour market. In an environment where the official unemployment rate has been around 10 percent for many years and nearly half of the paid employment is minimum waged, such an increase could also be detrimental to the ongoing efforts to curb unregistered employment. However, the minimum wage raise was a primary campaign promise of the Justice and Development Party (AKP) before the 7 November 2015 elections, and the newly-formed AKP government implemented the change just as promised.

As more than half of 2016 is left behind, one might begin to examine the effects of the minimum wage increase on the labour market, making use of official statistics released by the Turkish Statistical Institute (TÜİK) and the Social Security Institution (SGK). Even though the statistics in question are published with a 2-month delay, and we are not able to sort out the effects of other economic factors that contribute to labour market outcomes, the available data allow for a general assessment of the current situation.

Employment statistics published by TÜİK are based on the monthly household labour force surveys. From these statistics, looking at the regular and casual employees who are 15 and older, it is seen that total monthly labour figures in 2016 are compatible with the trends observed in the previous years. The noteworthy increase in employment figures, which amounts to an average of 850 thousand of additional wage earners per year, appears to continue in the present year (See Figure 1).

Figure 1: Total wage and salary employment (×1000)

Fugire1

Source: TÜİK’s Household Labour Force Survey

[We disregard TÜİK’s data dated before the year 2014 since that data is not comparable due to technical reasons.]

More interesting observations are made by looking at the number of workers that are not registered to any social security institutions, i.e. unregistered employment. Both the number of informally employed workers and the rate of unregistered employment exhibit noticeable seasonality (Figure 2). Probably having to do with the intensity of the agriculture and tourism sectors, unregistered employment reaches higher levels in the summer months. Rates obtained for the first five months of 2016 show that the pattern of unregistered employment in this year is not very different from that of the previous years. However, the unregistered employment rate for May 2016, which is higher than the same month of the previous year, suggests the possibility of a break in the long-run downward trend in labour market informality. The fact that tourism and related sectors are having a bad year may limit the increase in unregistered employment in the coming months (since the informal job opportunities will also be limited). Unfortunately, this outcome will also imply the presence of severe problems in terms of total employment and overall economic outlook.

Figure 2: The number of unregistered wage earners (left axis) and the rate of unregistered employment (right axis)

Figure2

Source: TÜİK’s Household Labour Force Survey

The employment statistics of insured workers published monthly by the Social Security Institution (SGK) constitute an important alternative to data provided by TÜİK, which is based on surveys. The number of wage earners (within the scope of 4/a, as a compulsory insured) who are registered to SGK has gone up from around 10 million in the beginning of year 2011 to 14 million in 2016. Along with economic growth, the SGK’s and other relevant public authorities’ efforts to promote registered employment has been a crucial factor in achieving this. However, as can be seen in the table, when the net minimum wage of 1300 TL came into play in January 2016, the number of registered employees dropped by almost 3 percent and the increase in the following months could only bring the level of registered employment to the levels of the summer of 2015. When this picture and TÜİK’s data are taken into consideration, there is a strong suggestion that the negative effect of the increase in minimum wage is on registered employment, rather than total employment. In fact, an academic study which analyzed the employment effects of the minimum wage in Turkey in the 2004-2014 period has reached the same conclusion.

[Selin Pelek (2015) “The Employment Effect of the Minimum Wage: An Empirical Analysis From Turkey”, Ekonomi-tek, 4 (1), pp. 49-68.]

Figure 3: Wage earners registered to Social Security Institution

Figure3

Source: Monthly Statistics Bulletin of SGK

Another parliamentary election, like the one in November 2015 which was vital for major political parties, is not expected in Turkey. Therefore, a similar level of increase in the minimum wage as the one implemented earlier this year is also quite unlikely. Furthermore, unlike in the previous years, no change has been made to the minimum wage in July, which means that an erosion in minimum wage in real terms has already begun. Thus, the minimum wage raise of January 2016 has created a unique opportunity for academics who should continue to monitor the main labour market indicators as done here, or preferably analyze firm- or individual-level data. As a result, a controversial practice of politicians who fulfilled their campaign promise may lead to valuable contributions to the Economics literature.

Professor Cem Başlevent, Economics Department, İstanbul Bilgi University

Please cite this publication as follows:

Başlevent C. (August, 2016), “The Employment Effects of the January 2016 Minimum Wage Increase”, Vol. V, Issue 8, pp.6 – 10, Centre for Policy and Research on Turkey (ResearchTurkey), London, Research Turkey. (http://researchturkey.org/?p=12696)

 

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