No mid-year minimum wage increase on Turkey's agenda
The government has ruled out a mid-year adjustment to the minimum wage in July. This decision was confirmed by Minister of Treasury and Finance Mehmet Şimşek, AKP Deputy Chairman Hamza Dağ, and Minister of Labor and Social Security Vedat Işıkhan, citing concerns that such an increase would exacerbate inflation.
Economists and academics are divided on whether increasing the minimum wage significantly impacts inflation. The prevailing view is that a wage increase would have a negligible effect on inflation. Furthermore, many believe that in the current economic climate, a wage hike is necessary.
Dr. Gaye Yılmaz, an economist and Peace Academic, asserts that the ongoing inflation over the past two years in Turkey is not due to wage increases. Yılmaz argues that the impact of a minimum wage increase on inflation would be minimal. She also highlights the broader economic context: "It's highly significant to claim that wage increases will lead to inflation, especially when expectations for mid-year increases in minimum wage and pensions are rising. Why aren't we discussing the state of real wages or the impact of paying the world's highest real interest rates on inflation? Why do we believe only labor wages cause inflation, ignoring the substantial impact of other production inputs like energy, raw materials, semi-finished goods, and machinery imported with foreign currency?"
According to Yılmaz, the reason for the focus on labor costs is that labor is the only production input that can be arbitrarily and unilaterally reduced. "Workers, civil servants, and laborers' rights are infringed upon not because wage increases lead to inflation, but because it is hoped they will not resist," she states.
Minimum wage in context
Yılmaz cites the following from a DİSK-AR report to illustrate the situation:
- Turkey has the fifth-lowest minimum wage among European countries, with North Macedonia (€359), Albania (€375), Bulgaria (€399), and Serbia (€461) trailing behind. In 2013, there were 14 European countries with lower minimum wages than Turkey; by the end of 2023, this number had dropped to four.
- The minimum wage in 1974 was 80.6% of GDP per capita, but by 2023 it had fallen to 47.4%.
- If the minimum wage had increased in line with GDP per capita, the gross minimum wage in 2023 would have been approximately 19,921 TL. Instead, it was set at an average gross of 11,711 TL.
- According to the Central Bank’s annual average price of Republic gold, the annual minimum wage could buy 25 gold coins in 2003 and 31 in 2005. However, by 2023, it could only buy 11.8 gold coins based on average prices, or 9.5 coins based on daily exchange rates.
Yılmaz concludes that real wages in Turkey have significantly eroded. "The expected mid-year increase in July 2024 will provide only a brief respite and will not compensate for the substantial losses in real wages," she states.
The role of pensioners in production
Yılmaz also challenges the notion that pensioners do not contribute to production and merely deplete existing resources. "Pensioners continue to create wealth through the value they produced while working, whether in the form of buildings, power plants, or other infrastructure still in use today. Retired doctors, nurses, teachers, and engineers have all contributed significantly to society and the economy. It is inaccurate to label pensioners as 'passive' or non-contributors to production," she asserts.
This discussion sheds light on the complexities and contentious debates surrounding wage policy and inflation in Turkey, highlighting the need for a nuanced approach to economic management.