December 2023 labor force data was released. Monthly data shows a lot of volatility. For this reason, I will consider quarterly averages (seasonally adjusted). Let me start on the positive side first. There is a significant decline in the unemployment rate. After peaking at 14 percent (third quarter of 2019) during the ‘Pastor Brunson’ crisis triggered by Trump’s tweets, it went almost uninterruptedly downwards. The average for the last quarter of 2023 is 8.8 percent. New labor data have been available since January 2005. The lowest quarterly unemployment rate ever observed was in the second quarter of 2012: 8.1 percent. We are therefore close to the lowest unemployment rate in nineteen years.
However, the picture changes when we look at the broader definition of unemployment. The broadest of these definitions is the ‘idle labor rate’. It is calculated by adding two groups to the number of unemployed. The first group includes those who work less than forty hours a week but want to work more (time-based underemployment). The second group is defined as the potential labor force. TurkStat states that this group consists of “people of working age who were neither employed nor unemployed in the reference week; people who are looking for work but are not able to start work in a short period; people who are not looking for work but are willing to work and can start work in a short period”.
The idle labor force ratio is very high (22.9 percent) and has been increasing recently. Compared to the last quarter of 2022, the unemployment rate has fallen by 1.4 percentage points, while the idle labor rate has increased by 2 percentage points. This strange situation is not unique to the last year. The data on the idle labor force ratio has been published since January 2014. Compared to the first quarter of 2014, the unemployment rate is 0.6 points lower but the idle labor force ratio is 5.1 points higher. The deterioration is also evident if we look at the sum of the unemployed and those willing to work normally (40 hours) instead of the idle labor force: The ‘combined rate of time-based underemployment and unemployment’ calculated by taking these two groups into account rose from 11.9 percent to 15 percent in the same period: a 3.1 percentage point increase.
Somewhere between the positive and the negative is the employment rate. Compared to different definitions of the unemployment rate, it can be said that it summarizes the developments in the labor market better. This is because it is not affected by the preference to participate in the labor force. It directly shows the ratio of employment to the population of working age. The lowest level since 2005 was 39 percent, reflecting the impact of the global crisis (second quarter of 2009). It is now 48.5 percent, a significant increase. On the other hand, there are two problems, one reflecting the current situation and the other a structural one. First, the employment rate has remained stagnant since the last quarter of 2022 (up only 0.3 percentage points). Second, we cannot even employ half of our working-age population.
Leaving aside the problem of a structurally low employment rate, the question in the headline is still searching for an answer: Has the unemployment rate increased or decreased? It depends on how you look at it. My short answer is this: It is not possible to look at the decline in the unemployment rate alone and claim that things are back on track in the labor market.
