The Economic Policy Research Foundation of Turkey (TEPAV) pointed to the deterioration in the distribution of national value added and emphasized that there is room for a real increase in the minimum wage.
According to TEPAV’s study, the real increase in labor costs has been below real value added growth since 2016. This provides sufficient financial space for real wage increases.
Ekrem Cünedioğlu, Development Policy Director at TEPAV, said, “Although there are differences in scale and sector detail, it is clear that there has been a general deterioration in the distribution of value added after 2016. Especially in the last three years, high inflation and the distortion in inflation expectations triggered the deterioration in pricing behavior and allowed high profit margins, but this profit increase caused the distribution problem in Turkey to deepen.”
The study suggests that it should also be kept in mind that a significant increase in the minimum wage alone will not be enough to solve this distributional problem. As a matter of fact, the fact that the rate of increase in wages above the minimum wage in Turkey has remained below the increase in the minimum wage has fed the trend of ‘minimum wageization’ in the country and almost one out of every two employees in the private sector has switched to minimum wage status.
Moreover, it should not be forgotten that as of the third quarter of 2023, the unregistered employment rate is still 27.2 percent and the idle labor force rate is 22.3 percent, which reduces the bargaining power of the worker, the study says.
While the study recommends a comprehensive approach to improve the situation of wage earners, it is pointed out that a policy can be formulated by taking into account regional differences in purchasing power when it comes to minimum wages, and that the current general wage does not allow for a shift of investments to regions as expected or desired. The study states “While Istanbul is the second region with the second highest average wage of wage earners working full-time in the private sector, it falls to the twentieth place when purchasing power is adjusted. The price level differences between provinces cause the income needed to have the same purchasing power to differ.”
The study also suggested that TurkStat should calculate alternative cost of living levels, that independent organizations should also make calculations, and that TurkStat should share micro data for discussions on the minimum wage and the formulation of sounder policies.
Almost 3 million household live with only one minimum wage
Ekrem Cunedioglu also drew attention to the importance of the minimum wage for households. In the study conducted within the scope of TurkStat data, it was noted that 16 million people live in 4.15 million households earning minimum wage according to 2022 data. Among these, it was determined that the number of households with only one minimum wage earner in the household was 2.95 million. The study suggests that it is important to prioritize these households in social transfers in order to reduce the risk of social exclusion.