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Thanks to Governor Erdem Başçı’s rate hike announcement on June 15, that day’s economic data got almost no attention. While the June budget and July expectations survey did get discussed in research reports, only a few sentences were devoted to the April labor force statistics. Prime Minister Recep Tayyip Erdoğan’s attack on banks stole the economic agenda for the rest of the week.
That is a real pity. Employment data are intriguing, as highlighted by a question from a reader: “The latest labor market report for April showed that Turkey’s unemployment rate stagnated at 9.3 percent while employment increased, particularly in the manufacturing and services sectors. How can employment increase within the context of low economic growth?”
The first thing to note is that this is not a very recent phenomenon: The link between economic growth and employment considerably weakened in 2009, when Turkey was hit by the global crisis. This wasn’t such an unusual phenomenon: After all, firms will not lay off many workers during a recession if they expect the economic contraction to be temporary. More interestingly, as the economy expanded in the next couple of years, employment gains turned out to be more than what could be explained by the growth figures. Despite 2012’s lackluster growth, employment continued to register robust increases.
The gains in employment during these three post-crisis years were mainly due to the construction sector. Istanbul think-tank Betam, which specializes in labor issues, discussed the disconnect between value added and employment in the sector in their report on the November 2012 labor statistics. It concluded that there could be a problem in measuring construction employment. I, on the other hand, am very suspicious of the state-run Housing Development Administration’s (TOKİ’s) activities - a huge black box that only answers to the PM.
With the April labor force statistics, the puzzle has become even more enthralling. As Betam notes in its research piece on the data, employment in industry rose 6 percent from November 2012 to April 2013. This increase cannot be explained by the industrial production index, which stayed more or less put, after adjusting for seasonality, during this time. Betam researchers feel that measures towards decreasing the cost of employing workers in the new regional incentives scheme, which took into effect in the middle of last year, are behind this mystery.
Betam researcher Gökçe Uysal argues, in a separate research note, that insurance premium incentives for women and youth employment, which were first implemented in 2008, have been working as well. She finds that large industrial companies made the most use of the incentives, and married women who are not high school graduates have benefited the most.
These preliminary results illustrate why many Turkey economists, your friendly neighborhood economist included, have been emphasizing the importance of structural and microeconomic reforms.