Government Covers 40 Percent of Wage Hike's Cost to Employers

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Feb. 2—The Turkish government will pay employers 11.4 billion Turkish lira ($3.9 million) to subsidize the cost of a 30 percent hike in the minimum wage, Finance Minister Naci Aðbal told the parliamentary Planning and Budget Commission Jan. 21.

Labor and Social Security Minister Süleyman Soylu said the subsidy, which will be limited to 2016, will cover approximately 40 percent of the increase in the minimum wage.

“This move will create a burden on the budget, but a minimal tax increase was planned to mitigate the impact,” Soylu said.

The move must still be approved by the Turkish parliament.

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The monthly minimum wage will increase from 1,000 to 1,300 Turkish lira ($339 to $508), payable in February on January salaries, and will affect 11 million workers, about a third of the Turkish workforce, Aðbal said.

The hike fulfills an election promise of the ruling Justice and Development Party and was limited to 30 percent by fears that a larger increase could fuel the informal labor economy. According to government statistics, one in three Turkish workers is currently employed off the books. Many workers are also registered in the social security system with lower wages than they actually receive, as companies attempt to keep down employee costs.

With the planned hike, the monthly employment cost of a worker will increase to 1,935 Turkish lira ($655), according to the government's calculations.

Ripple Effect

The increase in the minimum wage will also be reflected in price increases, Turkey's central bank said Jan. 26, urging the government to adopt additional actions to keep prices down. After the wage increase, the central bank estimated that inflation will reach 7.5 percent in 2016, outstripping its own 5 percent inflation target for a sixth consecutive year.

The raise is expected to most strongly hit small and medium-sized enterprises, which comprise about 95 percent of all Turkish businesses and account for some 78 percent of the country's total employment.

That could make its timing problematic.

“The minimum wage hike is good for most of society, but some preparatory steps should have been taken to improve the job market and companies' competitiveness beforehand, in order to help Turkey escape the middle income trap,” said Gunes Komurculer, an economic columnist for Hurriyet Daily News. “This challenge is of great importance for Turkish companies, which are trying to compete simultaneously with more developed added-value producers and developing producers that can offer cheap labor.”

Real wages in Turkey grew by an average 5 percent during each of the past five years, while labor productivity increased 1.5 percent annually during the same period, according to government statistics.

Some companies reportedly started reducing their work force in December, in anticipation of the pay raise.

To contact the reporter on this story: Jenny David in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

- The government news agency's announcement of the wage increase is available at http://aa.com.tr/en/turkey/turkey-minumum-wage-is-raised-by-30-percent/498487.

For more information on Turkish HR law and regulation, see the Turkey primer.