Turkiye raising average wages by 49 percent from next year

The net monthly minimum wage will be TRY17,002 ($577) in Turkiye in 2024 Labour Minister Vedat Isikhan said on Wednesday, marking a 49% increase from the level determined in July and a 100% hike from January.

Turkiye's annual inflation rate edged up to 61.98% in November, its highest level this year but just shy of expectations, signaling that an aggressive rate-hiking cycle will reduce the inflation.

However, some experts think that such an increase in minimum wage will affect the rise of inflation as well and the Turkish government will need to increase the minimum wage in mid 2024.

Besides, Turkiye is one of the biggest economies in the region, and as a matter of course, it is expected that a sharp increase in minimum wage will impact the surrounding countries as well.

The correspondents of Azernews learned opinion of the MUSIAD board member and former banker Ünsal Sözbir on the issue. The former banker noted that first of all the 49% minimum wage increase rate was close to the expectations of most stakeholders in the business world. Consensus has been achieved here, even if some stakeholders had higher expectations.

“I consider this decision as an important and appropriate step because a title related to the predictability of the Turkish economy has become clearer since May 2023. Looking back from a ten-year perspective, it will be clearly seen that there is a similarity between inflation and minimum wage increase rates in Turkiye.

A significant number of stakeholders, especially the Government, have taken positive steps to compensate for the weakening of the purchasing power of the large masses with fixed incomes (approximately 55% of wage earners) caused by inflation. Although each taken step was initially aimed at compensating the loss for fixed income earners, inflation expectations subsequently significantly reduced this improvement,” Ünsal Sözbir pointed out.

He noted that the fact that the minimum wage increase was made once a year and was determined somewhere between the past inflation and the expected inflation also met the demand of the new economic management. Expectations that the inflation rate will decrease with tight monetary and fiscal policy continue to increase.

“Fees have an important place in the total cost. It would not be realistic to say that a 49% increase here will not affect inflation. Just how much it will affect will become clear based on general economic conditions, not on wages alone. Therefore, it is necessary to focus on supply and demand, especially the expectations of the parties in the economy. If expectations were broken, the inflation rate would decrease,” the former banker said.

He noted that Ergün Atalay, as the Union President, expressing the expectation as 18 thousand TL and commenting on the memorandum is an understandable approach from the point of view of the masses he represents.

“For the last 3 years, the efforts of the Government to compensate for the loss of fixed income earners by making an increase above expectations have continued this time. Ünsal Sözbir noted that while it would be possible to force an increase in the 35-40% band if only the expected inflation was acted upon, the fact that it was 49% is a strong sign that it will be done once a year. In my opinion, it is in this direction,” Ünsal Sözbir said.

As for impact on the surrounding countries, the former banker noted that with the latest increase, the cost of minimum wage earners to employers in Turkiye has reached the level of $650-700. This level means that Turkiye will lose its relative superiority advantage in many business branches, especially in labor-intensive sectors such as textiles and construction, while on the other hand, there will be an increase in the number of people willing to work in Turkiye from the surrounding countries where the minimum wages are less than Turkiye.

“Besides, For many years, especially auxiliary staff and labor-intensive workers from neighboring countries have been moving to Turkey, which will drive up employee costs in Azerbaijan and other countries. On the other hand, since the minimum wage will be reflected in all wage segments as an anchor, it will also cause businesses to incur greater costs when it comes to finding qualified people. The migration of qualified employees from Turkiye to western countries will also be towards Turkiye from the surrounding countries,” MUSIAD member and former banker Ünsal Sözbir concluded.