Turkey Raises Minimum Wage, But Is It Enough?
Turkey will raise its minimum wage by 49 percent in the new year, a single adjustment that economists say could further fan the flames of inflation even as it attempts to cool off the country’s cost-of-living crisis amid a depreciating lira.
“We fulfilled our promise not to allow our workers to be crushed by inflation,” Labor Minister Vedat Isikhan said in a televised news conference in Ankara of the new monthly floor of 17,002 lira ($577) on Wednesday.
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But while the upgrade, which follows a previous 100 percent hike to 8,506 lira ($284) at the start of 2023, could ease the pressure of consumer price increases that are anticipated to blow past 70 percent ahead of elections at the end of March, Goldman Sachs Group Inc. and Morgan Stanley had previously suggested that any bump above 40-50 percent could force the central bank to further rein in its monetary policy
“A two-step increase in the minimum wage would have been better both for employees and employers and would not cause a sudden spike in inflation,” Berke Icten, the head of Turkey’s Shoes Manufacturers Association, told Reuters. “Prices will increase by at least 25-30 percent. This will be reflected in retail prices.”
Ergun Atalay, president of the Confederation of Turkish Trade Unions, which participated in the negotiations with the government on behalf of workers, said that he had asked for 18,000 lira ($611) and two wage negotiations next year. “Dear minister, I say again, we do not agree with this figure,” he told Isikhan. “We will submit a dissenting opinion, be aware.”
The central bank, writing in the minutes of its monetary policy committee meeting last week, said that monthly inflation would go up in January, in part due to the increase in the minimum wage, though it expected a slowdown in February and beyond. In November, inflation stood at 62 percent year on year.
But whether the minimum wage boost will translate into more cash in hand for workers remains to be seen. Although the Clean Clothes Campaign Turkey pegged a living wage at 13,000 lira ($442) in 2022, the same study found that only one in three garment workers receives the legal minimum wage, overtime included, because of spotty regulatory oversight, not to mention a sizeable informal sector that is largely underpinned by migrant labor.
“Due to hyperinflation, garment workers in Turkey are confronted with the insoluble problem of sustaining their families,” Bego Demir, coordinator at Clean Clothes Campaign Turkey, said at the time. “The state gives incentives to employers, but it doesn’t control the implementation of labor law in the sector.”
Turkey dispatched $10.4 billion in textiles and $21.2 billion in clothing in 2022, making it the world’s fifth and sixth biggest exporter of those commodities, respectively.
While the country saw an economic boost during the pandemic, when supply chain bottlenecks in Asia made it a favored nearshore destination for American and European markets, a combination of falling freight costs and soaring domestic inflation has cut into its competitiveness. An October presidential decree that marked up customs duty rates on textile raw materials and final products, increasing rates for certain goods by 30-167 percent, is another pain point for suppliers already seeing rivals such as Bangladesh and Vietnam siphon their market share.
In November, Seref Fayat, chairman of Turkey’s TOBB Clothing and the Apparel Industry Assembly, told Reuters that a Turkish-made T-shirt now costs 40 percent more for a European shopper than one from Bangladesh, compared with 15-20 percent a couple of years ago.
“Fashion brands can bear higher prices up to 20 percent, but anything more leads to market losses,” Fayat said, adding that the textile and apparel sector has slashed 170,000 jobs so far this year because of a drop-off in production.
Bangladesh and Vietnam are seeing higher minimum wages in 2024, with the first experiencing a 56 percent jump from 8,000 to 12,500 Bangladeshi taka ($73 to $113) and the second getting a modest 6 percent uptick from between 3.25 million-4.68 million dong ($134-$193) to 3.45 million-4.96 million dong ($143-$205).
