Unemployment – Can we keep growing with it?

Unemployment – Can we keep growing with it?

Unemployment is one of the important problems of politicians, especially in election years. They want to distract voters’ attention from this problem if they are not dealing well with it. If unemployment rate of a nation is increasing, it could mean that there is not enough job for people who are actively searching for one. It is also a signal for government to take consumption level into consideration. For GDP calculations, household expenditure is very important and if the unemployment rate increases that could mean that people must be cautious and accommodate themselves to new circumstances in economy, where there is too much uncertainty and geopolitical tension.

Turkey is standing in the middle of Middle East hurdle and couldn’t get itself out of this swamp yet. Other problems like dependency to hot money, foreign investments, competitive disadvantages etc. intensify Turkey’s growing and job creation problems. Keeping these on mind, we can argue that Turkey is right behind PIGS countries (Portugal, Italy, Greece and Spain) in unemployment ranking among OECD countries in 2016 and with this pace it could take the fourth place from Portugal by the end of 2017.

The path of Turkey’s unemployment level can be seen clearly from the abovementioned graph. Turkey cannot decrease its unemployment rate under 8.4% according to OECD calculations. Addition to that Turkey’s unemployment rate trend from 2005 doesn’t look very promising too. In 1Q2009 it has its peak level nearing 15%. As I mentioned in my former articles, 2009 was the worst performance in GDP for Turkey since 2001 too. Therefore it is not awkward to see worst unemployment performance in 1Q2009. In the graph below seasonally and calendar adjusted unemployment data seems to be approving the march of events.

In order to understand the structure of unemployment we need to figure out the distribution of economic activities by years. The evolution of service sector is very fast and it almost cannibalizes all the loss in share of agriculture sector. Economic activity distribution share of industrial sector seems to be shifting to construction which is supported by government to hinder irregular urbanization and to be ready for the big earthquake anticipated in coming years.

Increase in economic activity in construction sector also affected the hourly wages. The rise in wages are always higher than inflation in construction sector, therefore their income is not vanished by inflation in real terms. Regardless of the fact construction workers are not beaten by inflation their base wages are not high and their level of education is also not high. That could mean the level of saving is not increasing because of the effort of labor force in construction sector is trying to reach higher living standards. Only then they could add more saving and limit their expenditure.

That takes us into this conclusion:

-         Turkey’s unemployment rate is not in a downward trend but needs to be taken under control if we want to at least stabilize household expenditure for GDP without raising tax rates.

-         The job opportunities in recent years are seen mostly in construction and service sector.

-         It is very sad that most of the unemployed are consisting of vocational high school, universities, etc.

-         Turkey needs to develop industry in order to create more value added jobs.

-         By increasing production level Turkey could decrease the trade deficit by channeling part of those productions into exportation.