About unemployment

Unemployment is one of the main issues in the actual electoral campaign.

This is understandable since the main concern of the electors for many years has been by far unemployment (see my column, “A recent study of the mood of voters,” May 8, 2015). So, opposition parties promise very challenging targets for unemployment. For example, the Republican People’s Party (CHP) promises to double job growth and get the rate of unemployment under 5 percent it is currently higher than 10 percent. Besides the high rate of unemployment, another worrying aspect is the youth unemployment rate being over 18 percent.

The monthly review by the International Monetary Fund (IMF), Finance and Development (FandD), reserved its March edition, “Jobs on the line” to address various aspects of unemployment which have become a global problem, albeit very in different situations in each country. Indeed, I thought that the highest unemployment in Europe was in Greece and Spain, at 25.8 percent and 24.6 percent, with youth unemployment rates around 50 percent in 2014. However, I learned from FandD that the highest rate is in Macedonia (29 percent) and Bosnia and Herzegovina is placed at third with a rate of 24.6 percent. Turkey might be considered a lucky country compared to these countries, but let me remind that in OECD countries, the average rate of unemployment is rather low, at 7.4 percent, and youth unemployment is at 16 percent thanks to the low rates in the US and Germany.

Through the FandD articles we learn once again that tackling unemployment is a quite difficult task since there are multiple causes of unemployment, implying conjectural as well as structural problems. Indeed, rather strong economic growth in line with changes in the labor force is needed in order to create enough jobs, but at the same time various mismatches between the supply and demand of labor, such as skill or locational mismatches, should be addressed at the same time. What is striking in the case of Turkey is that despite low economic growth, around 3 percent, employment growth is very robust. Normally the growth rate of the Gross Domestic Product (GDP) should be higher than employment growth so as to have an acceptable increase in labor productivity. Without such an increase, the quality of economic growth and the process of income per capita catching up becomes questionable. According to the IMF, yearly average GDP growth attained 2.1 percent in the period between 2011 and 2014 in the US, while employment growth has been limited to 1.2 percent. So, the IMF discusses how GDP growth might be increased while also creating more jobs.

The situation is completely different in Turkey. In the period between 2011 and 2014, yearly average GDP growth stood at 3.1 percent, while employment growth reached 3.7 percent. We do not fully know the reasons for this yet, but this is certainly a positive development regarding unemployment. As the labor force increase is as strong as employment growth, basically because of population increase and the accelerating participation of women in the labor market, unemployment increased only slightly. If employment would have not increased so strongly we would probably have higher unemployment.

However, this happy event is not sustainable anymore, since labor productivity became negative in recent years. The question to be addressed under these conditions is how employment growth might be improved further, even doubled. Of course, you may contemplate an increase in GDP growth, but even with much higher employment growth, the basic problem will be still on the agenda. Higher GDP growth must come from productivity rather than extra employment. Moreover, there is a serious mismatch problem in Turkey. In underdeveloped regions, particularly in the southeast, unemployment rates are almost double the country average and the rate of jobs supplied but not filled is quite high, at 2.7 percent, because of skill mismatches.

In spite of high unemployment, if you have much higher youth unemployment, you must be ready to face some additional problems. For example, the IMF draws attention to the financial burden carried by working individuals. “Perhaps most noteworthy for adult workers who are employed, high unemployment among the younger age groups can make social safety nets less sustainable,” writes the IMF. The persistent and high youth unemployment in Turkey, whose population has already started aging, points to a difficult future.