SEYFETTIN – Ups and downs in unemployment

Ups and downs in unemploymentThe event of the week is not the look of Decemberand#39s unemployment statistics, published today, but the meeting of the Monetary Policy Committee tomorrow (Tuesday). What will its decision about the central bank policy rate be? Hardly any economists recommend an increase of the interest rate.

However, a large majority, including myself, defend keeping the rate unchanged. If the committee does not touch the policy rate, it will confirm that an understanding to leave the central bank to independently conduct monetary policy was effectively reached during the famous meeting last week between President Recep Tayyip ErdoIan, Deputy Prime Minister Ali Babacan and Turkish Central Bank Governor Erdem BaII.

However, even a limited decrease in the context of increasing inflation expectations would testify to a bad compromise.Letand#39s see the decision of the committee and then we will discuss.

As I comment each month, the labor market figures are freshly announced, so letand#39s return to unemployment. At first glance, there is a surprise: Seasonally adjusted unemployment rates decreased by 02 percent despite weaknesses observed in economic activity.

The unemployment rate decreased from 10.6 percent to 10.

4, while the non-farm rate decreased from 12.7 percent to 12.

5 During the previous periods, from September to November, the global unemployment rate was stagnating at 10.6 percent.

On the other hand, the non-farm rate increased from 12.6 to 12.

7 percent in NovemberStanding back, the increase in employment along with the low growth rate is clear In the period of December 2013 (November-December-January), the global unemployment rate was at 91 percent and the non-farm rate at 10.9 percent.

Increases of 13 and 16 percentage points, respectively, are quite sizable and they are, at first glance, well in accordance with the low GDP growth estimated at 3 percent for 2014.However, what is surprising is the strong increase in employment compared to growth.

In almost every one of my monthly labor market papers I underline this astonishing particularity of the Turkish economy. The growth of employment is far higher than the GDP growth.

Indeed, total employment increased by 53 percent (1,327,000 extra jobs) while GDP growth has been limited to 3 percent. The reason for the increase in unemployment (548,000 more without jobs) in this context is of course a strong increase in the labor force by 69 percent (1,876,000 extra members of the workforce).

In December we witnessed the opposite of these dynamics. Employment increased by 04 percent compared to November (adding 100,000 jobs), while the labor force increase was limited to 01 percent (an addition of 42,000 members).

So, the number of unemployed and the rate have decreased. To be frank, I am not able to fully explain all of these ups and downs.

What I know is that employment, and particularly the unskilled female labor force, are growing outside of the long-term structural trends. Let me note that the female labor force participation rate was as low as 22.

4 percent in 2007 (with hardly one in five women participating), while it exceeded 30 percent in the last months.The increase in employment is particularly evident in the service sector From November to December, the net job creation in the service sector reached 67,000 while it decreased by 7,000 in the industrial sector and by 1,000 in construction.

Agricultural employment contributed sizably to this picture as it increased by 42,000. I have to note that agricultural employment is expected to decrease, and is expected to remain so in the long run since this employment, still occupying 21 percent of total employment, is excessive in Turkey.

I think that ups and downs in unemployment could continue for a while but the basic trend of unemployment is on the rise. The BaheIehir University Research Center (BETAM) forecasts an increase in the unemployment rate for the January period.

I agree. I think that the strong increases in the labor force and employment will return to the trend levels in the medium term, and, if low growth persists, the increase in unemployment will continue.

SOURCE: Today’s Zaman