Tag: Jobless Growth

Turkey: February Job Report

Good News or Bad News

Labor market data for February 2016 was released early this week. The unemployment rate was down 20 basis points on monthly basis to 10.9% according to the official figures. The employment rate also saw a pick-up and stood at 45.3% while workforce participation rate was 10 basis points higher at 45.3% compared to January. In non-adjusted terms, Turkish economy added 181K jobs of which 117K was in non-farm industries. However, manufacturing jobs decreased by 24K in the month while it was more than offset by the strong performance in services.

We see its fit to analyze the adjusted data when it comes to study the dynamics of Turkish labor market and its relationship with the overall economy. According to the report, Turkey added 50K jobs in non-farm industries, and again 24K job lost in manufacturing was compensated by 55K new hires in services. The unemployment rate fortunately dropped to a single-digit level at 9.9% with non-farm and youth unemployment rates at 11.9% and 17.4%, respectively.

A while ago we mentioned that Turkey lacked the ability to create jobs despite recording positive growth. Not surprisingly, the policy makers came under fire against this backdrop. February saw the first single-digit unemployment rate since May 2014 when calendar effects excluded, could be signaling a new era for Turkish labor market but first we need to see to continuation of the recent trend.

But it is not all rosy and here is the bad point we gleamed from the labor market. Manufacturing job which are normally the main source of a healthy economy, continue to plunge. For the fourth consecutive month, the industry lost 20 basis points share in total unemployment as only 24.3% of the total workforce was employed in manufacturing, down from 25.1% in October 2015. This is critically important for any economy since non-manufacturing jobs are considered as less paying jobs, that is to stay, increasing manufacturing job is developing economies’ gateway to being a high income society.

Turkey - Share of Employment by Industries

On the economic expansion front, 171K non-farm jobs created in only two months was clear sign of solid performance in Q1 2016. We recently studied the relationship between the new hires in non-farm industries and the GDP growth, and found that the number of 185K (or 65K monthly) could function as a threshold to assess the overall economy. Yet, Turkey’s strong economic performance is evidenced by the newly added payrolls in the first quarter. With broad strokes, this is in line with our positive views about economy.

Turkey - GDP Growth and New Jobs Added

Considering that Turkey watchers have been concerned about credit metrics in Turkish financial system, we need to put some emphasis on the impact of unemployment on asset quality in consumer loans. Anecdotally, Turkish banks do not receive a major deterioration unless the rate of jobless people remain above 12%. Thus, we are of the opinion that the current developments in the labor market will not have negative consequences for lenders.

 

Jobless Growth is What’s Next for Turkey?

Today Stats Office reported an unemployment rate of 9.9% in September, slightly lower than the 10% threshold. A rate of workforce without job about to reach a 2-digit number is consequently worrisome for the economy but unnatural when the output measured in terms of GDP rises.

Before starting, I intent to put a chart as a supporting to my opinion that the what is going on in Turkey is jobless growth. Since the mid-2010, the trends of both real GDP and unemployment signal a jobless growth.

Turkey Real GDP Growth & Unemployment

What generally policy makers do is to concern much concentrated in income growth which is viewed as essential for employment generation. However, it is not a sufficient condition. Capital goods industry was alwyas viewed as the engine of growth but this did not generate non-agricultural employment at a rapid rate. All aside, there are demographic and structural grounds that the phenomenon of jobless growth is attributed to as well as they are what I would like to accentuate in this article.

The Gender Composition of Workforce in Turkey

From the title, it is easy to figure out where I will point. Female workforce participation is a explicative notion but on the other hand is a prove that the rising unemployment rate is just “statistical illusion”. Many researchers have come up with the importance of female participation when it comes to analyze the whole economy.

The awesome chart prepared by OECD shows the gender compositions of workforce on some countries. Needless to say, women participation in extremely weak compared to OECD countries. Some empirical work suggests that it is usually women workforce turning out to be self-employed. Consequently, women participation appears to decreasing while self-employed women generate the output that lifting the GDP growth. According to official data, the number of self-employed people was 4.2 million in Jan 2009 and had risen to 4.8 million until Aug 2013. Further research is needed in this area to extent the analyze of the effect of decreasing women participation, but, with broad strokes, the data seems like not to fully reflecting the facts.

Turkey - Labor Force Participation by Genders

Inadequate Education System

Recently, there has been arguments for Turkish students’ poor scores in PISA exams. Overall, Turkey was ranked at 39th among 62 countries. The results has been severely criticized by many whom generally has contrary politics visions to government, but this is ignoring the fact that Turkey was one of the the two fastest-progress-making countries, along side with Brazil. Non-contradictiously there are some advances in Turkish education but not good enough to push it forward. This is the point where I find the criticizers right. Despite the recent performance, the education system is still inadequate compared to OECD countries. The chart below is telling us a horrible story.

Attained-only-pre-primary-and-primary-education-Turkey

Theoretically speaking, inadequate educations system results in an acute shortage of skilled manpower. Today this is the most popular research area among economists covering Africa. The continent is the home for some countries with extraordinary fast growth rates but poor job numbers that resemble Turkey.

The Bottom Line

To sum up with, I consider to flash the key facts one more time necessary. The gender composition and educational background of both are key drivers of the recent deterioration of outlook for labor market in Turkey. The country requires social policies to encourage women to join the workforce. On the education side, government expenditure should increase in order to built the system more relevant to labor market demands.