Tuesday, July 24, 2007

Turkey, Employment and Economic Growth

The economy has been booming. In the past five years, growth in gross domestic product exceeded 7% annually, and exports more than tripled to more than $95 billion for the year ended June 30. Stronger growth hasn't substantially reduced Turkey's unemployment rate. The social costs of the changes -- such as increased crime rates, displaced families and even suicides -- are starting to appear before the full benefits of the growth have been realized.

Unemployment has remained stubbornly high -- about 10%, compared with 6.5% in 2000, according to the Turkish Statistical Institute. And in the cities, where hundreds of thousands of rural workers flock each year in search of jobs, unemployment last year was 12.6%, the statistical institute says.
[Economic Agenda]

In the past three years, the effects of prolonged unemployment combined with job losses from privatization have started to stanch consumers' willingness to spend, economists have said.

Historically, private consumption in Turkey has accounted for slightly more than half of gross domestic product. In 2001, private-consumption expenditure was growing at a 44% rate but by last year, that had fallen to 16%. In the same period, consumer sentiment also fell sharply.

The Turkish Industrialists' and Businessmen's Association said in a report last month that at least 550,000 jobs should be created on average each year, to reduce unemployment outside the agricultural sector.

The AKP government said the key to reducing unemployment is more labor flexibility. "Turkey has made huge progress in terms of macroeconomic reforms. Now, it's time for microreforms, which will make the country more competitive," Finance Minister Kemal Unakitan said in an interview before the election. Mr. Unakitan was re-elected to Turkey's parliament Sunday.

"One of our priorities will be reducing the tax burden on employment," he added. "In addition, we will make labor more flexible, by changing some of the laws that hinder employment. Part-time employment should also be encouraged."

The industrialists' association report echoed Mr. Unakitan's views. "The labor market has to be supported by micro reforms," it said in its report. "Regulations related to flexible labor should be designed such that they can create jobs and not encourage the informal economy," it said. "They should also be supported by social-security reform."

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