Türkiye: The minimum wage increases by 34% with the second hike in a year

Labor Minister Mr. Vedat Işıkhan announced that the monthly net minimum wage will increase by 34% to 11,402 lira ($483) this month. Thus, the minimum wage was increased for the second time this year in order to protect low-income people from persistent high inflation.

Minimum wage in Turkey by years – TL and dollar basis… Source: Ministry of Labor, Dinamik Yatırım

High rate of wage increases can create a direct inflation effect on labor costs and a lagged inflation effect through demand effect. In the inflationary period, we observe that labor costs occupied less weight, except for labor-intensive sectors (such as retail), and the main elements of increase were based on financing or raw material costs. In capital-intensive sectors such as banking and technology, employee cost occupies a more limited area in total costs.

Turkey is grappling with high inflation triggered by the government's growth-oriented policies and household spending. The newly appointed Minister of Treasury and Finance, Mr. Mehmet Şimşek said that he will follow rational policies throughout his tenure. Since the 6-month inflation since December 2022 (with our June inflation assumption) corresponds to a range of 15-16%, the welfare share in the minimum wage seems to be quite high. While it is important to protect the purchasing power of low wage earners against inflation, when considered together with EYT and pension increases, it is seen that they are still in a position to affect domestic demand upwards. Although the tight monetary policy transition is a pressure factor on domestic demand, we consider the short-term inflation effects as upwards within the scope of demand (inflationary period demand dynamics + wage increases).

Kaynak Dinamik Yatırım / Enver Erkan

Hibya Haber Ajansı