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Turkey

Turkey: President Erdogan raises minimum wage by 54.5% to TRY8,500 for 2023

  • Deal reached by government and employer representative in absence of labour representative Turk-Is

  • Erdogan notes possibility of interim increase in minimum wage in case of unexpected inflation developments

  • Minmum wage hike to affect large portion of private employees, create inflation pressures, in our view

Turkey: President Erdogan raises minimum wage by 54.5% to TRY8,500 for 2023
EmergingMarketWatch
22 December 2022

The net monthly minimum wage will be TRY 8,500 for 2023, President Recep Tayyip said in a press conference, broadcast by the Bloomberg HT channel. The net minimum wage will thus rise by 54.5% as of January from the current TRY 5,500. The net minimum wage was agreed by the representatives of the government and employers in the Minimum Wage Commission, in the absence of the employees' representative - the largest confederation of labour unions Turk-Is. Turk-Is did not approve the deal, because it had demanded the net minimum wage to be TRY 9,000.

Erdogan said that the minimum wage hike was determined based on inflation developments and expectations for next year. The CPI rose by 14% to November from July, when an interim minimum wage hike of 29% was delivered on top of a 50% increase in January. The government expects inflation to fall to around 30% y/y in mid-2023 from 84.4% y/y in November, Erdogan said. He reiterated the government forecast for inflation to be around 20% at the end of 2023. Erdogan noted that the minimum wage can be adjusted again within the year in case of unexpected developments, referring to inflation developments.

Minimum-waged workers account for around 37% of the total private sector employees, Labour Minister Vedat Bilgin said recently. The combined ratio of minimum-waged employees and those with wages 10% higher than the minimum wage reached 48.7%, according to survey data by the labour unions confederation DISK. That said, the minimum wage increase will affect a large portion of the employed, also given that the strong minimum wage increase may stimulate regular wages to be adjusted accordingly. We expect the minimum wage increase to add on inflation pressures through both the demand and supply channels. The cost of a minimum-waged worker to employee should rise at the same rate by 54.5% to TRY 11,750 (USD 629) as of January.

The minimum wage hike will not directly affect the central government budget as the minimum wage has been exempted from the income and stamp taxes since the beginning of this year. The part of all wages up to the minimum wage also benefits from the tax waiver so the minimum wage increase will expand the scope of the tax exemption on higher wages automatically. The minimum wage hike will translate into higher employer and employee contributions to the Social Security Institution and higher premium payments to the Unemployment Insurance Fund, which may have indirect positive effects on the central government budget, in our view.