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    A fundamental problem: The rigidity of unemployment

    Fatih Özatay, PhD17 September 2011 - Okunma Sayısı: 1059

     

    It appears that the increase in the LFPR has prevented the fall in the non-agricultural unemployment rate to the pre-crisis level to a certain extent.

    Yesterday labor force statistics for June were announced. Recently, the impact of the crisis on overall unemployment has vanished completely.  Before the crisis (during 2006 and 2007), average unemployment rate stood at 10.2 percent. The adjusted unemployment rate stands slightly above 10 percent for the last couple of months. Similarly in June the rate was 10.3 percent. In a way, we have returned to the unemployment rigidity before the crisis at 10 percent level.

    Participation rate increased

    Overall unemployment rate should be assessed taking labor force participation rate (LFPR) into account. LFPR increased over the last years and now is three points higher than the 2006-2007 average. This implies that in the last years the proportion of the working population that is willing to work has increased. In spite of this, unemployment rate remained constant. In other words, compared to the pre-crisis period, more people were provided with jobs, that is, more employment opportunities were generated. This also can be termed as follows: if the LFPR stood at the pre-crisis levels, unemployment rate now would have been lower. Of course it is pleasing that more employment opportunities were created. Two factors, however, shades this favorable development. First, despite the recent surge, LFPR is still low, at 50%. Other countries have considerably higher LFPRs than Turkey. What lays behind this is the low LFPR among women. If the LFPR is improved and the labor market tends to normalize with this regard, the unemployment rate that is currently at a rigid 10 percent  will increase further. I would like to stress that this risk applies regardless of the risk of a crisis. The second factor comes clear once you take a look at the non-agricultural unemployment statistics. Non-agricultural unemployment figures are not adjusted to seasonal effects. So, I will examine the twelve-month averages. Average overall unemployment rate for the last twelve months was only 0.5 percent higher than the average unemployment rate for 2006-2007. On the other hand, the twelve-month average of the non-agricultural unemployment rate stands at 13.6 percent compared to 12.6 percent in the 2006-2007 period. That is, concerning the non-agricultural unemployment, Turkey did not regain the pre-crisis level. In other words, it appears that the increase in the LFPR has prevented the fall in the non-agricultural unemployment rate to the pre-crisis level to a certain extent. Table 1 shows the figures I mentioned. The figures for the period between 2005 and 2010 are the annual average unemployment rates while the figures for June 2011 give the average for the last twelve months. This brings us to face one of the chief challenges for the following period: In 'normal' periods, Turkey faces an overall unemployment rate quite rigid at 10 percent, which is quite high. What is more, unemployment rate in 'normal' periods will be much higher if LFPR increases even slightly.

     

    UNEMPLOYMENT STATISTICS

    Year

    Non-agricultural unemployment rate (%)

    Unemployment rate (%)

    LFPR (%)

    2005

    13.5

    10.6

    46.4

    2006

    12.7

    10.3

    46.3

    2007

    12.5

    10.2

    46.3

    2008

    13.5

    10.7

    46.8

    2009

    17.3

    14.1

    47.9

    2010

    14.9

    11.9

    48.9

    2011/6

    13.6

    10.8

    49.3

     

    This commentary was published in Radikal daily on 17.09.2011

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