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    Need for a new economic program

    Fatih Özatay, PhD22 November 2011 - Okunma Sayısı: 938

    The conclusion that Turkey needs a new economic program can be reached easily from many different perspectives.

    Unemployment rate which escalated during the global crisis has started to fall back to the “usual” 10 percent by the early 2011. Seasonally adjusted unemployment rate for August was announced at 9.6 percent. Though this is (slightly) below the “usual”, we will witness the rate reaching around 10 percent in a month or so. In 2012, in which a substantial fall in growth rate is expected, unemployment rate will reach higher.

    Below is a table which gives annual unemployment rate (overall and non-agricultural) and growth rate. There are four different periods: 2008-2010 (during which the impacts of the crisis were the severest), 2002-2004, 2005-2007, and 2011. Data for the year 2011 reflects the average of the first eight months of the year for unemployment and the estimations of the Medium Term Program for growth.

    Unemployment statistics is highly problematic when sensitivity is concerned. Letting this aside, however, the table reflects a striking point: during the 2002-2007 period, Turkey failed to lower unemployment rate despite the high growth rate. In spite of the rapid growth performance, overall unemployment rate in the 2002-2007 period was slightly different than that in the 2002-2004 and 2005-2008 periods. Non-agricultural unemployment rate showed a fall. But it is hard to identify to what extent this reflects the “real” picture as labor force statistics are being calculated with a different method for some time now. Comparison of 2005-2007 data with 2011 data does not reflect a different picture, either. High growth rates again were insufficient to lower unemployment rate below 10 percent. What is more, this time non-agricultural unemployment rate did not fall, either.

    We know that to be able to lower unemployment rate, growth has to go beyond a certain threshold, for a couple of reasons. First, if you achieved productivity gains, 10 workers can manufacture 1100 shirts instead of 1000 shirts, for example. Thus, production increases while unemployment rate remains constant. Second, each year people join the labor force and some part of the employment gains enabled via growth is supplied by new participants. Third, you do not increase the employment in certain positions when your production increases. For instance, you do not employ an extra gardener or security guard when you increase your production.

    Everything is okay up to here. But the growth rates denoted in the table are of no small matter. Excluding the crisis period, growth rates had an average at or above 6.4 percent. Given that Turkey’s long-term average growth rate is 4.8 percent, it is quite striking that these rates significantly above the long-term average failed to reduce the unemployment rate. From this perspective, we once again reach our usual conclusion: Turkey needs a new economic program.

    Table 1

    GROWTH AND UNEMPLOYMENT

    Period

    Growth (%)

    Overall unemployment (%)

    Non-agricultural unemployment (%)

    2002-2004

    2005-2007

    2008-2010

    2011

    7.0

    6.4

    0.9

    8.0

    10.5

    10.4

    12.3

    10.1

    14.2

    12.9

    15.3

    12.8

     

    This commentary was published in Radikal daily on 22.11.2011

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