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    Unemployment rate forecasts

    Fatih Özatay, PhD20 April 2009 - Okunma Sayısı: 1229

     

    Recently unfavorable data are being announced one after another. At the top of these unfavorable developments was the unemployment figures announced Wednesday. New data are based on new population estimations. Unemployment data only for January 2008 and 2009 were announced and the situation is really desperate: Unemployment rate increased by 3.9 points than the last year. For now, the new record is 15.5 percent. If you regard non-agricultural employment, the rate rises to 19 percent.

    There is no doubt that the increase in unemployment rate mainly stems from the significant fall in production. There is also a technical reason which is specific more to crisis periods: In crisis periods, participation into workforce increases to support the family budget. Economists specialized in labor market express that this trend is prevalent in particular among females.

    As some of those not looking for a job start to look for a job both the nominator (number of unemployed) and denominator (workforce) of unemployment rate rises and thus so does unemployment rate. Increases in workforce participation rate in recent months for females and males (rate in parenthesis is for males) are as the following: October: 1.8 (0.8); November: 2.0 (0.9); December: 2.0 (1.1); January: 1.9 (1.0).

    I frequently touched upon the findings of the studies on crisis carried out at TEPAV. These findings also include estimations on the rate of unemployment at the end of 2009 under different scenarios.

    It is observed that TEPAV unemployment findings are a bit optimistic given the newly announced unemployment data. Nonetheless, those findings are useful to detect the impact of different economic policies on unemployment. Before presenting the forecasts, I would like to underline one point. In calculations, we assumed participation rate is constant. Therefore, the factor I mentioned above that leads to a rise in unemployment rate is not reflected in our forecasts. In this sense, it will be wise to consider these forecasts as lower bounds.

    As the findings we reached in February indicate, Turkish economy would contract by 5.5 percent under the exogenous conditions valid back then and unless any measure against the crisis is introduced. I should say that this is the consensus forecast of TEPAV.

    The forecast I concluded with a simpler model as I also shared with you via this column was more pessimistic. Under the assumption of inertia, rate of contraction would be at best 6.4 percent. Year end unemployment rate for 2009 would be 16.6 percent if the economy contracts by 5.5 percent. This rate stood at 13.6 percent in 2008: We foresee a 3 points rise in unemployment rate. To repeat: If the possible rise in participation rate is considered, this unemployment rate will rise further.

    Our best scenario included a pre-loaded IMF agreement + establishment of a loan guarantee mechanism for TL and FX loans + providing banks with facilities promoting the participation in the system + Central Bank participation in the loan guarantee system via extension of FX discount loans + expansion of unemployment allowance and the number of beneficiaries + giving one time financial aid to retired people receiving low salaries as well as needy people. This way, thanks to the stimulation of domestic demand, rate of economic contraction in 2009 decreased from 5.5 to 3.6 percent.

    Under this scenario, unemployment rate will be 15 percent. In other words, unemployment rate would have increased even if all of these measures had been effectuated as of the beginning of March (by 1.4 points).  However, there would have been an easing by 1.6 points.

    Under an economic program that neglects recommended financial aids to groups that have higher propensity to consume and that dominantly spend for domestically produced goods (i.e. unemployed, retired and needy people), unemployment rate stands at best at 16.1 percent. To put it differently, signing an agreement with the IMF and effectuating the loan guarantee system is not enough to limit the rise in unemployment rate.

     

    This commentary was published in Radikal daily on 20.04.2009

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