Unemployment data for April were announced yesterday. In the recent months it became a tradition to say 'as expected' each time new data is announced. There is still no difference; unemployment rate rose 'as expected'. It went up from 9.9 percent in April 2008 to 14.9 percent in April 2009. In other words, unemployment rate increased by 5 points. Non-agricultural unemployment rate is, no surprisingly higher: It increased by 5.9 points than the same period last year and reached 18.2 percent. What is more and again as expected is the high unemployment rate among 15-24 age group (26.5 percent) and the rise in the rate over the last year (8.9 points).

Table 1 shows the increases in general unemployment rate and non-agricultural unemployment rate compared to the same period last year. As you may notice, there appears a continuous rise. This is a highly unfavorable development. Unemployment rate might go up for several reasons. Every month those turning from under-15 group to 15 join the labor force. Thus, unemployment rate goes up for demographical reasons. Additionally, a part of those who did not want to have a job and so do not seek a job can change their minds and join the labor force.

If, under these circumstances, the increase in employment does not meet the growth of labor force, unemployment rate will go up. There is even worse: Rising unemployment coupled with falling employment. In that case unemployment increases for two reasons: as existing employment goes down and as those newly joining the labor force fail to find a job. What goes around in case of Turkey recently is unfortunately 'worse than worse': Employment has been decreasing since February compared to the same month last year. Number of people employed dropped by 85 thousand in February, 241 thousand in March and 530 thousand in April. However, previously unemployment rate would go up, but at least number of employed would also go up.

Even if we hit the 'trough' in economic contraction, which in fact no one can be sure about, it is necessary to expect that unemployment rate increases further for a while and then remain at that higher rate because as firms produce less when demand for their products decrease and thus do not lay-off workers immediately. They go on with the existing labor force for a certain period of time. After a certain point, lay-offs start and increase rapidly. It seems reasonable that employers go on with the current staff while the economy starts to turn around from the trough to the top, i.e. while the pace of production fall is decreasing, they find it logical to go on with the present personnel and make them do overtime when necessary.

In a few columns ago I started to touch upon scenarios for 2010-2011. My basis scenario was 'scenario of spinning'. That is, no consistent and promising economic program would be implemented. On the other hand, positive growth rate would be achieved in 2010 as even no steps were taken, we would grow upon a slightest upward movement in production. However, the fundamental problem would be encountered in 2011. In that case, there is a risk that unemployment rate remains at high levels for a long time. Given that the elections are near and there is also a possibility of holding early elections, panicky and inconsistent economic policies might be implemented. It seems that the possibility to encounter the spinning scenario is rising.

Table 1: Rise in unemployment rate

This commentary was published in Radikal daily on 16.07.2009