Turkey: May unemployment rate falls to 10.9%

The unemployment rate in Turkey in May, which was 13.2% in the same month of the previous year, decreased by 2.3 points to 10.9%. When compared to the previous month, it is observed that the adjusted unemployment rate decreased by 0.3 points. While the unemployment rate among the young population was 20.3%; The rate of idle labor force, which is a broad definition of unemployment, increased from 21.6% to 22.4% compared to the previous month.

When we look at the comparable periods, May 2021 – May 2022, it is seen that there was an increase of 2.6 points in the labor force participation rate between the relevant periods, with adjusted data. The workforce, which was 32 million 415 thousand people in the similar period of 2021, became 34 million 624 thousand people in May 2022. The labor force participation rate increased from 51% to 53.6%. Looking at the seasonally adjusted data; While the employment rate increased by 3.6 points compared to the same period of the previous year and became 47.8%, seasonally adjusted employment increased by 358 thousand people compared to the previous month.

Headline rates point to strong workforce growth at first glance. As the increase in employment exceeded the increase in labor force participation, the unemployment rate declined. When it comes to the qualitative details of the labor force data, it is seen that we are faced with somewhat more complicated situations in the picture. Although the contribution in the services sector, as a sectoral sway, dominates, it is possible to say that the labor force participation in general has increased in this axis. The fact that the labor force participation has increased considerably reveals that the increase in the idle labor force is due to the increase in the potential labor force. Due to the inability to employ all of the increase in youth labor force participation, the high course of youth unemployment continues.

We think that job creation of companies will lose momentum depending on the expected slowdown in the economy in the coming period, and therefore, the improvement in unemployment rates will not be very permanent. The main reason why this correlation is not observed in the headline rates at the moment is related to the changing structure of the workforce. While job creation is mostly concentrated on the low-wage workforce, a negative rotation effect is observed on the high-paid skilled workforce. This is very heavily related to demographics and brain drain. Along with the inability to employ qualified workforce, the share of the labor market in growth also decreases.

Therefore, the inability to create employment at the same quality while the workforce is increasing seems to be the main qualitative problem. While the structural problems in the qualitative details are like this, we evaluate that the workforce will be affected quantitatively in the coming months and negative headlines may be seen. With the tightening of partial credit conditions that started in recent months, the problems in firms’ access to finance may affect their operational tendencies and thus their investment and employment plans. In this context, we will see a loss of momentum in creating new employment, in relation to the slowdown in general growth. The slowdown in production, which we have seen in PMI data recently, and the decreasing demand impact on the slowing European growth will be the main problems. While domestic demand asymmetry due to inflationary conditions, slowing growth and uncertain investment/financing conditions may negatively affect labor force trends in addition to the seasonal equation, it is expected that worsening foreign demand conditions will adversely affect investment and employment tendencies of exporting firms.

Under these circumstances, it seems unlikely that additional improvement in labor force indicators will be sustained and at high rates due to the combination of internal and external factors. We expect to see some increase in unemployment rates towards the end of the year.

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