EYT and wage hike stop divided clash

The labor share of national income was observed to increase in the first quarter of 2023, with the announcement of the Gross Domestic Product (GDP) data by the Turkish Statistical Institute (TUIK).

The share of labor payments in national income increased with the effect of age of retirement (EYT) and pre-election wage increases. Severance pay for EYT retirees and wage increases earlier in the year increased the share of labor payments in national income, while decreasing the capital share.

Speaking to Sozcu.com.tr, economist Cem Oyvat stated that the effect of the EYT process on the elections may have been overlooked in the analyses.

LABOR SHARE INCREASES TO 38 PERCENT

According to TURKSTAT, labor payments increased by 126.1 percent in the first quarter of this year compared to the same quarter of the previous year. Net operating surplus/mixed income, which represents capital’s share of national income, increased 48.7 percent in the same period.

The share of labor payments, which is the share of labor in national income, in Gross Value Added at current prices, which was 31.1 percent in the first quarter of last year, increased to 38 percent in 2023 .

THE SHARE OF LABOR HAS FALLEN SHARPLY IN 2022

Labor’s share of national income fell sharply in 2022, going to 25.3 in the second quarter, 26.3 in the third quarter, and 25.2 in the fourth quarter. Thus, in the first quarter of the year, the share of labor in national income increased 12.8 points on a regular basis.

While the share of net operating surplus/mixed income, which represents the equity share, was 47.6 percent in the first quarter of last year, it rose to 38.2 percent in the first quarter of 2023. Again in 2022, this figure had increased due to reasons such as inflation and high operating profits. However, in the first quarter of 2023, there was a 16.7 point decline on a regular basis.

According to Sozcu.com.tr’s compilation of GDP data calculated with seasonally adjusted current prices using the income method, labor’s share of national income increased in the first quarter of the year.

In calculations made using seasonally adjusted data, it was observed that the share of labor payments, which was 25 percent in 2021, decreased to 24.3 percent in 2022. According to the data, this rate increased to 30.1 percent in 2023.

According to the same data, while the share of capital in national income was 48.3 in 2022, it decreased to 40.2 percent in the first quarter of this year.

EYT EFFECT

According to information provided by TURKSTAT, labor payments increased faster than GDP in the first quarter. In addition, with the entry into force of the Retirement Aged (EYT) regulations, severance payments have increased significantly. This situation increased the share of labor payments in value added.

According to calculations made by TURKSTAT, excluding the effect of EYT regulation, the share of 38 percent of labor payments in gross value added was estimated at approximately 33.5 percent.

LOST EYT EFFECT

Commenting on the issue on Sozcu.com.tr, University of Greenwich faculty member Dr. Cem Oyvat stated that the effect of EYT regulation was overlooked in electoral analysis.

Oyvat said: “According to TURKSTAT national revenue data announced today, the significant increase in severance payments from the EYT regulation has increased total workforce payments by an additional 13.4% in Q1 2023. Also, the new jobs opened by early retirees may have lowered the unemployment rate a bit before the election. We will see the effects of the EYT regulation on employment more clearly in the labor force statistics for April and May. But the EYT deal can be a major factor in Erdogan’s election victory,” he said.

Oyvat also stated that the slowdown in price increases compared to last year with the last minimum wage increase slightly improved the long-standing deteriorating minimum wage situation, adding:

“We see this when we compare the minimum wage with the hunger limit set by Türk-İş for a family of four. The minimum wage hunger cap rate, which was in the 0.9-1 band in May 2018-2021, decreased to 0.71 in May 2022 with rising inflation. This rate has risen again to 0.82 in May 2023. The developments we have mentioned above are also compatible with the recent recovery in the TURKSTAT Consumer Confidence Index.”

‘THE EYT EFFECT IS TEMPORARY’

Stating that the effect of severance pay to those retiring with EYT on distribution will continue for a while, Oyvat asserted that this effect is temporary and will fade after a while.

Pointing out that Turkey has had a very serious foreign trade deficit in the last period, Oyvat said: “The government has consumed almost 30 billion dollars of foreign exchange reserves in the last two months to keep the dollar rate below 20 Keeping the exchange rate low helped reduce inflation. However, the current situation is not sustainable,” she said.

JULY HIGH CRITICAL

Oyvat said: “In fact, the dollar rate is gradually increasing after the elections. The effects of the exchange rate on inflation will have a negative impact on the distribution of income”, he said.

Oyvat said: “However, the government’s policy choices here, such as how much the minimum wage will increase in July, are critical in determining which way the gap between labor and capital will go.”