Democracy and the labor market

easy to characterize, i.e. to DEMOCRACY ISN’T explain completely and rigorously. Clearly, democracies aren’t similar to the Greek democracy in Athens some 2,500 years ago or to the Italian city states’ of the 14th century. Size matters. Now, there are billions of people to be represented globally. However, Western democracies – that is all there is, of course, because there is no non-Western democracy on earth, yet - have some common features. The rule of law? Yes, it is a must. Further to that, democracies admit civil associations, obviously, but the gist of the matter is that they are centered on political parties. They turn on the ways political parties are instituted, constituted and delegates are elected. Free organization, transparent and fair funding, and just representation in the parties themselves and from the viewpoint of the electorate at large are keys. If a good portion of the electorate is disenfranchised for some reason, democracy is distorted. Likewise, if funding is inequitable and civil and/or party organizations are blocked, it is damaged. Obviously, if checks and balances don’t work or separation of powers isn’t respected, democracy is but a name only. And what’s in a name?

GROWTH DOESN’T BRING ABOUT MORE JOBS NOR DOES IT LEAD TO HIGHER WAGES

Even those aforementioned factors don’t suffice modern democracies. Modern democracies were predicated upon the power of organized working classes. If the labor market is such that employees don’t have a say or don’t have any bargaining power over wages and working conditions, the majority of the population is subject to restricted participation, and democracy becomes questionable. It is precisely because freely-organized labor is a guarantee for democracy that economists can say democracies pay higher wages. What do we have here? Well, growth surely doesn’t create employment. It isn’t inclusive and it is low quality. And it isn’t high with respect to warranted growth. •n average it is about average in the EM universe. Adding insult to injury, growth is also sporadic.

With that kind of continual high amplitude and irregular business cyclicality, nobody has a comfortably long forecast horizon. Businesses can’t even guess what the exchange rate would be should political bargaining with the U.S. and the EU doesn’t deliver any tangible compromise come late March. Surely long-term investment planning capacity is a prowess only internationally well-connected large conglomerates can acquire.

Disruptions in the supply chain – consider the recent shipping container shortage - create further noise. Who can hire labor for long-term? What kinds of jobs can people get if they can at all? Is this a labor market or is it a joke? Let’s see…

A ‘FLEXIBLE’ LABOR MARKET, MEANING…

What does “flexibility” mean? It isn’t harmless wordplay. It means job security is no longer there nor is it desired. It means the labor market is almost unregulated, and employees are at the mercy of their bosses. Yes, it might also convey the idea that the labor market has avoided old European style job market rigidity, called hysteresis in the 1980s, but because trade unions were closed in the 1980s, there was no such phenomenon in Turkey in the first place.

So, it practically means a few things. First, it implies very high unemployment. Second, it means low-paying “bad jobs” already are, or will be, pervasive – in a “flexible” labor market. Third, it means labor ought to be disorganized, otherwise businesses can’t compete internationally – maybe there is an iota of truth in that but the social cost is far higher. Fourth, it implies wage increases are generally politically motivated only – ahead of elections the minimum wage is raised and so on - because labor can’t bargain. It is a one-sided game. Fifth, informal and immigrant workers’ employment reduces the average wage in such a way that even the minimum wage isn’t in fact minimum. Here are a few facts.

The total labor force is 35.9 million. The number of jobless – writ large - stands at 8.84 million. The “real” unemployment rate currently is 24.6%. Women’s unemployment

rate is 34.2% whereas men’s unemployment rate is 19.5%. Youth unemployment stands at 25.6%. These figures include those who are not seeking a job because they think they can’t find one. These are huge numbers. If women participated at the rate of 58%, as in Italy, the most modern country Turkey can be compared with according to size, political history, the importance of religion, etc., the overall unemployment rate would have easily hit 40%. That doesn’t suffice to depict the labor market though. Earnings are so low that some 40-45% of wage earners get the minimum wage. The whole wage curve is so twisted that even those who get above the minimum wage earn in fact somewhat higher than the minimum. •f course, if you don’t work for fixed pay, i.e. wage or salary, you can earn a lot more. Getting an engineering BSc and working for a salary is, in this topsy-turvy world, the bad choice. Getting the same degree and launching a start-up, is the right one and you’re – if your business doesn’t go under. There is risk-taking in entrepreneurship, yes, but the risk premium it entails can’t be that high.

ARE EARNINGS TOO LOW?

Roughly two-thirds of employment consists of wage and salary earners, of which nearly half are paid the minimum wage, or in the vicinity of it. •ne-third is quite high. Therefore, the minimum wage and the collective wage contracts determine the whole wage curve, or nearly so. As time passes, those who earn above the minimum wage tend to earn wages that admit less of a buffer above the minimum wage threshold. If we continue like this, in five years the minimum wage will possibly engulf half of the labor force and the rest will gravitate downwards toward that minimum also. Again, there are findings to the effect that, aside from the collective contracts backward-indexation, adjustments according to past inflation is pervasive. The first year of collective contracts carry a higher wage increase, but in the second year and beyond, wage increases are only nominal, i.e. real wages suffer. •nce more I should add that the “real” inflation low-wage earners face is possibly much higher than the official inflation rate.

There is another point that distorts the wage structure. Not only is its relationship with labor productivity questionable, but also despite all flexibility arguments, its synchronization with the business cycle is a broken link. Yes, real earnings are low because inflation is high. But also earnings are low because productivity is not increasing, and not only labor productivity at that. Total factor productivity is also stagnating, which suggests low quality growth, if any.

Furthermore, because the Turkish domestic market is rather large, and because exports haven’t risen since 2011-2012, low earnings mean less spending in a Keynesian spirit. This is why credit is pumped every now and then, and both households and firms are heavily indebted. Because the series is discontinued, we can’t know for sure just what percentage of disposable income is allocated to debt arrears, but it was already 55% in 2013. If we count debt-only types, that would be higher. Because credit booms are facts of everyday life, we can also accept that debt-to-disposable income has risen since 2013. If roughly two-thirds of income is allocated to debt payments, where do we go from here?

DEMOCRACIES PAY HIGHER WAGES

True, the minimum wage was intended to protect deserving workers from the competition of the unfit by making it illegal to work for less. It wasn’t enforced or even demanded by the workers themselves at that particular junction. And the minimum wage isn’t the wage with which a whole family can live above the poverty threshold. Maybe one person, and for a limited time only, yes, but a whole family cannot depend on the minimum wage. This is true for any country. However, even the minimum wage wasn’t always universally respected; the effective minimum wage is lower than the official minimum wage. In addition, the problem in the Turkish labor market isn’t that there are always those who can’t even achieve the minimum wage. Practically speaking, the official minimum wage can also be considered to be low – but with respect to what metric? The real problem is that the whole wage curve has shifted downward. All wages are low now except a few. And because there are no jobs, even this claim doesn’t apply: no jobs no wages, that is. And contrary to all urban legends, hourly labor productivity doesn’t rise; it is flat on average. There are no underlying economic and technological dynamics that would generate higher incomes. So, the question remains: should we pay higher wages, and based on what?