Will the minimum wage be increased based on the actual inflation rate or the target inflation rate?

The increasing economic crisis in Turkey, rising food inflation, and the unmet inflation expectations are at the forefront of discussions regarding how much the minimum wage will be increased for the year 2025.

The minimum wage marathon begins in December. In Turkey, the Minimum Wage Determination Commission sets the minimum wage. The commission includes representatives from the Turkish Confederation of Trade Unions (TÜRK-İŞ) on the workers' side, the Turkish Confederation of Employer Unions (TİSK) on the employers' side, and representatives from the Ministry of Labor and Social Security. The commission consists of 15 members, with 5 representing each side. This year, it is expected that a journalist will also be included as a representative of the workers' side.

The commission meets at the beginning of December each year to start discussions on the minimum wage. The minimum wage must be determined by December 31. In previous years, while sometimes President Recep Tayyip Erdoğan announced the minimum wage, last year it was announced by the Minister of Labor and Social Security, Vedat Işıkhan.

Millions of workers will be focused on the increase in the minimum wage. The year-end inflation figure is of great importance in determining the minimum wage.

8-POINT DEVIATION IN INFLATION FORECAST SINCE THE BEGINNING OF THE YEAR

The Central Bank of the Republic of Turkey (TCMB) raised its year-end inflation forecast for 2024 by 6 points to 44%. According to the Central Bank's first inflation report of the year in February, the year-end inflation forecast for 2024 was 36%, but this figure experienced an 8-point deviation in the last inflation report of the year.

TCMB increased its year-end inflation forecast for 2025 from 14% to 21%, and for 2026 from 9% to 12%.

FATİH KARAHAN: WE DO NOT MAKE ANY RECOMMENDATIONS FOR THE MINIMUM WAGE

TCMB President Fatih Karahan stated regarding the minimum wage, "It is not possible for us to make normative evaluations like 'it should be this way' on this issue. It wouldn't be right either. We are not decision-makers. There is a committee that meets. It has certain processes, and it operates those processes. It listens to various parties and makes a decision. We are not a part of the committee, nor do we make any official or unofficial recommendations." Karahan also denied the claim that he told investors during his visit to the USA that "a 25% increase in the minimum wage would be consistent with the inflation outlook."

CEVDET AKÇAY: WE MUST SWITCH TO FORWARD INDEXING

TCMB Vice President Osman Cevdet Akçay stated regarding the minimum wage, "At some point, we must switch to forward indexing. Backward indexing creates a self-perpetuating process. At some point, forward indexing must be implemented in both the public and private sectors. I believe this is a suitable period for this context. If we can initiate this during this period, there is a chance that it will be a period where the distribution of wages for low-skilled workers in the minimum wage does not suffer. It is also a suitable time for forward indexing to be implemented. I believe it would be good if decision-makers can initiate this." Akçay mentioned that the increase rates for other wages will likely lag behind the increase in the minimum wage.

WILL THE MINIMUM WAGE BE INCREASED BASED ON ACTUAL INFLATION OR TARGET INFLATION?

There has been a public debate for some time about whether the increase in the minimum wage will be based on actual inflation or target inflation. Currently, the annual inflation in Turkey is 48.58%. The TCMB's year-end inflation forecast is 44%, with the upper band of this forecast being 46%.

If the minimum wage is increased based on the actual inflation rate, it is expected to be around 44-46%. If the minimum wage is increased according to the target inflation for 2025, it is projected to be around 21-26%.

TCMB year-end inflation forecasts

2024 midpoint: 44%

2024 upper point: 46%

2024 lower point: 42%

2025 midpoint: 21%

2025 upper point: 26%

2025 lower point: 16%

OVP inflation forecasts

2024: 41.5%

2025: 17.6%

2026: 9.7%

ACCORDING TO THE CENTRAL BANK'S FORECAST, THE NEW MINIMUM WAGE WILL BE 24,483 LIRA

The minimum wage was increased by 49.11% in January last year, reaching 17,002 lira. If a 25% increase is made in January, the new minimum wage will be 21,252 lira. If the minimum wage is increased according to the TCMB's target of 44% for this year, it will reach 24,483 lira. If the TCMB's target increase of 21% for 2025 is implemented, it will rise to 20,572 lira.

IF CALCULATED ACCORDING TO EXPECTED INFLATION

If an increase of 26%, which is the upper band for 2025, occurs, it will be 21,422 lira. If a 30% increase is made to the minimum wage, it will rise to 22,102 lira. If a 40% increase is made, the new minimum wage will reach 23,802 lira.

According to the Medium-Term Program (OVP) inflation target, if a 41.5% increase occurs, the minimum wage will exceed 24,000 lira. If the minimum wage is increased by the OVP's inflation target of 17.5% for 2025, it will rise to 19,977 lira.