Employers and employees hold their breath for the new minimum wage to be determined

The new minimum wage will be determined in four meetings to be held by the end of the month. Based on the fundamental factors that will influence the wage level, according to three possible scenarios, the net wage will rise to around 15 thousand 960-16 thousand 500 liras with a 40-45 percent increase, public support will be increased, or the net wage will be raised to 17 thousand 500-18 thousand liras.

The Minimum Wage Determination Commission will hold its first meeting today. The wage level has become more critical this year than ever before. The economic management initiated a debate with a statement that the wage should be compatible with the inflation target. Starting with President Recep Tayyip Erdoğan, Minister of Labor and Social Security Vedat Işıkhan, and party spokespersons have all promised “not to let the employee be crushed by inflation.”

Although the labor and employer wings have not specified a level, they have provided signals regarding the process and the level through various statements. Of course, the Commission will conduct a study, and the demands of the parties and the stance of the government and the Presidency will be decisive in this decision. There are estimates regarding the levels the wage could reach depending on economic and social developments. Until the Commission makes its decision, some estimates are being made according to all speculative scenarios. All scenarios and the possible wage levels according to these scenarios are as follows:

*Fundamental factors that will influence the wage level; under the calorie requirement in the official reports to be presented to the Commission and the living conditions related to it, the Commission's negotiation and the parties' ability to manage the process; First of all, the government side is insistent that the wage level be for 1 year. The labor wing, on the other hand, has made its stance clear and has explicitly stated that they want to receive a promise for an interim increase. If a decision is made to implement an interim increase, the January increase will be kept limited and a promise will be made that “it will be reviewed again in June.” *Another factor is public support; the decisive factor here will be budget possibilities. Although the minimum wage is exempt from income tax, because the income tax bracket is kept low and because by law no wage can be paid below the minimum wage, deductions are made through offsetting to adjust the wages of those who pass into the second income tax bracket during the year. This offset is currently 500 TL. The labor and employer sides are demanding that the first income tax bracket be increased at a high rate. If this demand is met – even if limited by a Presidential Decree, such as an increase above the revaluation rate or determining a high-rate new tariff by law – a high-rate increase with tax adjustment and public support could be made with limited impact on employer costs.

THE ISSUE ON WHICH LABOR AND EMPLOYER AGREE: TAX REGULATION

Although there is an application to exclude the minimum wage and the portion of general wages up to the minimum wage from income tax, the fact that the minimum wage passes into the second tax bracket has been the most striking issue in recent years. Income tax brackets are increased by the revaluation rate. The first tax bracket, which was several times the minimum wage in past years, is now below the annual total of the minimum wage. Since no wage lower than the minimum wage can be paid, a portion of the burden on the employer is supported by the budget. The only issue on which the labor and employer segments agree among the factors that will affect the wage level is that high-rate increases should be made in the income tax tariff, especially by raising the first bracket. The President has the authority to increase this by half the revaluation rate. Even if this authority is used, a satisfactory level seems difficult due to the low increases coming from previous years. It also seems possible to determine a new tariff and an annual income level based on this tariff by law.

AVERAGE TOTAL WAGE INCREASE EXPECTATION IS 50 PERCENT

Human resources and management consulting firm Mercer has announced the results of its ‘2023 Wage and Benefits Survey’. According to the results of the wage survey in which a total of 1 thousand 744 firms participated; the wage increase rate planned for 2024 is planned as 50 percent. According to the results of the research conducted with the participation of firms from different sectors, the sectors that showed the highest wage increase from the last quarter of 2022 to September 2023 were logistics with 115%, retail with 114%, and the energy sector with 108%, respectively. The business lines that showed the highest wage increase are listed as supply chain, production, and engineering.

SCENARIO 1:

RAISING THE NET WAGE TO 15 THOUSAND 960-16 THOUSAND 500 TL WITH AN INCREASE IN THE 40-45 PERCENT RANGE

This increase rate will, of course, be subject to technical correction due to the effect of income tax, but a formula will be found that will allow the net wage to be pulled to 15 thousand 960-16 thousand 500 with increases in the 40-45 percent range. The tool to be used in achieving these rates will be public support or technical adjustments in income tax rates. While the 2024 target inflation in the MTP (Medium Term Program) is 33 percent, the estimate was raised to 36 percent in the Central Bank's latest inflation report. The inflation that has occurred since June, when the last minimum wage adjustment was made, has reached 33.64. In December, the CPI increasing by around 3 percent in line with the general trend pulls the inflation that occurred after the June raise to 37.7. There is also a factor supporting the rhetoric of ‘giving a welfare share of around 5 percent’ in this increase rate. In this scenario, it is foreseen that the support, which is currently 500 TL, will be increased limitedly, and there will be a revaluation in the income tax bracket or an increase very slightly above the revaluation. Another factor supporting this level is the formation of a minimum wage level of more or less 400 dollars according to the 2024 average dollar exchange rate.

SCENARIO 2:

INCREASING PUBLIC CONTRIBUTION

According to this intermediate scenario, it is foreseen that the minimum wage will be carried above 16 thousand 500, up to the 17 thousand levels, with an additional discount to be created by straining budget possibilities. In this scenario, as in the first scenario, while remaining compatible with inflation targets, a search for controlling employer costs will be effective.

SCENARIO 3:

NET WAGE REACHING 17 THOUSAND 500-18 THOUSAND TL

The increase that needs to be given (after deducting the 6 percent raise in July) together with the 15 percent raise to be given to the salaries of civil servants and civil servant retirees in accordance with the collective agreement made in August and the possible 3 percent inflation increase in December approaches 50 percent. If a raise close to these rates is made, the net minimum wage will need to be increased by around 53.5-58 percent. In this scenario, the continuation of public support by increasing it is foreseen. Another study converging to this scenario was conducted by Economist Hakan Kara. Hakan Kara calculated that, according to the official inflation target, it would be necessary to go above 17 thousand 500 TL in order to stay above the possible hunger threshold in 2024.

LABOR IS INSISTENT ON TURKSTAT PRESENTING A REPORT

In the meeting that the Commission will hold today, there will also be 4 real minimum wage earners on the labor side. In the commission where the parties serve with 5 members each, until the third meeting where official reports are received, each side makes statements and activities according to its own game plan. These statements are the main determinant in the decision; the public side makes statements and activities trying to influence public opinion. These statements and attitudes serve as data for the stance of the public, which is the main determinant in the decision. The Commission receives reports from the Treasury and Finance, Hacettepe University, and TURKSTAT. In the 2023 studies, TURKSTAT did not present a report on the grounds that it did not calculate living conditions. The labor segment emphasizes its discomfort with this situation. The third and fourth meetings are usually the periods when negotiations or the criticisms of the party that is inclined to “not sign” are listed. In the rare full consensus, the government's influence on the parties is important. The final point is usually put by the President. The labor side is insistent on the increase rate being determined in 6-month periods in the studies of this period. While silence prevails on the employer side, it is expected that sectors exporting based on labor costs will be negatively affected and that they will bring employment to the fore.