Mahfi Eğilmez provides figures and explains one by one: Here is the 'minimum' amount the minimum wage should be...

Economist Mahfi Eğilmez has penned a noteworthy article regarding the minimum wage.

Responding to the IMF's thesis that wage increases fuel inflation, Eğilmez announced the raise required for citizens to regain their purchasing power, in contrast to the figures provided by the Central Bank.

Here is Eğilmez's relevant article:

As the end of the year approaches, the debate over how much the minimum wage should be increased in 2025 has moved to the top of the agenda. This debate is undoubtedly not limited to the minimum wage, as all wages must be adjusted in the same manner.

There is a strong group that argues that increasing the minimum wage in line with past inflation will harm the fight against disinflation. Within this group, the IMF, the World Bank, foreign banks, foreign funds, a segment of business people, and the government argue that wage increases should not exceed the inflation expected in 2025. The basis of their view is the belief that if wages are increased according to past inflation, those who receive higher wages will convert this difference into demand, and this increase in demand will drive inflation back up.   

The group opposing this view consists of those representing labor, some academics, some economists, and a small number of business people who are aware that if labor is condemned to starvation, it will eventually hit capital as well. The views of those in this group regarding the rate of minimum wage increase can vary. While some advocate for a raise equal to past inflation, others argue for a raise close to but below past inflation, and some advocate for an increase above past inflation. 

A smaller group also suggests increasing wages every month in line with inflation (the sliding scale system). Some of those who advocate for increasing the minimum wage cannot avoid falling into the contradiction of complaining about increases in apartment and building maintenance fees. This is because the primary factors determining those fees are the wages of the employees working there, such as building superintendents and security guards.

I think like those in the first subgroup of the second group. That is, I share the same opinion as those who argue that it is correct to increase the minimum wage and all other wages, including those of retirees, in line with past inflation. Let me try to explain the basis of this view numerically.

The minimum wage was set at 17,002 liras (net) at the beginning of 2024 to be applied throughout the year. Considering that the annual average inflation rate in 2024 is expected to be around 50 percent, a raise of at least this rate is required at the beginning of 2025 for the minimum wage to regain the purchasing power it lost throughout 2024. This means the minimum wage should be set at (17,002 x 1.50 =) 25,503 liras. The idea of those planning to increase the minimum wage in 2025 according to the inflation rate expected by the public sector appears to be a 25 percent raise on the current minimum wage. If this view is accepted, the purchasing power of the minimum wage will fall far behind the purchasing power of the minimum wage at the beginning of 2024.

We made these calculations based on the inflation rates announced by TÜİK (Turkish Statistical Institute). However, people do not really believe these rates. According to the Sectoral Inflation Expectations Survey conducted by the Central Bank every month, the answers given to the question of what inflation rate is expected in September 2025 point to expectations very different from those foreseen in the Medium-Term Program (OVP). For the end of 2025, the market participants chosen by the Bank announce that they expect an inflation rate of 27.5 percent, real sector representatives 51 percent, and household representatives 71.56 percent. With these expectations, it is not possible for the 2025 inflation rate to turn out to be 25 percent as the public sector expects. Because we all know that “expectations largely determine the outcome.”

Let us also look at the issue in terms of the hunger threshold and the cost of living. In January 2024, the hunger threshold announced every month by TÜRK-İŞ was 15,048 liras, and the cost of living for a single person was 19,630 liras. At that time, the 17,002 lira minimum wage was above the hunger threshold and below the cost of living for a single person. In August, the hunger threshold was determined to be 19,271 liras, and the cost of living for a single person was 24,962 liras. Accordingly, the minimum wage has fallen below both the hunger threshold and the cost of living for a single person. If we consider that this situation will deteriorate further by the end of the year, we can see how much purchasing power the minimum wage has lost.

If we take into account the estimates in the Central Bank survey or the findings of TÜRK-İŞ, we can see that a raise of less than 50 percent for the minimum wage will remain at even half of the inflation expected for 2025.

The solution to inflation does not lie in paths such as reducing the purchasing power of wage earners, freezing rents, or intervening in prices. If that were the case, Argentina could have been successful with these methods it has been trying for fifty years. In addition to raising interest rates, there are three other important steps needed to reduce inflation: (1) Reducing the incredible waste in the public sector, (2) Carrying out structural reforms such as tackling the informal economy, making the rule of law supreme, and ensuring tax justice. (3) Ensuring an increase in production by using incentives and state support correctly. Without doing these, methods such as lowering wages, freezing rents, and inspecting prices through municipal police create deferred inflation, and since these interventions cannot be sustained forever, they cause these elements to spring upward the moment they are abandoned, affecting inflation even worse. We saw this after the pressures applied to rents and private school fees were lifted.