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The global fashion business journal

19 Jun 201921:03

Turkey: fall of lira to cushion the impact of wage escalation of 55% in four years

The depreciation of the lira in about 40% in 2018 has catapulted textile exports to Spain, making Turkey the second largest supplier of fashion products.

12 Jun 2019 — 08:00
J. Cumellas
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Turkey: the fall of the lira cushions the impact of wage escalation of 55% in four years

 

The devaluation of the Turkish lira deflates the wage escalation that the country has registered in the last four years. Turkey's Minimum Interprofessional Salary has increased by 55.3% between 2016 and 2019, from 1,647 lire to 2,558.4 lire per month. However, the variation of exchange rates regarding euro has caused the minimum wage in 2019 to be 426 euros, while in 2016 was on 490 euros, 13.1% more.

This mismatch is explained by the depreciation of lira, which in 2018 lost about 40% of its value with in comparison with the previous year, according to the Spanish trade union CCOO report on union's approach of the value chain in Turkey. This situation has caused the Turkish minimum wage to increase a 12.4%, to 2,095.5 liras, despite decreasing in 35.5% euros, to 289.5 euros, after goverment's review of the minimum wage.

 

The collapse of the lira triggered in August 2018 provoked the Central Bank of Turkey to inject 10,000 million lire (6,000 million dollars) into the financial system to provide liquidity to the market and stabilize the currency. 

 


 


The measure was also adopted to counteract the increase in consumer prices that reached 25%, the highest figure in the last fifteen years. The move of the Central Bank caused a deep slowdown of the economy since the beginning of the year while it has made exports cheaper, improving its external competitiveness.

In this sense, the report indicates that this breeding ground has motivated that Turkey, where the industry represents 20% of the Gross Domestic Product (GDP), has increased its sales of fashion products to Spain by 15% between January and May of 2018, up to 2,100 million euros.

This has caused the country to have displaced Bangladesh from the second position in the ranking of the main suppliers in the sector, which exported to Spain just over one billion euros between January and May 2018. For its part, China was the main fashion supplier in Spain.

At European level, Germany was the main trading partner of Turkey, with 21% of exports, followed by Spain and the United Kingdom.

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1 comments
Gavin R. Putland
12 Jun 2019 — 23:04
What's better than raising the minimum wage? Reducing rents! Why? Because:
(1) Nobody says lower rents would force employers to cut staff!
(2) Nobody says lower rents would feed into higher prices for the poor!
(3) When you allow for income tax and withdrawal of welfare, a dollar *saved* is worth much more than a dollar *earned* (google "EMTR" and "cliff effect").
(4) By definition, the benefit of lower rents isn't competed away in higher rents — as a rise in wages would be. Landlords might even try claw back the *gross* increase in wages, not allowing for the EMTR.
(5) Lower rents mean lower barriers to JOB CREATION. Jobs can't exist unless (a) the employers can afford business accommodation, and (b) the employees can afford housing within reach of their jobs, on wages that employers can pay.

And how do we reduce rents? Impose rent control? NO!! That makes it less attractive to supply accommodation. But a tax on vacant lots and unoccupied buildings makes it less attractive NOT to supply accommodation! A vacant-property tax of $X/week makes it $X/week more expensive to fail to get a tenant, and thereby REDUCES, by $X/week, the minimum rent that will persuade the owner to accept a tenant. Better still, the economic activity driven by *avoidance* of that tax would broaden the bases of other taxes, allowing their rates to be reduced, so that the rest of us would pay LESS tax!
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