Unemployment is still on a rising trend

December labor market statistics reveal a moderate surge in unemployment. This should not be a surprise for the readers of this column. For months I have been trying to explain that decreasing economic growth would inevitably have an adverse impact on employment, leading to higher unemployment, sooner or later.  In fact, an increasing tendency in unemployment has been perceptible since autumn, and the December figures confirm it. However, the increase in unemployment does not originate from weak job creation as would be expected, but rather from an astonishingly strong rise in the labor force.
The latest Turkish Statistics Institute (TurkStat) seasonally adjusted figures show that the unemployment rate reached its minimum level in June 2012 at 8.9 percent. Since then we have been observing a moderate but persistent rise in the unemployment rate that finally reached 9.6 percent last December. The Bahçeşehir University Center for Economic and Social Research's (BETAM) estimates regarding the evolution of the non-agricultural unemployment rate is rather similar. The seasonally adjusted figures show that the minimum level in the unemployment rate was reached in January 2012 at 11.2 percent, and it rose to 11.8 percent in December. There are two striking features of the recent developments in the Turkish labor market. The first one is the very high increase in the labor force, particularly the increase among woman. The second is the continuing rise in employment despite low economic growth. From June to December, the labor force increased by 3.2 percent and employment by 2.5 percent, according to TurkStat's seasonally adjusted estimations. For a six months period, those increase rates are too high, and they have never been seen before. In particular, we must note the fact that the yearly growth rate in employment is reaching 5 percent for the last six months, a period in which the Turkish economy was experiencing a rather hard landing. The role played by women in these developments has to be particularly underlined. From December 2011 to December 2012, total employment rose by 1,088,000 -- half of whom (539,000 precisely) were women. We should note that in this highly surprising increase of female employment, agriculture had a very marginal share as female employment increased only by 48,000 in this sector. On the other hand, two-thirds of the increased employment took place in the service sector. Let me add that wage earners constituted 70 percent of this female employment increase, and the increase has been particularly high among female university graduates; the labor force participation rate among this group strongly increased from 70.4 percent to 74 percent, and the unemployment rate jumped from 12.2 percent to 15.9 percent within a year. To be frank, I do not know how to explain these unprecedented events since we need more information. We will get this additional information when the micro data of the 2012 Household Labor Survey are published in May. That said, I can make some personal guestimates. I think that the strong employment increases despite the low economic growth cannot continue. We know that public institutions, being part of the service sector, accelerated their hiring last year but these hirings cannot be as intense this year as last year, unless the budget deficit surpasses its target. On the other hand, this year we expect higher growth than last year, but there is a large consensus among forecasters that the growth rate will be at best around 4 percent. Now, simple economics say that it is impossible to increase employment more rapidly than gross domestic product (GDP) growth, except maybe over short periods. So, I expect a slow down in the increase of employment in the coming months. If this slowdown occurs and the labor force continues to increase at its actual pace, unemployment will start to increase much more strongly. But I think there will also be a deceleration in the increase in the labor force, particularly among women; unless we can identify the factors behind the unexpected jump in the female labor force participation and prove that these factors are permanent.