Employment increases despite low growth

The Turkish Statistics Institute (TurkStat) published labor market statistics for February on Wednesday. Developments in the Turkish labor market continue to surprise me. Let us first look at year-on-year changes in unemployment. The number of unemployed individuals increased slightly from 2.77 million to 2.88 million, and the unemployment rate went from 10.4 percent to 10.5 percent from February 2012 to February 2013.
Female labor force is rapidly increasing Readers who are aware of a loss of momentum in Turkey's gross domestic product (GDP) growth can say that there is nothing surprising regarding the increase in unemployment since the economy would probably not have created enough jobs due to low growth. Nevertheless, this is not the case. The number of employed increased by 1.2 million over the past year, from the first quarter of 2012 to the first quarter of 2013. The growth rate of employment was 5.2 percent, while the best estimates of yearly GDP growth remain close to 3 percent. This means that the growth of employment is higher than the value added growth, indicating a decrease in labor productivity. This strange situation seems to be continuing since the seasonally adjusted rise of employment from the last quarter of 2012 to the first quarter of 2013 was 1.1 percent, putting the yearly growth of employment at 4.4 percent. It is still well below the actual GDP growth rate. This is neither a common event nor a healthy development, and probably this uncommon event will not prevail in the coming quarters. Why did the Turkish economy start to create a lot of jobs during a period of sluggish growth? At the moment, this is a mystery awaiting explanation from clever economists. Let me just note that the strong employment increase includes all of four major sectors, i.e., agriculture, industry, construction and services. So, why did unemployment increase slightly within a year despite the strong increase of employment? Well, simply because the increase of the labor force was even stronger. The labor force increased year-on-year by 5.2 percent. This is the highest increase since 2005. What is striking in this very strong increase is the fact that it is mostly due to the increase of female labor force participation. Indeed, the male labor force participation rate increased from 69.1 percent to 70.3 percent (a 0.4 percentage point increase), while the female rate increased from 27.4 to 29.6 percent (a 2.2 percentage point increase) within a year. I would like to underline that the yearly average increase of the female labor force was limited to 0.9 percentage points from 2005 to 2012. This asymmetric evolution in the labor force has had adverse effects on the gender unemployment gap. The male unemployment rate decreased within a year from 10.2 percent to 9.8, while the female unemployment rate increased from 11.1 percent to 12.1 percent, widening the existent unemployment gender gap. Moreover, the increase of female labor force participation as well as female unemployment occurred at all educational levels. What is happening among women? How can we explain this sudden appetite for work? This is the second mystery waiting to be explained. That said, on the one hand we should be happy with this increasing appetite, since we are continuously complaining about the low female labor force participation rate in Turkey. Well, it has started to increase much more than expected. If the female participation rate continues to increase around 2 percentage points per year in the future, Turkey can reach the levels of Southern European countries, where these rates stay at around 60 percent, within 10 years. This would certainly be the greatest achievement of the next decade regarding Turkish labor market performance. However, without identifying the factors that lie behind this recent explosion in the female labor force, one can not predict that this will continue in the future. Now, on the other hand, this rapid increase of the female labor force cannot be compensated for, at least in the short run, by sufficient female hiring. If, in the near future, growth continues to be sluggish -- and that seems to be the case given the change in leading indicators -- while the appetite of women to work will still be avid, total unemployment -- and particularly female unemployment -- could rise more rapidly. Admittedly, this fact must not be a pretext to discourage women from working, but it should be a serious concern for the government, which must consider measures to both push growth and encourage hiring females.