Turkey’s Hyperinflation and How Employers Are Weathering the Crisis
Birches Group monitors labor markets that are making headlines around the world and wants to share news and updates on the conditions in these markets.
Turkey, a Eurasian hub of 84 million people, is weathering an unprecedented economic and monetary crisis. Inflation is a major issue, with rising prices chipping away at purchasing power every week.
The Turkish Statistical Institute reported that Turkey’s annual inflation rate reached 83.45% in September, the highest in 24 years. Independent economists from ENAGrup believe the actual figure is 186.27%.
Inflation has been soaring in Turkey for 16 months, yet Bloomberg reports that price growth in the transcontinental country has been in the double digits since early 2017.
The country has suffered debt and currency calamities in the last few years, says The Wall Street Journal, but the current crisis is different. According to a report from Capital.com, aggressive interest rate cuts, high energy and commodity prices, heavy dependence on imports, and a depreciating Turkish Lira have contributed to surging inflation rates.
A paper from the Middle East Institute states that Turks have been driven to protect their savings by changing Lira deposits into gold and foreign currencies such as the Euro and United States (US) dollar. The tendency to keep savings under the pillow is also an ongoing trend.
What the government is doing
The Turkish government has taken several measures to protect households from high inflation. These mechanisms include:
- Protecting Lira-denominated bank deposits
- Raising the minimum wage by 50% in January and by 30% in July
- Giving social transfers to poor households
- Placing a 25% cap on rent increases
- Reducing taxes on utility bills and introducing fuel and energy subsidies
- Slashing value-added taxes on specific goods
But the measures have had little impact on the lives of Turks.
What the employers are doing
As their purchasing power shrinks and their job security erodes, many Turks are falling out of the middle class, says The Economist.
People are getting upset as they see their living standards falling. Businesses have been affected by the Lira’s fall in value, while people’s wages have been depleted because they can now buy less with their money. The price surge has upturned household and company budgets, and many are scrambling to cut costs. Over two-thirds of Turks are struggling to pay for food and cover their rent, according to a survey by the Yoneylem Social Research Center.
As a result, workers are negotiating higher salaries, and employers are taking proactive steps. Here are a few examples of what employers in Turkey are doing in response to mounting inflation:
- Implementing across the board salary increases of between 15% to 30%
- Improving allowances for items such as meals and transportation
- added cash incentives or bonuses
Beginning summer last year, Mustafa Tonguc, the chief executive of DHL Express in Turkey, compiled a list of the cost of 50 essential products and compared them with their German equivalents to persuade bosses at headquarters to raise the wages of over 1,000 staff. According to the Financial Times (FT), Tonguc would raise wages three more times in the year ahead. “We as a business can’t fix the global economy, but we can take care as much as we can of our people,” Tonguc told FT. “In the last 12 months, many companies went bankrupt. We felt people should be assured of their job security,” he added.
How we can help
Policies and procedures for keeping pay programs functioning in highly volatile countries like Turkey are vital. A Special Measures Policy should be set up to determine the triggers and equivalent measures to support staff and ensure business continuity during volatile periods. In addition, organizations must decide how they plan to implement the next steps for their staff. Employees need to know that they can rely on their employer to help them during times of crisis.
We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Speak with our consultants today to find out how we can create one for you.
- 15 November Market Monitor