Timing problem with Turkey's minimum wage hike

Turkey recently raised the minimum wage by 30 percent to 1,300 Turkish Liras ($430) for over 5 million workers. This move is very good for a country where the hunger threshold for a four-member family is 1,450 liras ($480) and the poverty threshold is 3,966 liras ($1,313). I strongly support it. What's more, Turkey's recent growth has mainly been based on consumption. So, to put is simply, wage hikes will allow people to spend more.

However, there is a problem of timing with the minimum wage hike. Today's increase has the potential to damage existing problems in the job market tomorrow, worsening companies' competitiveness at a time when Turkey has been struggling to escape the middle-income trap and harming the attraction of the country for foreign companies looking to investment. 

Let's do some math about the expected extra costs for employers of the minimum wage hike. The government has announced that it will cover 40 percent of the cost of the hike - but only for 2016. This would amount to assistance of around 9.7 billion liras ($3.2 billion) of the projected cost of 24 billion liras for employers. The raise is expected to most hit small and medium-sized enterprises (SMEs), which make up around 95 percent of all enterprises in Turkey. The total annual revenue of SMEs, which account for around 78 percent of the country's total employment, is estimated to be around 40 billion liras, which is not even double the expected burden from the minimum wage hike.

Even before the New Year, when the minimum wage hike became effective, some SMEs reportedly started firing people rather than face the additional burden. The comments by a senior manager of a factory based in a small province in northwestern Turkey to a TV channel this week were quite...