EconoMonitor

The Kapali Carsi

Mayday on May Day in Turkey (and the U.S.)

As an avid fan of Beşiktaş sports club, I am used to regularly getting teargassed by the police. Therefore, I did not make a big deal of it when my friend told me he and his wife had been introduced to pepper spray on May Day. After all, as our interior minister noted some time ago, it is organic and therefore perfectly healthy.

Here is the intro. my latest Hurriyet Daily News (HDN) column. In fact, I did not make my friend’s ordeal a big deal because Turkish workers have much bigger problems than getting peppersprayed once a year. You can read the column at the HDN website to see what they are.

I got the inspiration for the column from a Business Insider piece showing that corporate profits are record-high, while wages as share of GDP are at an all-time low in the U.S.- and hence the title for this post. There was actually some sharp response to a recent Thomas Friedman NYT article that was basically arguing that today’s world is “tailored” for anyone who is self-motivated and that a 401(k) plan puts your destiny in your own hands. Felix Salmon, for one, does not mince his words, and he has a couple of links to good articles by Yves Smith and Matt Yglesias on 401(k). Speaking on Yglesias, he has a good post about the Brad DeLong Karl Marx speech that I hyperlinked to in the column.

Shifting gears, I mentioned in the column that there are sharp swings in Turkish wage share numbers, hinting at data problems, but there is a logical explanation as well: Note that wage share bottoms out during the 1994-1995 crisis and then starts rising. However, interestingly enough, the fall after the Turkish recovery program (remember that there was a sharp fiscal contraction in 2003-2005) continues- but then data ends:( This is just begging for further research: Why did the wage share continue falling? What happened to wage share after 2006? Etc etc…

Shifting gears, Taylan Bilgic, ex econ & news editor of HDN (now at Bloomberg), makes more or less the same point as me that work accidents happen more in booming sectors. He uses the construction sector as example, but he also refers to the Tuzla shipyard deaths as well. But I wish someone would provide more analytical proof on my (and his) argument.

On my point about the skills match: I saw a lot of that in the World Bank study on higher education I led at TEPAV: We had very colorful stories, some of which we carried over the report, on how companies were not able to find students with the skills they requested.

As in last week’s post, I got pretty good reader feedback as well, some of which I’d like to carry over here. A reader was not very happy that I said there is no data on corporate profits in Turkey; she even sent me a Bloomberg terminal page with corporate profits:

Can’t argue with that, right? Well, the problem is that these are public companies, and since the Turkish stock market cap is less than half of GDP, it is not a good reflection of the Turkish corporate sector. The reader argued it may give an idea, but there are several issues I am not sure how to handle- all related to how representative a sample of the Turkish corporate sector is Borsa Istannbul (BIST). The Central Bank has a survey, and the firms there are supposed to represent the corporate sector well, so maybe we could use that, or even a combination of BIST and that. But it is definitely not 5 minutes of work.

Moving on, another reader had the following comment over at Twitter: “Currently, those who play by the rules get punished. “Great remark; the Fuhrer could not have said it better himself!:) As an SME owner who plays by the rules, I wanted to make this point in the column, as I feel like an idiot because my competitors don’t and can lower prices this way. So I am grateful to him for bringing this up.

A couple of readers were not very happy about my points that severance pay is too high in Turkey and labor regulations are too strict. As an alternative, I would propose the solution offered by Istanbul think-tank BETAM. Here is from my column on the issue last year:  They propose a severance pay fund, whereby employers would transfer a small premium over to employees’ accounts each month. As they explain in detail in the report, this system would increase coverage, providing unconditional access to all workers. It would also encourage formal employment by lowering the cost of firing (and hiring) workers. Finally, it would bring “real” mobility to the labor market and decrease mismatches. There would also a small but non-negligible impact on the household savings rate, alleviating one of the Turkish economy’s main problems. And if these personal accounts are managed by the private sector, as BETAM is recommending, it would also increase financial deepening and literacy.

My general view on severance is this: Right now, there is a lot of incentive on not to pay it because: 1. it is too high so you make a lot of money by not paying it. 2. there isn’t enough inspection, and so the probability of getting caught doing this is low. What is the solution? Lessen the incentives for not paying by making it less costly and increasing the probability of getting caught.

Another reader had a specific request: “please tell us how to alleviate this and why the government is not doing much about it neither and why the workers put up with all the shenanigans about employment”: Well, there is no magic formula, but Turkey has to give up protecting jobs instead of workers. Specific policy recommendations are beyond the scope of this post, which has already become too long, but I could refer anyone interested to actual Turkish labor economists (other than knockoff ones like me who pretend to me one once or twice a year) who have thought about these issues much more than I have.

Finally, here’s an interesting read linking, erroneously I should add, May Day to communism. I saw a similar piece in the WSJ of late. I guess the right-wing still continues to associate a worker’s holiday that began in the U.S. (but is not celebrated on May 1 there anymore) with communism. As Brad DeLong noted, “the Wall Street Journal editorial page works day and night 365 days a year to make Marx’s prediction come true”. The prediction he’s referring to is, in his words “that even though the ruling class could appease the working class by using the state to redistribute and share the fruits of economic growth it would never do so. They would be trapped by their own ideological legitimations–they really do believe that it is in some sense “unjust” for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would collapse or be overthrown.”…

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