ECONOMY

Turkey begins employment incentives negotiations

ANKARA – Turkey’s Labor Ministry asked the cabinet yesterday to support key reforms aimed at boosting employment by cutting employers’ costs as economic growth slows. Turkey’s economic growth, averaging near 7 percent in the last five years, has failed to reduce unemployment. Growth slowed to 2 percent in the third quarter of 2007, forcing the government to consider new measures to stimulate the economy and cut youth unemployment, which hit 19.6 percent in 2007. The center-right, pro-business government is also under pressure from business groups to speed up reforms to shield Turkey’s economy from worsening global economic conditions. The reform package includes a five-point percentage point cut in social security premiums paid by employers and additional incentives to hire young workers, the text of the bill obtained by Reuters said. The treasury will shoulder for a time social security premium payments for firms that hire young workers in an attempt to cut youth unemployment. In a bid to please trade unions, the reform bill raises unemployment payments by taking gross salary as the basis for the payments rather take-home salaries. It also reduces the number of registered work days for workers to be entitled to benefits from unemployment payments. The bill creates a new fund where future severance payments will be transferred and the money accumulating there will be used in private pension funds. Trade unions have threatened a general strike if the government changes the severance payments. The reform says workers will be paid severance payments only in the case of death or retirement but not layoffs, creating potential conflict with the labor groups. Many firms – already reeling from high inflation and a strong currency – are reluctant to hire new workers, saying severance packages on employment contracts are excessive and large social security premiums hurt their competitiveness. The unions have already called for a two-hour strike on March 14 to warn the government not to press ahead with the changes which they say reduce workers’ rights. «The government can pass the laws due to its majority in parliament but it is negative that the government did not seek any consensus on the changes, which can be challenged in the Constitutional Court,» said Oyak Investment economist Gulay Elif Girgin. The government will also press ahead with a key and much-delayed social security reform which will also raise retirement ages – as the International Monetary Fund has sought – Prime Minister Recep Tayyip Erdogan told his party’s deputies yesterday. «Turkey cannot delay this reform further. The social security system is not sustainable. Women retired at 38 and men at 43 in the past because of irresponsible and populist politicians,» Erdogan said. Parliament is expected to approve the reform law, a condition for the release of a $1.3 billion IMF loan tranche, later this month. The Constitutional Court vetoed the social security reform in 2006.