The Relationship Between Minimum Wage and Inflation, Regional Inflation, Hunger and Poverty Threshold and Regional Minimum Wage in TurkiyeDeniz Sevinç
The relationship between the minimum wage level and inflation in Turkey, whether it is below inflation or not, has been a matter of debate for many years. The regional determination of minimum wage levels has also come to the agenda. In addition, a relationship is thought to exist for minimum wage with the hunger and poverty thresholds. This study aims to determine the relationship minimum wage has with inflation, regional inflation, the hunger threshold, and the poverty threshold. The study examines the relationships the different versions of minimum wage have with inflation, the hunger threshold, and the poverty threshold alongside regional inflation in Turkey for the S1 2005-S1 2022 period using the bootstrapped Toda-Yamamoto causality test. The test results show bidirectional causality to exist among gross minimum wage, employer cost, and national inflation rates with the hunger and poverty thresholds. While net minimum wage and increased minimum wage rate do not cause consumer inflation, they do have a mutual causality relationship with the other variables. In addition, the results differ regionally. For example, minimum wage is determined to be the cause of regional inflation in industrially developed regions except İstanbul. In contrast, the minimum wage and regional inflations in Northern region of Central and Eastern Anatolia and Eastern Black Sea region, has a mutual causality relationship or no causal relationship at all. In addition, a weak convergence is found to be present for regional inflation rates, with these rates varying differently from one another. As a result, the suggestion can be made that minimum wage should be regulated regionally by considering regional inflation and other regional characteristics, as well as the hunger and poverty thresholds.
Türkiye’de Asgari Ücret ile Enflasyon, Bölgesel Enflasyon, Açlık ve Yoksulluk Sınırı Arasındaki İlişki ve Bölgesel Asgari ÜcretDeniz Sevinç
Türkiye’de asgari ücret düzeyinin enflasyon ile ilişkisi; enflasyonun altında kalıp kalmadığı uzun yıllardır tartışma konusudur. Asgari ücret düzeyinin bölgesel olarak belirlenmesi konusu da aynı şekilde gündemde olmuştur. Bunun yanında asgari ücret ile açlık ve yoksulluk arasında da bir ilişki olduğu düşünülmektedir. Bu çalışmanın amacı, asgari ücret ile enflasyon, bölgesel enflasyon, açlık ve yoksulluk sınırı arasındaki ilişkinin tespit edilmesidir. Çalışmada 2005: S1-2022: S1 dönemleri arasında Türkiye’de asgari ücretin farklı versiyonları ile enflasyon, açlık ve yoksulluk sınırı ve bölgesel enflasyon arasındaki ilişki Bootstrap Toda-Yamamoto Nedensellik Testi ile incelenmiştir. Testin sonuçları, brüt asgari ücret ve işveren maliyeti ile ulusal enflasyon oranları ve açlık ve yoksulluk sınırları arasında çift taraflı nedensellik ilişkisini göstermektedir. Net asgari ücret ile asgari ücret artış oranı ise tüketici enflasyonunun nedeni değil iken, diğer değişkenlerle karşılıklı nedensellik ilişkisi içindedir. Bunun yanında sonuçlar, bölgesel olarak da farklılık göstermektedir. Bazı bölgelerde asgari ücretin bölge enflasyonun nedeni olduğu, diğer bölgelerde ise karşılıklı nedensellik ilişkisinin olduğu veya hiç nedensellik ilişkisinin bulunmadığı tespit edilmiştir. Ayrıca bölgesel enflasyon oranları arasında zayıf bir yakınsamanın olduğu, bölgesel enflasyon oranlarının birbirinden farklı şekilde değişim gösterdiği bulunmuştur. Tüm bunlar neticesinde, açlık ve yoksulluk sınırları gözetilerek, bölgesel enflasyonun ve diğer bölgesel özelliklerin dikkate alınarak asgari ücretin bölgesel olarak düzenlenmesi önerilmektedir.
Whether the minimum wage increase is above or below the inflation rate in Turkey has been debated for many years. Since the beginning of COVID-19, inflation and other macroeconomic factors have progressed inconsistently in Turkey and the world. The rise in inflation had caused impoverishment in the class earning minimum wage. To reduce this impoverishment, minimum wage is increased again, with this increase then increasing demand and raising inflation again. The literature refers to this relationship as the price-wage spiral (Akgül & Bükey, 2020; Blanchard, 1986; Coorey et al., 1996; Lemos, 2004; Odabaşıoğlu Gündoğdu, 2014).
The minimum wage must meet individuals’ minimum mandatory needs. Therefore, it must be above the hunger threshold (Uzunoğlu, 2021). Wage increases that are lower than the inflation rate cause a decrease in real wages and poverty (Akdaş et al., 2020). In Turkey, the hunger and poverty thresholds are calculated for a nuclear family. When considering that children and women in a traditional nuclear family do not work or are employed informally, the minimum wage and hunger and poverty thresholds can be evaluated together (Kargı, 2013; Şahin & Aydın, 2017; Uzunoğlu, 2021).
Limited empirical studies are found on the relationship between minimum wage and inflation. Some of these studies have shown a bilateral relationship between minimum wage and inflation (Akgül & Bükey, 2020; Korkmaz & Çoban, 2006; Sunal & Sezgin Alp, 2015), while Gümüş and Akgüneş (2020) and Mehregan and Rezaee (2009) additionally found a unidirectional causality to exist going from inflation to minimum wage. Başkaya and Özmen (2013), Heemskerk et al. (2017), Tüleykan (2019), and Yıldırım (2015) all concluded minimum wage to affect inflation. Campos-Vazquez and Esquivel (2020), Cuong (2011), and Kargı (2013) stated no relationship to exist between minimum wage and inflation. Kargı’s study was the only one conducted to address the relationship between the minimum wage and the hunger and poverty thresholds in Turkey and determined bilateral causality to exist between those variables. This study is thought to contribute to the literature due to the relationships among hunger and poverty thresholds, regional inflation, and minimum wage not having yet been tested.
The local minimum wage in Turkey was regulated between 1951-1967, and a regional minimum wage was applied between 1967-1974. In 1974, a single minimum wage began being determined at the national level (Korkmaz, 2004). Just as in countries such as the US, China, and Mexico, the literature in Turkey has had discussions on how to determine minimum wage at the regional level by taking regional development and inflation into consideration (Akgeyik, 2007; Küçük, 2016; Yükseler, 2010). However, the relationship between minimum wage and regional inflation has yet to be empirically studied. For this reason, the study is thought to contribute through its empirical findings to the debate on whether or not to pass a regional minimum wage application.
Six-month data for the period 2005-2022 was considered as the analysis period. This study examines the causality relationship between minimum wage and different inflation calculations, as well as how hunger and poverty thresholds affect minimum wage. The causality test developed by Toda and Yamamoto (1995) is a method based on the extended vector autoregression (VAR) model with a chi-square distribution that may cause a problem of varying variance and the detection of spurious causality relationships in tests performed on small data sets. Hacker & Hatemi-J (2006) developed the MWALD test using the bootstrap method to overcome this situation. To avoid problems in small data sets, causality is tested with the Toda-Yamamoto causality test based on the bootstrap method. Accordingly, the variables other than net minimum wage and CPI have a causal relationship. On the other hand, gross minimum wage and employer cost have a bidirectional causality relationship through inflation variables and hunger, and poverty thresholds. In addition, while the rate at which minimum wage increases did not cause CPI or inflation PPI, a bilateral causality relationship does exist between other variables and the minimum wage increase rate.
The second part of the analysis examines whether a regional inflation convergence occurs in Turkey and tests the causality relationship between minimum wage and regional inflation levels. According to the unit root test, Turkey has no strong convergence with regard to interregional inflation, with the convergence process differing according to region. After the interregional convergence test, the causality relationship between regional inflation and minimum wage was investigated, but these results also differed regionally.
This study investigates the relationship minimum wage has with inflation, regional inflation, hunger, and poverty and suggests that a regional minimum wage should be adopted. However, many factors exist that need to be considered when determining regional minimum wage. Future studies can evaluate purchasing power as an alternative to inflation while investigating regional differences.