President Recep Tayyip Erdoğan on Wednesday defended the newly announced minimum wage increase for 2025, characterizing it as a fulfillment of his government's pledge to safeguard workers from inflation.
Erdoğan also said the measures taken were designed to bolster stability without compromising monetary and fiscal policies.
Türkiye's net monthly minimum wage has been raised by 30% to TL 22,104 ($627), effective Jan. 1. The hike fell short of the workers' union demand but, economists say, showed the government's determination to reach disinflation targets.
The government said the level was set to maintain fiscal discipline and continue the fight against inflation. The workers' union had requested an increase of around 70%.
The adjustment directly impacts some 9 million workers and is seen as a benchmark for the increase in private sector salaries.
"We have once again kept our promise to not let workers be crushed by inflation," Erdoğan told members of his ruling Justice and Development Party (AK Party) at a parliamentary meeting in Ankara.
Erdoğan also said the support the government provides to employers per minimum-wage employee will also be increased from TL 700 to TL 1,000 in 2025.
Speaking to reporters after the meeting, Vice President Cevdet Yılmaz stressed the government's priority of reducing inflation and said workers would receive their share as the economy grows.
Annual inflation declined to 47.09% in November from an annual high of 75% in May, mainly due to tight monetary and fiscal policies. The central bank sees it ending 2024 at around 44%.
The wage hike was seen as a major test of the government's efforts to fight high inflation as it could pressure prices.
Erdoğan went on to underscore the progress in wage levels during his tenure.
"In 2002, the minimum wage was TL 184, or $126 in dollar terms. Following this latest adjustment, it has risen to $628," he said.
"I hope the new minimum wage will be beneficial for both employees and employers."
Labor Minister Vedat Işıkhan also defended the government's cautious approach, citing the need to preserve fiscal discipline and avoid exacerbating inflation.
"We must act prudently to ensure that the fight against inflation remains on track," Işıkhan said during the final meeting to determine the wage increase.
Advocates argued that a more substantial increase would mitigate workers' real income losses, while businesses raised concerns about rising labor costs potentially leading to layoffs.
Yılmaz on Wednesday emphasized that the minimum wage issue is more of a concern for private companies than the public sector, stating, "As the economy grows, our employees, like all other sectors, will continue to receive their share."
He pointed out that the main issue is the decline in inflation and the increase in people's purchasing power.
"Unless your purchasing power increases, no amount of wage increase has much significance," he said, highlighting the importance of companies creating registered employment.
Economists said the modest increase made it certain that the Central Bank of the Republic of Türkiye (CBRT) would start a policy easing on Thursday.
To curb the growth in price gains, the bank has hiked rates by 4,150 basis points since June last year and has kept its benchmark policy rate steady at 50% since March.
"Expectations for a rate cut have risen, and I've revised my own forecast from a 150 basis point cut to 200 basis points. However, a 250 basis point cut wouldn't be a surprise," said Filiz Eryılmaz, chief economist at ALB Yatırım.
Hakan Kara, a former central bank chief economist who now teaches at Bilkent University, said on Tuesday that the modest wage hike cemented expectations that the CBRT will begin its rate-cutting cycle.
According to market surveys, the central bank is expected to start an easing cycle after eight months of steady policy. Economists expected the first rate cut to be between 150-250 basis points.
"This (minimum wage) increase, which is at the lower end of expectations, is expected to have an additional CPI impact of less than 1 point, and we believe it has eased the central bank's hand in initiating interest rate cuts," said Haluk Bürümcekçi, founding partner at Bürümcekçi Consulting.
According to previous central bank research, a one percentage point increase in the minimum wage contributes 0.06 to 0.2 points to inflation. It is estimated that the new hike, which could impact inflation between 1.8-6 points, is mostly taken into account in its year-end inflation forecast of 21%.
The CBRT will announce its policy rate decision at 11 a.m. GMT on Thursday.
Erdoğan on Wednesday reiterated his administration's commitment to steering the economy through challenging times.
"Inflation is decreasing, exports are increasing, the current account deficit is falling, the wheels of industry are turning, and tourism is setting records. God willing, 2025 will be better than the previous year," he said.
"All indicators show that the Turkish economy is steadily progressing toward its growth targets through investment, production, employment, exports, and a current account surplus," he added.
"With a bit more patience and effort, we will achieve even better results."
Erdoğan also pledged a meticulous approach to fiscal management.
"Fully aware of the responsibility on our shoulders, we will manage the upcoming period with great caution, avoiding populism while upholding monetary and fiscal discipline," said the president.
