(Bloomberg) -- Turkey's minimum wage will rise 50% in 2022 to help offset living costs that have surged as the central bank unleashed a series of lira-weakening interest-rate cuts to support President Recep Tayyip Erdogan's push to rewire the economy.
The monthly net minimum salary will be 4,250 liras ($275), Erdogan said during a televised press conference. In 2021, it stood at 2,826 liras, a figure that converted to $380 at the start of the year but has fallen to $186 with the lira's 51% depreciation.
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“The increase offsets much of the depreciation in the lira this year, so wages recover much of their loss in dollar terms,” said Nick Stadtmiller, director of emerging markets at Medley Advisors in New York. “That wipes out most of the cost-competitiveness.”
More than 40% of all workers in Turkey earn the minimum wage, according to the country's Social Security Institution, meaning the hike will ripple broadly through the economy at a time when polls show Erdogan's popularity slipping.
“The increase in minimum wage is 50% and that's the highest raise in the last 50 years,” Erdogan said. “I believe this shows our determination to not have our workers crushed under price increases.
“Starting next year, we will abolish both income and stamp tax on the minimum wage,” he added.
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While the raise could mitigate the discontent that's taken root among struggling working-class families, it could also fuel already high inflation.
“Plenty of struggling companies will try to give less and unemployment unquestionably will rise,” said Mike Harris, founder of London-based consultancy Cribstone Strategic Macro. “The question is how much of the spare purchasing power will fuel more demand for foreign currencies until that 50% hike filters through to inflation.”
Consumer prices were up an annual 21.3% in November, including an average 27.1% increase in the cost of food. The lira has lost more than half of its value against the dollar this year, driving sharp price rises across the board.
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