Turkey's minimum wage increase seen hitting retailers

Possible job cuts in sight
By Ceyda Caglayan
|payroll-reporter.com|Last Updated: 11/24/2015

ISTANBUL (Reuters) — Turkey's plan to increase the minimum wage by 30 per cent from January could squeeze companies, particularly big retailers such as CarrefourSA that rely on lower-wage employees.

The ruling AK Party (AKP) campaigned in the Nov. 1 election on a pledge to lift the monthly net minimum wage to 1,300 lira (US$461), appealing to the roughly five million minimum-wage earners struggling to make ends meet.

With minimum wage workers making up around one-fifth of Turkey's 26-million strong workforce, the increase is expected to cost the private sector around US$9.2 billion, according to one estimate from Umit Ozlale, an economics professor at Istanbul's Ozyegin University.

"The total impact will be more than just a wage increase," CarrefourSA's chief executive Mehmet Nane told Reuters. "It will also lead to higher social security premiums per employee and increase the cost of outsourcing services such as catering and security.

"As a result, our margins will decrease seriously. Retailers will look to cut expenses. And that means cutting jobs."

Supermarket operator CarrefourSA, a joint venture between France's Carrefour and Turkey's Sabanci Holding, competes with Migros and appliance and electronics chains Teknosa and Bimeks, among others.

Mustafa Selcuk, an executive board member of Bimeks, told Reuters the company may not cut jobs initially, but will be "less generous" in hiring for new stores.

Retailers are expected to be hit hard because of their reliance on minimum-wage workers.

Margins could fall by 50-100 basis points across the sector, and even more at food retailers, estimated Ilyas Safa Urganci, an analyst at brokerage Is Yatirim.

At Migros, labour costs correspond to 9 per cent of revenues, while they represent 5 per cent at Teknosa, according to a report by Ak Yatirim, a brokerage.

Other large companies where the ratio of labour costs to revenue or earnings is high, including newspaper publisher Hurriyet Gazetecilik, will also be hit.

At Hurriyet Gazetecilik, which publishes the mass circulation Hurriyet newspaper, labour costs are as high as 35 per cent to revenue or earnings, according to Ak Yatirim.

No one was immediately available to comment at Hurriyet Gazetecilik. Migros declined to comment.

SHRINKING MARGINS

Some companies will not be adversely affected at all.

Private pension firms, including Anadolu Hayat and Avivasa are expected to benefit as the wage hike will mean an increase in the government's contribution to individual pensions.

Food companies that produce their own products — such as biscuit maker Ulker and dairy and pasta producer Tat Gida — will be less affected because they can pass the wage hikes on to consumers, said Yatirim's Urganci.

Still, the rise in the minimum wage is expected to further stoke inflation, now at around 7.6 per cent. It could also undermine confidence in the AKP's promises to strengthen fiscal discipline, risking further pressure on the lira, which has lost nearly a quarter of its value against the dollar this year.

Bulent Gurcan, chief executive of retailer Teknosa, has called for government subsidies to help employers shoulder the burden.

The government, however, has only said it is looking to help smaller companies bear the increase, after the textile industry warned the higher wage could force clothing companies to move abroad.

"The minimum wage hike could lead to increases in salaries for workers on higher pay scales. If companies don't take additional measures, costs will go up and shrink margins," said Tuncay Tursucu, research director at Integral Menkul Degerler.

"Companies could decrease employment or cut bonuses. Export sectors such as textiles could shift their production to other countries to avoid losing their competitive advantage."

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