Recently, a number of estimations on 2010 growth were made. The common feature of these estimations is that they are all above the official estimate given in the Medium Term Program (MTP). MTP foresees 3.5 percent growth in 2010. Estimates by economists and institutions generally vary between 3.8 and 4 percent. Some even slightly exceed 5 percent.

Estimation I previously made at this column was at 3.8-4.9 interval under the basis scenario. We know that any growth rate does not necessarily reduce unemployment. This applies for any economy. Growth rate should go beyond a threshold so as to ensure a reduction in the rate of unemployment. A study conducted by TEPAV indicates that growth rate should be above 4.3 percent in order to ensure a drop in unemployment rate. Considering non-agricultural unemployment, the threshold growth rate turns out slightly lower. If we take into account the margin of error in the data and the study, we can say that the minimum rate of growth necessary to reduce unemployment rate should be between 4 and 4.5 percent. This is a quite high threshold to go beyond.

There are some certain reasons why growth rate should exceed a certain threshold level to ensure drops in unemployment. Let me give some examples. First, assume that the number of workers remains constant while productivity increases: In this case, production per worker goes up. As a result, the economy grows while employment remains constant. If size of the labor force does not change, unemployment rate also remains constant despite the fact that the economy grows. Nonetheless, there is continuous new participation in the labor force; particularly if the population is young as in Turkey. The second example is related with this fact: We define the number of unemployed as the difference between the labor force and employment. And to find unemployment rate, we divide number of unemployed by labor force. Therefore, unemployment rate can increase even if the number of employed also increases.  If productivity is also in rise as in the first example, unemployment rate can go up even further.

There is a third reason giving way to this phenomenon. If the demand for the goods I produce increase, I do not immediately employ new workers. For a while, I make my current workers work overtime. Then, if I decide that this rise in demand is permanent, I hire more workers. As a result, there is no one-to-one relationship between growth rate and unemployment rate.

As the existing data suggests, unemployment rate over the first nine months of 2009 was 14.3 percent. Nonagricultural employment is even higher: 17.6 percent. In other words, overall employment rose by 3.9 points and nonagricultural rose by 4.7 points compared to the same period in 2008. This is quite significant. When growth estimates by different economists and the threshold growth rate found out in TEPAV study are taken into account, it becomes clear that 2010 will not be the favorite year considering unemployment rate.

This is the bitterest side of crises. Unemployment rate increases considerably and it is not reversed immediately even the trough of the crisis is left behind. It takes time for the unemployment rate to fall down back to the pre-crisis levels; of course if the economy does not encounter a new shock in between.

This commentary was published in Radikal daily on 11.01.2010