Osman Şenkul
According to the latest data released by the Turkish Statistical Institute (TurkStat), the seasonally adjusted narrowly defined unemployment rate, which was announced as 8.6% in the second quarter of 2025, increased by 0.3 percentage points compared to the previous quarter. The seasonally adjusted underemployment rate (broadly defined unemployment) increased by 3.5 percentage points compared to the previous quarter, reaching 32% in the second quarter of 2025. Broadly defined, unemployment among young people in Turkey reached 41.7%.
According to DİSK-AR (Confederation of Progressive Trade Unions of Turkey – Research Centre) calculations, the narrowly defined unemployment rate in the EU average was 5.7% as of the first quarter of 2025, while the broadly defined unemployment rate stood at 10.9%. The point difference between narrowly and broadly defined unemployment rates was 5.2 in the EU average, while it rose to 13.9 points in Turkey. By the second quarter of 2025, the narrowly defined unemployment rate in Turkey stood at 8.6%, while the broadly defined unemployment rate rose to 32%; thus, the broadly defined unemployment rate in Turkey reached approximately 3.7 times the EU average.
According to calculations by Bahçeşehir University’s Economic and Social Research Centre (BETAM), seasonally adjusted data show that employment fell by 41,000 in the second quarter of 2025 compared to the previous quarter, reaching 32,435,000, while the number of unemployed increased by 106,000. resulting in a 65,000 increase in the labour force; as a result of these developments, the unemployment rate increased by 0.3 percentage points to 8.6%.
Seasonally adjusted employment decreased for both men and women compared to the first three months of 2025, while it increased in the construction and services sectors; the largest decrease was 156,000 (2.3%) in the industry. When compared to the same period a year earlier (Q2 2024), total employment decreased by 41,000; male employment decreased by 65,000, while female employment increased by 24,000.
The seasonally adjusted youth (aged 15-24) unemployment rate increased by 0.7 percentage points to 15.9%. Compared to the previous quarter, the unemployment rate among young women increased by 0.8 percentage points to 23.7%, while the unemployment rate among young men increased by 0.6 percentage points to 11.7%. Over the past year, the unemployment rate among young men decreased from 13.7% to 11.7%, while the unemployment rate among young women increased from 21.4% to 23.7%, widening the gap between the unemployment rates of young women and men from 7.7 percentage points to 12 percentage points.
According to unadjusted data, there was an increase in employment from winter to spring, and therefore the unemployment rate in all education groups decreased compared to the previous quarter. The group with the largest decrease was university graduates, with a drop of 0.7 points. The decrease among high school graduates was 0.2 percentage points, while the decrease in the group with less than a high school education was 0.1 percentage points. The unemployment rate in the vocational and technical high school group showed a decrease of 0.5 percentage points.
According to seasonally adjusted year-on-year sectoral change data, employment increased in construction and services in the second quarter of 2025. Employment in agriculture decreased by 6.4 points compared to the previous year, while employment in industry decreased by 1.3 points. Female employment in industry decreased by 4.6 points. In the construction and services sectors, which had been growing at a slow pace, employment growth had completely stalled in the first quarter of 2025. However, signs of recovery were observed in construction and services in the second quarter of 2025.
When we look at all these developments and the resulting data, the question ‘When did unemployment ever fall off Turkey’s agenda?’ inevitably comes to mind. Among Turkey’s chronic economic problems, unemployment has almost always been present; however, it has rarely reached today’s levels, or at least it has not been reflected in TurkStat data.
Of course, behind this rise are many companies reducing production and cutting jobs due to rising costs, and many others closing their doors and moving their operations to Egypt and other countries. In short, the operations that began on 19 March have led to capital outflows and the depletion of reserves at an unprecedented rate, and in response to these developments, high interest rates have been chosen over production.
Looking at it this way, the primary impact of high interest rates is the significant increase in credit costs, which many businesses cannot afford. When interest rates rise, borrowing to invest or secure working capital becomes expensive for companies, leading to delayed investments and suspended expansion plans, which in turn prevent the creation of new jobs that would generate employment.
High interest rates not only affect businesses but also households, increasing the cost of loans taken for housing, vehicles, and other necessities. Consequently, consumption decreases, and companies’ sales decline. Companies begin to downsize, and as they do so, they lay off employees, resulting in an increasing number of unemployed individuals.
During such periods, financing costs are of critical importance, especially for small and medium-sized enterprises (SMEs), which account for a significant portion of employment. When interest rates rise, they are the hardest hit, leading to bankruptcies and layoffs, which in turn accelerate the rise in unemployment.
In such periods of rapidly rising unemployment, demand naturally contracts, so the inflationary pressure on those who turn to high interest rates instead of increasing production gradually eases. In this situation, central banks often lower interest rates to stimulate the economy.
However, when unemployment decreases and demand begins to increase, production does not increase again, so this development pushes prices up and begins to fuel inflation. Central banks, once again resorting to high interest rates, seek to cool demand and suppress prices.
As we have generally experienced in Turkey during periods of high interest rates, credit-dependent sectors (construction, textiles, automotive, etc.) contract, investments are postponed, and youth unemployment rises. When interest rates are lowered, demand increases, but purchasing power declines due to inflation, company costs rise, and unemployment increases again.
In short, “high interest rates curb investment and consumption, increasing unemployment. High unemployment pushes central banks to lower interest rates. If the right balance cannot be found, either “high interest rates-credit crunch unemployment” or “high inflation-cost-driven unemployment” occurs.
This mechanism is based on the Phillips Curve logic: In the short term, there is an inverse relationship between unemployment and inflation/monetary policy.
This theory, first proposed by American economist Irving Fisher (1867–1947), questioned the existence of a constant relationship between inflation and interest rates that could positively or negatively affect a country’s economic indicators. In short, this theory, defined as ‘the nominal interest rate equals the real interest rate plus inflation,’ has taken its place in economic science as a hypothesis known by its own name.
When nominal interest rates increase at the same rate as inflation, it appears that this affects not only real interest rates but also other economic indicators. When we ask why inflation and nominal interest rates influence each other so much, a different type of relationship emerges.
Irving Fisher makes an important observation regarding the growth rate of money, inflation, and interest rates: according to this observation, a certain increase in the growth rate of money in the economy first causes a significant decrease in nominal interest rates, but as inflation increases over time, interest rates gradually rise. Naturally, from a long-term perspective, interest rates can increase in an economy in proportion to the growth rate of money and inflation.
As a result, we arrive at Fisher’s equation: i ≡ r + π
In other words, ‘the nominal interest rate equals the real interest rate plus inflation.’
Fisher used the equation known as the equation of exchange to explain his quantity theory:
M.V + M’.V = P.T
Here;
M: Amount of money in circulation,
V: Velocity of money,
M’: Amount of bank money,
V: Velocity of bank money,
P: General price level,
T: Transaction volume.
When bank money is included in the money supply (M), Fisher’s equation can be written as
M.V = P.T.
According to Fisher and the economists who followed him, the parameters V and T in the exchange equation remain unchanged over a certain period of time. The numerical value of V is determined by the socio-psychological behaviour of the people and the institutional structure.
Therefore, except in extraordinary circumstances, no significant changes in this numerical value can be expected. According to classical theory, since all resources in the economy are fully utilised, the parameter T also remains unchanged over a given period.
However, the amount of M (total money supply) in the equation can change. This is because the Central Bank determines the amount of money to be put into circulation. Under these conditions, M is the sole dominant factor in the equation and constitutes the active element on the left side of the equation. The only variable element on the right side of the equation (P) is the general price level. In this case, increases in the money supply will directly cause the general price level to rise and the value of money to fall.
Based on the fact that Fisher’s idea is generally accepted in economic literature, it is sometimes extremely difficult to empirically capture the absolute relationship between nominal interest rates and inflation. Researchers have conducted extensive studies on the relationships within the Fisher hypothesis. These studies revealed a delicate relationship between inflation and interest rates, depending on the data used and the time periods analysed.
According to classical economists who adopt the quantity theory, inflation is dependent on the money supply. Changes in prices stem from changes in the amount of money in circulation. In other words, when the money supply increases and exceeds the demand for money, this naturally leads to an increase in price levels. According to the quantity theory, the product of the money supply and the velocity of money is equal to the nominal gross domestic product. Since the velocity of money is assumed to be constant, it is believed that a change in the money supply affects nominal gross domestic product. In the short term, according to conventional wisdom, real GDP will not change, so prices will rise by the amount of the increase in the money supply.
According to Keynesian economists, however, an increase in the money supply does not always raise the general price level. In a situation of full employment, the money supply can directly affect the general price level. When the use of resources in markets is ineffective, an increase in the money supply will not lead to price increases. If the economy is somewhere between an ineffective state and full capacity, the rate of price increases will remain below the rate of increase in the money supply.
According to the monetarist approach, inflation is primarily caused by monetary factors. Monetarists reinterpreted the quantity theory of money and developed a new economic perspective. According to monetarists, monetary increases in the long term only have an inflationary effect. Furthermore, according to this view, monetary and fiscal policies have short-term effects. Based on Friedman’s permanent income hypothesis, it can be inferred that all units in the economy have perfect information. Since these units take positions in response to monetary and fiscal policies, they adjust their consumption levels according to their future income, which significantly weakens the effectiveness of monetary and fiscal policies.
As can be understood from this, according to the new Keynesian view that explains inflation with the Phillips curve, the phenomenon of inflation is cost-driven. It is thought that there is an inverse relationship between inflation (cost inflation) and unemployment. In order to reduce inflation, policymakers who resort to high interest rates instead of focusing on production must tolerate high unemployment. Accordingly, it is concluded that low inflation must be sacrificed to significantly reduce unemployment.
In short, if the goal is to reduce inflation and bring it to manageable levels, there is no other way than to focus on policies that support production. The most important support for this path is public support, which was widely implemented in Turkey decades ago; in other words, public enterprises operating in critical sectors that were closed or sold after the coup 45 years ago, and more importantly, the support of production, especially agricultural production, with budget resources.
However, today, the budget is largely spent on interest payments, alongside efforts to maintain prestige. In the January-July period of this year, central government budget expenditures amounted to 7 trillion 699.8 billion lira, while budget revenues reached 6 trillion 695.5 billion lira. As a result, the budget deficit exceeded 1 trillion lira. During the same period, tax revenue collection increased by 49.6% compared to the same period last year, reaching 5 trillion 721 billion 293 million lira. The realisation rate of tax revenue compared to the budget estimate was 51.4%. An average of 26.9 billion lira in tax revenue entered the Treasury’s coffers daily.
However, more importantly, interest expenses in the budget, which lacks a share to support production, increased by 87% compared to the same period last year, reaching 1 trillion 246 billion lira.
In short, ignoring the principle that ‘production is essential, and high interest rates must be avoided to increase production,’ which was established nearly a century ago by those who wrote the book on economics after closely monitoring, researching, and making extensive calculations on the newly emerging global economy, means turning a blind eye to unemployment, followed by severe poverty and the crimes it triggers.
As criminologists and socio-economic experts have also warned, ‘One of the fundamental causes of rising crime rates is socio-economic factors. Poverty, unemployment, and lack of education significantly contribute to crime. When individuals are deprived of employment opportunities or resources, they may turn to crime as a means of survival.’