GENERAL DISTRIBUTION
OCDE/GD(94)89
CURRENT LABOUR MARKET PROBLEMS IN RUSSIA
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Paris 1996
016566
COMPLETE DOCUMENT AVAILABLE ON OLIS IN ITS ORIGINAL FORMAT
ABSTRACT
This paper broadly reviews key developments in the Russian labour market since the introduction of market
oriented reforms with a view to highlighting evidence of adjustment. These developments include declining
employment and shifts in employment structure, emergence of substantial levels of unemployment,
increasing job placements through the State Employment Service, decreasing real wages, and increasing
wage and income differentials. It then examines a number factors that likely have worked to inhibit labour
market adjustment, including: lack of appropriate financial incentives, redundancy regulations, social
benefits from the enterprises, certain aspects of current labour market programmes, and a lack of wagebargaining structures. The conclusion focuses on key policy challenges that remain in this regard: reducing
enterprise access to soft credits (including credit gained through wage arrears to workers), enhancing the
operation of the social safety net, and further development of market-oriented labour regulations and
institutions.
ABBREVIATIONS FREQUENTLY USED IN THIS PAPER
CEA
Centre of Economic Analysis under the Council of Ministers
-- Government of the Russian Federation
FES
Russian Federal Employment Service
Goskomstat Russian State Committee on Statistics
ILO
International Labour Organisation
LWOP
Leave without pay
MPI
Minimum "physiological" income
MSI
Minimum subsistence income
SES
State Employment Service of the Russian Federation
2
FOREWORD
Labour market adjustment is an important aspect of the economic transformation in the Russian
Federation. The process is far from complete and is already the cause of significant social stress in
different parts of Russian society. In response, the Russian government has taken important steps toward
the construction of a viable social safety net, including a greatly expanded employment service that
facilitates the operation of the labour exchange.
Nevertheless, several factors continue to inhibit adjustment in the labour market. Many
enterprises, for example, still enjoy easy access to credit, which offers little incentive to restructure. In
addition, further improvements in the social safety net are required if it is to offer sufficient protection in
response to rising unemployment levels. The manner in which these issues are addressed will have an
important influence on the pace of transition. This paper examines progress to date in the adjustment of
the labour market as well as key outstanding issues.
The OECD Secretariat acknowledges the contribution of the Russian Federal Employment Service,
the Statistical Committee of the Russian Federation, and the Centre of Economic Analysis to the preparation
of this report.
Raymond Torres and Douglas Lippoldt from the Directorate for Education, Employment, Labour
and Social Affairs drafted the report, which is published on the responsibility of the Secretary-General of
the OECD.
Salvatore Zecchini
OECD Assistant Secretary-General
Director of the CCET
3
CURRENT LABOUR MARKET PROBLEMS IN RUSSIA1
Table of Contents
Page
I.
Introduction
5
II.
Evidence of adjustment: labour force and wage trends since the start of the
reform programme
6
III.
Factors inhibiting labour market adjustment: a need for enhancement of
incentives
16
IV.
Conclusions
24
V.
Tables & charts
26
Copyright OECD 1994
Applications for permission to reproduce or translate all or part of this material should be made to:
Head of Publications Service, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France.
1
The views presented in this paper do not necessarily reflect those of the OECD.
4
I. Introduction
At the beginning of 1992, the Russian government announced measures to promote development
of a market economy. The aim was to dismantle the planning system, liberalise prices, while at the same
time enhancing competition and privatising state enterprises as much as possible. On the macroeconomic
side, the government announced the imposition of hard budget constraints on enterprises through the
application of strict credit ceilings and tight fiscal measures. Finally, in view of the transition experience
in other former planned economies, the creation of a social safety net was seen as an important instrument
to cushion the foreseeable effects of the reforms, making them more acceptable from the social point of
view. Indeed, shortly after the launching of the reform programme, there was widespread agreement that
mass unemployment would occur. For example, in April 1992 the International Labour Organisation (ILO)
predicted a rise in open unemployment to 6-7 million by the end of the year.
Some of the targets have been achieved. In particular, most prices have been liberalised (with
the notable exception prices for certain energy products), and the central planning system was suppressed.
However, only limited progress has been made in the area of macroeconomic stabilisation, as witnessed by
continuing high inflation rates2 and budget deficits. Significant progress towards the creation of a social
safety net has been made. Yet, inadequate resources and co-ordination have weakened the effectiveness
of the system, leading to growing regional and social disparities.
Against this background, the economic performance declined significantly with measured output
falling by over a third since the start of the reforms. This decline can be accounted for by a number of
factors, including political turmoil, the disruption to trade flows created by the disintegration of economic
linkages with other Republics of the former Soviet Union, but also slow progress in restructuring at the
enterprise level. From a labour market perspective it would seem that these developments, combined with
the already existing overstaffing in Soviet-era enterprises, would create significant pressures for labour
market adjustment.3
A remarkable feature of the evolution of the Russian economy since the start of the reforms is
the fact that the number of officially-reported unemployed has increased only marginally, to 1.36 million
by March 1994. This partly reflects labour hoarding on the part of enterprises. On the other hand, official
wage statistics have recorded a marked decline in real terms and wage differentials have widened
considerably. A large proportion of the population reportedly lives below the poverty line.
This paper presents a overview of key trends in the Russian labour market since the start of
reforms. It examines evidence indicating that the labour market has begun to adjust in response to the
economic reforms, but also points out that this adjustment has been constrained by a number of factors.
The aim is to highlight issues that policy makers are now faced with in relation to these developments and
associated social policy concerns.
2
Following a large monthly CPI increase in January 1994 (18 percent rise over December 1993), the
monthly rates of increase declined to single digit levels beginning in March.
3
Soviet estimates of overstaffing suggested that many enterprises retained between 15 and 25 percent
more labour than was necessary to fulfill their production plans. See, "A Study of the Soviet
Economy", volume 2, IMF/WB/OECD/EBRD, 1991.
5
II. Evidence of adjustment: labour force and wage trends since the start of the reform programme
A. Employment/unemployment trends
The introduction of a new employment law in 1991 combined with the reformist measures of early
1992 precipitated significant new developments in the Russian labour market. These include: accelerated
growth in employment in the non-state sector (but also in public administration); a shift in employment
towards services and away from industry; decreased labour force participation; and the appearance of open
unemployment, wage arrears and leave without pay. The impact of these changes varies widely between
the various sectors of the population, with certain groups disproportionately hit by unemployment.4
i) Employment
The structure of employment in Russia had begun to shift even prior to the reform agenda
introduced in early 1992. In terms of employment by type of ownership, for example, the introduction of
new legislation on co-operatives in 1987 gave increased latitude for establishment of non-state enterprises.
However, the period from 1992 has witnessed a significant growth in the magnitude of the changes.
The average level of employment fell from 73.8 million in 1991 to 71.0 million in 1993 according
to official employment data. Projections for 1994 vary, but generally indicate a downward trend. The
Centre of Economic Analysis (CEA) projects the 1994 annual average at about 67.1 million.5 The decrease
in employment during 1991-1993 was significantly less than the corresponding fall in measured real GDP
of 19 percent in 1992 and 12 percent in 1993.6 The main reason for this difference appears to be labour
hoarding by firms.
Statistics provided through the Russian Federal Employment Service (FES) show employment
developments by type of economic activity.7 According to these data, in four expanding sectors
employment shows net gains totalling 1.4 million employees between 1991 and 1993 (Table 1). These
gains, however, were more than offset by the decline in employment in industry of 1.6 million during the
same period. Also, four other sectors and the residual category "other" showed a combined loss of 2.6
million. Thus, according to the FES tabulation the net drop in employment was 2.8 million.
The structure of employment by economic activity is shifting for reasons that vary by branch.
These include, among others, disruption of prior existing trade links, new opportunity in underdeveloped
4
A very good compendium of statistics and analysis on recent developments in the Russian economy
can be found in the periodical "Russian Economic Trends" published in English jointly by the
Government of the Russian Federation and Whurr Publishers.
5
"O polozhenii na rinka truda rossii v 1993 - 1994" (Situation on the Russian Labour Market in 1993
- 1994), by I.A. Zbarskaya, Centre of Economic Analysis.
6
Due to measurement problems, the actual declines in employment and GDP may be somewhat less
than the statistics would indicate.
7
The FES is the national office of the State Employment Service. The SES is a three tiered structure
with regional and local levels, as well.
6
branches -- especially services, and shifts in expenditure from the state budget (e.g., decreased defence
spending). In industry, demand for labour is being affected by new approaches to work. A recent survey
of Russian industrial firms organised by the ILO and the Russian State Committee on Statistics
(Goskomstat) found that nearly half had introduced technological change and 40 percent had reorganised
work during the period 1991 - 1993.8 In addition, many enterprises are divesting social infrastructure and
even production units.
A separate calculation by CEA shows changes in employment levels and shares for 1992-1993
according to United Nations classifications. According to CEA data, the biggest losers in absolute numbers
were "processing industry" and "education and research activity" which together in one year suffered a net
loss of 1.5 million. The biggest gainers were "state management and defence, financial mediation and
mandatory social insurance" and "wholesale & retail trade; automobile, household equipment, and small
appliance repair" which together had a net gain of 1.2 million.
The share of employment in state-owned enterprises has declined significantly, decreasing from
76 percent in 1991 to 59 percent in 1993 (Table 2). This may, in part, be attributed to privatisation and
to voluntary quits in the face of unpaid leaves, wage arrears, new opportunity in the private sector, and -on the part of some primarily secondary wage earners -- a desire to pursue other activities while drawing
the small unemployment benefit. Although there is some debate as to the degree that privatisation has
changed the behaviour of some formerly state owned enterprises, there is no doubt that new and dynamic
forces are at work in the non-state sector. Many new firms have been established, existing firms are
beginning to innovate, and formal mechanisms of direct state control have been disrupted.
ii) Unemployment
The emergence of substantial numbers of unemployed in Russia is one of the more politically and
socially sensitive aspects of labour market adjustment in Russia. Open unemployment practically did not
exist in Russia prior to the Gorbachev period; it remained a very limited phenomenon through January
1992. Since then it has grown significantly, although not to the levels some had predicted. The effects
of unemployment are not evenly distributed. Considerable regional variation has emerged; certain groups
in society have been disproportionately affected.
Unemployment in Russia is measured in several different ways, none of which are entirely
satisfactory. They range from counts of official registration at state employment centres to broad estimates
including hidden unemployment (i.e., taking into account those involuntarily working less than full time,
on unpaid or reduced pay leaves, or those with wages reduced to the legal minimums).
Unemployment increased rapidly during 1992, moderated somewhat during 1993, and has picked
up again in early 1994. This is reflected in the development of the two official measures (selected monthly
data for these measures are shown in Table 3):
"Out of employment" - including all without employment who register with state employment
centres as seeking work, and
Registered unemployment - those without employment who register with the state employment
centres as seeking work and who meet the criteria for recognition as unemployed under the law.
8
Labour Market Dynamics in Russian Industry in 1993: Results from the Third Round of the RLFS
by Guy Standing, International Labour Organisation/Central and Eastern European Team, Budapest,
February 1994.
7
However, the registration data do not capture those who fail to register. A variety of reasons for
failure to register are cited including low unemployment benefits, distances to the closest employment
centre, or a lack of confidence in employment centre placement assistance (among other reasons). In
December 1993, the average unemployment benefit was 16,100 roubles9; the average wage was 95,000
roubles and the cost of an average monthly food basket was 30,700 per person.10
A broader measure of unemployment can be found in the Goskomstat labour force survey results
(Table 4). Indeed, the 1993 survey showed unemployment to be more than three times greater than the
population registered as "out of employment." Two full scale surveys have been carried out broadly
following standard international concepts11 and provide a more complete picture of the level of open
unemployment, including those who fail to register.12
Beyond the open unemployment recorded above, it is clear that the phenomenon of hidden
unemployment is having a significant impact on the Russian labour market. The CEA estimates that by
early 1994 the level of hidden unemployment had reached 7.5 - 8 million, which represents over 10 percent
of the labour force. When considered together with open unemployment, it becomes clear that a substantial
number of people are being affected by the economic dislocations.
In examining the composition of the registered unemployed population by various characteristics
and by geographic region, the impact on certain vulnerable groups can be seen. Nearly 70 percent of the
unemployed are women. Roughly 40 percent are youth. The average duration of unemployment spells
grew from 3 months at the beginning of 1993 to 6 months at the end of the year. The share of long term
unemployed (defined in Russia as spells longer than 8 months) nearly doubled from 13 to 25 percent of
the total registered unemployed during the same period. Figures cited in a 1993 World Bank study indicate
that at that time nearly 3/4 of the long run unemployed were located in rural areas.13 The same paper
noted that despite the high share of women among the unemployed population, only 20 percent of the long
term unemployed were female -- indicating that women may have a greater tendency to drop out of the
labour force under these circumstances.
9
"Rinok truda rossii v 1993 godu" (The Russian Labour Market in 1993), Statistical Bulletin #1,
Russian Federal Employment Service, 1994.
10
"Sotsialno-ekonomitcheskoe polojenie rossii" (Social-Economic Situation in Russia),
January-February 1994, State Statistical Committee of the Russian Federation (Goskomstat).
11
E.g., using definitions of labour force status based on the resolution of the 13th International
Conference of Labour Statisticians.
12
This survey is a very useful tool for labour market monitoring. However, given an annual or
semiannual frequency, the surveys do not provide current information. Introduction of a quarterly
survey is planned for 1995. Also, some analysts have suggested that in Russia many respondents
may be especially wary of a questionnaire prepared by a state organisation and may bias their
responses.
13
"Russia" by Simon Commander, John McHale, and Ruslan Yemtsov; a paper prepared for the World
Bank Conference on ’Unemployment, Restructuring, and the Labour Market in East Europe and
Russia,’ Washington, DC; 7-8 October 1993.
8
There has been a shift in the composition of the registered unemployed as concerns their previous
status. During the course of 1993, the share of laid-off among the unemployed fell from 40 to 27 percent
according to data cited by CEA. Technical or clerical staff were most often affected by layoffs.
Nevertheless, growing numbers of school leavers, military discharged, and rural unemployed led to
continued growth in unemployment.
As Table 5 shows, there is a particular concentration of unemployment in absolute numbers in
the Central Region measured in terms of the population out of employment and registered with the State
Employment Service (SES). Twenty-two percent of the total registered out of employment population
reside in that region. Other regions with shares of 10 percent or greater include: Urals (12 percent), North
Caucuses (11 percent) and Volgo-Vyatsky (10 percent). These numbers give an indication of the
distribution of the workload of the State Employment Service. However, it is important to note that there
is wide variation in the distribution within most regions and in the shares of the economically active
population affected.
Labour force survey data can be used to highlight those sub-regional administrative areas where
survey unemployment is especially high. Table 6 points out the areas where survey unemployment equals
or exceeds 6 percent of the economically active population (roughly the top 20 percent of all regions). The
analysis using survey unemployment as a percentage of the economically active population permits a more
complete measurement, taking into account those who fail to register and providing an indication of the
relative share of the population affected by unemployment. This reveals several areas particularly hard hit
by unemployment. The highest rates are concentrated in the North Caucuses region. However, high rates
can also be found in certain areas of most of the more prosperous regions including the Far East, East and
West Siberia, the North-Western Region (including St. Petersburg city) and the Central Region (including
Moscow).
When considering unemployment in relation to the economically active population, it is important
to note the demographic situation. Russia’s population is falling. According to data cited by CEA, during
1992 - 1993 the population of Russia fell from 148.3 to 147.9 million. In terms of resources available to
the labour market, this fall in overall population was offset by a rise in the working age population from
56.5 to 56.8 percent of the total population. These trends are projected by CEA to continue for the medium
term, at least. Thus, developments in actual participation rates (which were traditionally high) will be an
important feature in determining the impact on the labour market. In addition, net in-migration was
projected at about 400,000 annually for the medium term, which may have workload implications for the
State Employment Service.
iii) Registered Vacancies and SES-assisted Placements
The utility of the registered vacancy measure as an indicator of adjustment in the overall labour
market is relatively limited. Nevertheless, the number of vacancies registered with the SES gives an
indication of the placement options available to the registered job seekers as a whole. The registered
vacancies are an administrative statistic and are greatly affected by the level of employer outreach efforts
of individual employment centres. For example, contacts to state and recently privatised enterprises remain
much better than contacts to new private firms, except where special employment centre initiatives have
been undertaken. The success in this regard varies by region.
During January 1992 - January 1993, the number of registered vacancies declined significantly
from 586,000 to 301,000. The numbers recovered somewhat during late Spring and Summer 1993 with
a peak of 519,000 in May. During Fall 1993, the numbers continued to drop, hitting a level of 283,000
9
by January 1994. In March 1994, the number of vacancies was 275,000, of which 83 percent were for blue
collar positions.14
Table 7 shows the numbers registered as "out of employment" per registered vacancy. This is
used as a measure of "tension" on the labour market by the SES. To a certain extent this measure reflects
the crude chances of placing a job seeker through the SES not taking into account the required
qualifications or the flows of vacancies and jobseekers. The table highlights sub-regional administrative
areas where the number registered as out of employment per vacancy is particularly high (i.e., greater than
15:1, or roughly the top 20%).
Although many regions with above average unemployment have "out of employment"-to-vacancy
ratios above the Russian average of 3.1, they are not the regions with the worst vacancy ratios. (NB, The
North Caucuses region is treated as an exception by some analysts due to its traditionally lower than
average participation rates in formal employment.) This may reflect a number of conditions including
variations in the level of development of the local employment centres, actual numbers of vacancies in the
local economy, local skills mismatches between vacancies and jobseekers, or low inflows into
unemployment due to labour hoarding, among other reasons.
The level of placements into jobs (i.e., primarily into registered vacancies) is perhaps of greater
interest from the perspective of labour market adjustment. During 1993, the SES placed 813,000
jobseekers. This represented an increase of nearly 20 percent over the 1992 placement level of 678,000.
In 1993, the great majority of those placed were "out-of-employment" (as opposed to those seeking
secondary employment), of which 63 percent were registered unemployed.15 In crude terms, the level of
placements in 1993 equalled roughly 1.1 percent of the economically active population (NB, some people
may have been placed more than once and so the number of individuals placed may be somewhat lower).
This is evidence that there are relatively significant flows underway in the labour market. It is important
to note here that, in addition, many jobs (especially in the emerging private sector) are filled without the
assistance of the SES.
B. Wages and incomes since price liberalisation
The labour market adjustments described above have been modest in comparison with the changes
in output. Indeed, in response to financial incentives, social concerns and other factors, many enterprises
have acted to limit workforce reductions. This relative employment stability has been achieved, in part,
at the cost of falling real wages and incomes. However, the cut in real incomes has not affected all
individuals alike; there is evidence that wage and income differentials (which according to official statistics
were very narrow in the past) have widened considerably. A large portion of the population has fallen
below the poverty line, although estimate vary on the exact numbers.
i) High and persistent inflation
The dismantling of most price controls in January 1992 led to a major increase in the cost of
living. Particularly rapid was the increase in prices during the first months of the liberalisation process,
14
Russian Economic Trends; see also Russian Employment Monthly of the Federal Employment
Service.
15
FES, 1994.
10
largely reflecting the artificially low level of prices during the central planning area16. Even after this
adjustment period, price increases continued at rates above 15 percent monthly. As a result, by February
1994, the consumer price index had increased beyond the February 1992 level by more than a factor of 67.
In the last quarter of 1993 a fiscal and monetary tightening slowed the rate of increase somewhat although
it remained very high in relation to most other European countries in transition. For example, the February
and March 1994 increases were 11 and 7 percent respectively.
ii) Falling real wages and widening wage differentials17
Adjustment in reported wages has manifested itself through a fall in their average real value and
through growing differentials between regions and between branches of the economy. The official statistics
show that nominal wages have lagged behind price changes, leading to a marked decline in real average
wages since the end of 1991 (Table 9). It is difficult to gauge the extent to which the purchasing power
of wages matches the decline in real wages, given the fact that the availability of consumer-goods has
markedly increased since the start of reforms. However, developments in certain food consumption
indicators suggest that the purchasing power of wages has declined substantially.18 Following a big drop
in the first quarter of 1992, the average real wage appreciated somewhat during the remainder of the year,
perhaps reflecting a partial catching-up effect (Chart 1). Nevertheless, wage performance remained weak
during 1993 and fell again during the first quarter of 1994.
In January 1994, the average monthly wage represented the equivalent of $108 (at current
exchange rates), a low level by all standards. Given the relatively high level of skills of Russian workers,
the low level of wages has the potential to attract foreign direct investment, if the necessary framework
conditions are put into place.
There is evidence that wage differentials have grown wider:
-- Wage differentials across industries increased noticeably in 1992, suggesting that some measure
of structural adjustment is operating in the economy. A comparison of wage levels in eleven
different branches shows that the wage differential between them was only 80 per cent in 1985
(wages were highest in banking and lowest in agriculture), but 280 per cent in 1992 and nearly
500 in 1993 (Table 10). High wage branches include finance and insurance, transportation, and
construction. On average, wages in industry remain slightly above the average wage. It is also
interesting to note that salaries in the government sector have grown less rapidly than average.
16
The increase in the price level was to be expected as pervasive controls had left prices at artificially
low levels, thereby creating a sort of monetary overhang. By the first quarter 1992, the monetary
overhang had largely disappeared.
17
Many analysts have voiced concerns about the official wage statistics. There is anecdotal evidence
that these statistics are not capturing wage developments as enterprises seek to avoid payroll levies
or shift an increased portion of wages to payments-in-kind. Nevertheless, to the extent that the
trends in reported wages reflect the trends in the actual wages it can be useful to monitor them. In
addition, there may be an administrative interest for public authorities responsible for the mandatory
charges on wages; in the case of the Employment Fund, this has a direct employment policy
implication. A similar caveat applies to the accuracy of the incomes statistics.
18
E.g., per capita meat and fish consumption fell by 7 and 13 percent respectively between 1991 and
1993.
11
As a result, scientists and researchers, who in the past enjoyed higher wages than most, now earn
less than industrial workers. Wages in agriculture have also dropped relative to the average.
Reflecting the cut in defence orders and production in the military industry, wages in the defence
sector have been badly hit. A survey based on 28 defence industries shows that wages in that
sector averaged R6953 in October 1992, or two thirds of the average wage.
-- Official statistics suggest that wages in the private sector differed little from wages in the state
sector during the early phase of the transition. However, newspaper articles and anecdotal
evidence show that certain fringe benefits and illegal income may be widespread in parts of the
private sector.
-- Regional wage disparities intensified during 1992 and 1993. Of Russia’s 11 economic regions,
two of the four with the highest wages at the start of the reforms (East Siberia and the Far East)
were able to increase their wage levels relative to the national average during the first two years
of reform; the other two high wage regions (Northern Region and West Siberia) roughly
maintained their relative positions. The opposite occurred in certain low-wage regions such as
Central Chernozem and North Caucuses, which lost ground relative to the national average.
During the period from December 1992-December 1993, average nominal wages in the Russian
Federation rose 859.7 percent. The biggest wage increases occurred in the Northern (896.0%) and
North-Western (931.3%) Regions, East Siberia (915.9%), and the Far East (1011.8%). As a high
wage region West Siberia was an exception, where wage increases (851.8%) moderated at a rate
close to the national average. Regions with increases significantly below the national average
include North Caucuses (755.4%), Urals (795.5%) and Central Chernozem (799.4%).
Interestingly, two low wage regions managed to improve their relative position (North-Western
Region including St. Petersburg and Central Region including Moscow). In terms of nominal
wage levels as of December 1993, there was a ratio of 4.6 between the 6 administrative areas with
the lowest averages and the 6 with the highest.19
In general, a significant portion of the recorded wage trends appears to be attributable to the
decline in defence and heavy manufacturing industries, which are concentrated in low-wage regions.
High-wage regions are rich in raw materials, in particular oil and gas (West Siberia), wood, metals and
minerals (Northern Region, Far East), gold and diamonds (East Siberia). Wages in the regions that include
Moscow (Central Region) and St. Petersburg (North Western) were likely bolstered, in part, by the
expanding links to foreign business. Thus, to a certain extent, the wage differentiation may be providing
incentives for adjustment in the labour market.
It must be noted, however, that a precise analysis of actual wage trends is made difficult owing
to data issues. The apparent existence of significant flows of non-recorded "wages", the operation of the
wage-tax (see below) and the incidence of large wage arrears have resulted in deviations between the
official statistics on nominal wages and the actual developments in the labour market.
iii) Increased income inequality and poverty
Non-wage incomes have followed a trend similar to wages, leading to a marked rise in income
differentials. In a country where priority was placed on maintaining relative income equality during several
19
It should be noted that this ratio is biased by particularly low reported wages in two areas of the
North Caucuses.
12
decades, the increase in income inequality is probably one of the most striking phenomena of the transition
towards a market economy. It has been accompanied by a significant increase in poverty.
Table 11, based on official statistics, shows that the ratio between higher decile incomes and lower
decile incomes increased by one point in just one year (i.e., from 3.5:1 to 4.5:1). In light of the ratios in
the table it would appear that in today’s Russia, incomes are less equally distributed than in OECD-Europe.
Moreover, the rise in inequality is mainly attributable to the relative decline in low incomes, suggesting a
marked aggravation in social hardship.
A study conducted by the All-Russian Centre for the Study of Public Opinion for the year 1992
shows that income inequalities were probably worse than suggested by official statistics, which do not
record income from the black economy. The study suggests that the 10 per cent richest category earn nine
times more than the 10 per cent poorest. A CEA forecast suggested that by March 1994 the cash incomes
of the top decile would exceed those of the poorest decile by more than 11 times.20
This trend is reflected in the development of the Gini coefficient (a measure of income
inequality).21 According to Goskomstat calculations published in Russian Economic Trends, this indicator
rose from an average of 0.26 in 1991 to a high of 0.35 in December 1993.
This evolution reflects the increased polarisation of Russian society, with the emergence of a class
of "new rich" coexisting with an increasing number of poor people. The minimum "physiological" income
(MPI) constitutes a lower poverty line and is a measure of the cost of essential goods and services.
According to CEA, the MPI averaged 110 roubles monthly in 1991 when 1.4 million people (1 percent of
the total population) had incomes below this level. The MPI rose over 1992 reaching 2,900 roubles in
December, when 7 million people (4.8 percent of the population) lived with incomes below the standard.
By December 1993, the MPI had risen to 21,000 roubles and 4 million (2.8 percent of the population) fell
below the standard. However, the December 1993 figure may have been a temporary low resulting from
a upward tick in overall wages and perhaps partly in response to fourth quarter adjustments in social safety
net entitlements (pension, family, and unemployment benefits).
The Ministry of Labour calculates a more widely quoted poverty line, the "minimum subsistence
income" (MSI), which is based on a basket of essential purchases and is more generous. In December
1993, the MSI was 42,800 per person and was roughly half of the average per capita income. During 1993,
in an average month over 31 percent of the population lived with incomes below this standard. The
monthly figures fluctuated between 26 and 35 percent.
The increase in poverty is linked to the on-going adjustment in the labour market: mainly to the
general decline in real average wages and the growing wage dispersion. To a lesser extent, it reflects a
growing mismatch between wages and social protection expenditures for certain groups affected by the
labour market adjustment:
-- The Unemployed: Minimum unemployment benefits are equal to the minimum wage. Those
laid off are entitled to benefits based on previous wages (see below for a detailed description),
but inflation quickly erodes the value of those wages. This leaves most people earning the
minimum benefit. In December 1993 when the minimum wage was 14,620, the average
unemployment benefit was 16,100. From 1991 to 1993, the annual average level of the minimum
wage has declined from 31 to 19 percent of the annual average wage. As a result, the income
20
"Russia - 1994: Economic Situation", CEA, 1994.
21
Gini scores range from 0 to 1. Scores approaching a level of 0 indicate increasing equality.
13
position of unemployment beneficiaries on average has worsened. In December 1993, the average
unemployment benefit was 77 percent of the MPI and 38 percent of the MSI.
The hardships caused by the generally low level of benefits are limited on a national scale by a
number of factors. First, for the time being only a relatively low number of people who are
dependent on them. In December 1993, out of the 835,500 registered unemployed, only 550,400
were actually receiving benefits. The situation is especially difficult for those unemployed who
have not qualified or exhausted their benefits and who are dependent on minimum social
assistance (which can vary by region). There is some evidence that the hardship might be
mitigated for some as a result of the high workforce participation rates (meaning many households
have more than one income), non-recorded wage payments, and support from other sources such
as the family garden.22
-- Pensioners: During 1992, increases in the average pensions lagged behind wage developments
(Chart 2). Average pensions dropped in relation to the average wage, moving from a 1991
average of 52 percent to a 1992 average of 27 percent. This drop in the relative level was mainly
due to incomplete adjustment for inflation; a law adopted by the Supreme Soviet in October 1991
was to have provided for indexation within certain limits, but it was never fully enforced.
During 1993, pensions recovered somewhat in relation to the average wage, rising to 35 percent
for the year. In addition, beginning in November 1993 the government added a monthly
supplement of 1,400 roubles for pensioners and persons on low incomes. Thus, as has been
pointed out in Russian Economic Trends (1994), generally "pensioners have not borne a
disproportionate burden of the adjustment process."
It should be noted, however, that the average pension does not provide a great margin of comfort,
often falling below the MSI (see Chart 3). In December 1993, for example, it was 400 roubles
less than the MSI. Therefore, many pensioners forced by circumstance to supplement their
pension income through continuing employment, kitchen gardens, and other means. The Ministry
of Social Protection estimates that in January 1993, 23 percent of old age and disability pensioners
were employed.23 This is facilitated, in part, by low retirement ages of 55 for women and 60
for men, with some workers able to retire earlier under special pension schemes for certain
occupations.
For those who are laid off from their post-pension employment, the drop in standard of living can
be striking; they are not eligible for unemployment benefits and often find it difficult to secure
new employment. Indeed, the numbers of pensioners leaving the labour force since the start of
transition is fairly large. The Centre of Economic Analysis estimates that between 1992 and 1993
the share of pensioners in "labour resources" decreased from 5.7 to 5 percent of the total, a net
outflow of approximately 600,000.
-- Certain other social benefits such as family benefits were closely tied to the minimum wage
22
Richard Rose characterises this as a portfolio strategy. Apparently, it is used by many Russians who
have formal employment as well as those who are unemployed. See "Getting by Without
Government: Everyday Life in a Stressful Society," by Richard Rose, Studies in Public Policy
Number 227, Centre for the Study of Public Policy, 1994.
23
"Organizatsiya sotsialnogo obespetcheniya/pensionnoye obespetcheniya," (Organisation of Social
Assistance and Pensions), Ministry of Social Protection of the Russian Federation, 1993.
14
during 1992-1993, and as a result have fallen in relation to the average wage (Chart 2). This has
important implications for the income distributions, given that large families are more likely to
be poor. As pointed out in a World Bank/Goskomstat household survey of July-September 1992,
the majority of individuals in single parent or large (3 or more children) families were found to
be living on incomes below the poverty line.
III. Factors inhibiting labour market adjustment: a need for enhancement of incentives
A comparison of labour market performance in East European countries in transition suggests a
relatively slow adjustment in Russia (Table 8). Compared to the other countries, the Russian economy has
recorded one of the steepest declines in output and, at the same time, one of the most sluggish adjustments
in employment levels. It is also interesting to note that wages (in U.S. dollars) are much lower than in
Poland and Hungary, which have long been at the forefront of market-oriented reform. This section reviews
a range of underlying factors that might explain the main developments in the Russian labour market,
namely i) the weak employment response to rapidly falling output; and ii) the widening of income
inequality.
A. Lack of appropriate financial incentives
It is widely believed that one important reason behind the lack of labour adjustment is the fact
that ailing enterprises continued to receive enough credits to survive. This was largely the case during
1992 and the first half of 1993, as the total volume of credit to enterprises grew steeply at an average rate
of 22 percent monthly. However, during April-May 1993 and again from July onward, enterprise access
to credit was tightened somewhat (see Table 12), putting further downward pressure on industrial
production. In principle, high demand for credit could have been more firmly resisted by the Central Bank.
At times, the Central Bank indeed made some efforts to curb money creation; and these efforts are reflected
in the emergence of positive (or near-positive) real interest rates. However, monetary authorities were
forced to relax monetary conditions on numerous occasions for a number of reasons:
-- The reaction of most employers to the credit squeeze resulting from the government’s macroeconomic policies has not been to shed labour in significant numbers or to declare themselves
insolvent, but to run up huge inter-enterprise debts. This makes it difficult for monetary
authorities to tighten credit conditions. The situation culminated, in July 1992 when
inter-enterprise debts were reported to total 1.8 trillion roubles, or 158 per cent of monthly GDP
(Table 12), and the Central Bank began to issue credits to state enterprises to cover the debts24.
Even though the situation improved somewhat in 1993, inter-enterprise debts remained high. In
November 1993, for example, they still equalled the equivalent of 45 per cent of monthly GDP.
-- The lack of enforced bankruptcy regulations also complicates the task of monetary authorities.
Non-viable enterprises have been able to accumulate huge debts partly because in the absence of
bankruptcy procedures it is difficult to penalise bad debtors. In this context, a significant
tightening of monetary conditions would have endangered the financial situation of non-viable
enterprises, while at the same time threatening the viability of sound firms and the banking system
as a whole -- which have a net credit position on non-viable firms. The non-enforcement of
bankruptcy regulations is due to several reasons, including the fact that creditor banks have little
24
The reasons and logic behind inter-enterprise debt are described in E. Whitlock (1992), "A Borrower
and a Lender Be: Inter-enterprise Debt in Russia", RFE/RL Research Report, no. 40, October.
15
incentives to start liquidation procedures (since these would probably entail major losses on their
accounts). One symptom of this situation is seen in the high share of inter-enterprise debt in
arrears; according to CEA calculations in any given month during 1993 roughly 2/5 of this debt
was overdue.
-- The recourse of enterprises to wage-debts, whereby wages can only be cashed by employees
if banks provide the credits, has exacerbated the demand for credit, thereby adding pressures to
relax credit conditions so cover the wage-debt. Enterprises have increasingly "paid" wages using
artificially high revenues, coming from credits to other enterprises. Given that these credits
cannot not be withdrawn from the banks due to the lack of cash, wages cannot be cashed in the
short run. This has led to a build-up of a large stock of "non-cash wages" and social unrest. The
use of wage arrears appears to be spreading and a majority of enterprises reportedly have wage
arrears. By November 1993, wage arrears represented a fifth of the total monthly wage bill
(Table 13).
Beyond credit issues, the excess wage tax provides managers with an additional financial incentive
to retain excess labour, while using leave without pay and reduced pay measures to cut costs. The tax in
effect treats average wages in excess of six times the minimum wage as profits and subject to the 35
percent profits tax. A worker retained at minimal cost on leave without pay or on reduced pay can help
decrease the average wage and the overall amount of the excess wage tax. Leave without pay affected
about 1.5 percent of the workforce by the end of 1993.
Overall, the lack of effective bankruptcy legislation and the use of leave without pay (or reduced
pay) and wage arrears reduce the financial pressure on managers to make difficult layoff decisions. It
should be noted here, that many managers feel a strong social obligation to retain workers as well. This
behaviour is reinforced by the right of local authorities to intervene to delay mass layoffs and, in the case
of privatised enterprises, by the potential resistance to layoffs on the part of the worker-share holders. In
this context, monetary authorities face strong resistance to tighten monetary policy and reduce inflation.
B. Redundancy regulations
Redundancy dismissals under the former Soviet system were virtually unknown. The restrictive
legal regulations governing redundancy dismissals were often cited by Russian writers as a major reason
for the lack of redundancies, and for the hoarding of unnecessary manpower reserves by Soviet managers.
Although western writers have challenged the view that the regulations were the main obstacle to dismissals
(citing instead the economic incentives within the planning system which encouraged managers to hoard
labour), it is agreed that the regulations were quite protective towards employees.25
25
There were, however, loopholes in the legislation, making it less protective than it seemed. Until
1988 the law did not specify that the alternative had to be equal in pay and skill level to the
worker’s previous post. If, therefore, managers really wanted to fire workers, they could offer an
alternative that was clearly unacceptable. Workers refusing the alternative could quit, and were
classified as voluntary quits, rather than fires. Secondly, trade union approval may in some cases
have been a formality, in that trade union officials were often identified with management, in that
they were part of the tripartite decision-making arrangement in every enterprise, which consisted of
the manager, the party committee and the trade union committee. More importantly, there was a
general unspoken rule that redundancies were undesirable and problematic. There is evidence that
even if a worker was dismissed, courts usually upheld claims for unfair dismissal. See S. Marnie,
The Soviet Labour Market ..., Chapter 3, for details and discussion of the previous redundancy
regulations.
16
In the period of reform, it is to be expected that the legal regulations would encourage
redundancies out of the state sector, while offering some sort of protection to workers losing their jobs or
taking up new jobs. However, in the early years of the transition, regulations governing redundancies
continued to be quite restrictive, despite recent amendments to the existing labour code (published in
October 1992)26. For example:
-- Article 40 of the amended Code still required management to offer redundant workers
alternative employment within the enterprise or organisation.27
-- Article 35 states that management had to get trade union approval for all redundancy dismissals.
-- According to article 40, management also had to inform the local state employment service of
every proposed dismissal 2 months in advance. In addition, employers are obligated to pay three
months of redundancy pay (NB, this may be reduced if the employee is able to find a new job,
e.g., through the SES).
On the other hand, a reform-oriented law on work agreements and contracts introduces an
important element of flexibility. This law allows recruitment under temporary contracts (presumably to
encourage new hires) and the amount of notice which employees are required to give to employers before
quitting is reduced from 2 months to 2 weeks. Such flexibility may facilitate the creation of jobs in
newly-established or expanding enterprises.
Overall, reform in this area may be slowed by continuing high levels of concern for protection
against arbitrary dismissals. Moreover, the process of reforming legislation in this area will be slowed by
the fact that the 6th Congress of Peoples’ Deputies in April 1992 adopted an agreement on the division of
power between the federal state bodies and those of the republics within the Russian Federation, whereby
questions relating to labour legislation have to be approved by both.28
C. Social benefits from the enterprise
In the former USSR, state enterprises provided an all-embracing system of social protection.
Social benefits provided by enterprises included health protection, paid maternity leave, pensions, family
allowances, as well as benefits in kind (such as enterprise restaurants), housing and in certain cases special
26
"On the Introduction of Changes and Supplements to the RSFSR Labour Code", Rossiiskaia gazeta,
6 October 1992. See also comment in "What’s New in the Labour Code?", Ekonomika i zhizn’,
no. 43, 1992.
27
The alternative job offered should apparently be equal to the worker’s skill and qualification, but if
this is not available, can be any job, even one which is lower-paid or that requires retraining. See
Chelovek i trud, no. 6-7, p. 48.
28
Currently, there are revisions to the Employment Law under consideration, that would clarify the
rights and responsibilities of the national and regional levels concerning a number of labour market
issues.
17
education and training centres. It is estimated that during the 1980s, social benefits provided by big state
enterprises exceeded -- in terms of cost -- those provided directly by the state or other government bodies.
A case study of ZIL illustrates the importance of enterprises’ social safety net29. ZIL is a firm
producing trucks and housing equipment, with about 100,000 employees. It entered the transition owning
a polyclinic, several holiday resorts, three schools, a modern sports club and numerous other social
services. ZIL also subsidised restaurants, provides transport for the employees and supplies cheap consumer
goods purchased by a shopping co-operative. Even following privatisation, ZIL continued to provide
employees and their families with access to most social services.
Despite the economic crisis, this system remains in place in many big state enterprises. There has
been some movement to reduce these costs, although as of early 1993 a World Bank survey of firms in the
Moscow area found that only a minority of firms had actually begun to take concrete actions in this
regard.30
These benefits act as important incentives against redundancies. Workers on unpaid leave or
reduced pay generally continue to reap important social benefits from the enterprise including access to
clinics or other facilities. This access would likely be cut off in the event a worker quits or is made
redundant. Moreover, in order to register as unemployed, a worker must cut his ties to the firm. In many
cases, unemployment benefits do not adequately compensate for the loss of the social benefits. Thus, this
contributes to the social pressure on managers not to lay off employees. In addition, many enterprises seek
to minimise through rotation the burden on individual employees of temporary leave-without-pay or reduced
pay. Therefore, even with reduced income many workers prefer to keep their existing job, rather than face
open unemployment. These factors, combined with insufficiencies of government social services in some
regions, intensifies employees’ reluctance to leave state-owned or recently privatised enterprises. It is also
important to mention that the "social sphere" in newly-created firms and small enterprises is often small
or non-existent.
D. Unemployment benefits-employment services
The economic reform initiative in Russia was paralleled by an initiative to bolster the social safety
net. In particular, a system of unemployment benefits was put into place and the SES was established as
an independent state institution. These steps were intended to provide laid-off workers with a measure of
security and to facilitate their placement into new employment. Largely through the good efforts of the
SES staff, the development of this aspect of the social safety net has progressed quite rapidly and is
contributing to adjustment in the labour market. Nevertheless, here too there remain problems that in some
cases create disincentives for workers and employers to adjust.
i) Unemployment benefits
The present unemployment benefits system would seem to provide a fair degree of income
support. Indeed, eligibility requirements for benefits seem to be, in principle, relatively generous.
However, inflation acts to greatly reduce the actual value of these benefits, thereby substantially decreasing
29
See "La protection sociale en Russie," Commissariat Général du Plan, Paris, October 1993.
30
See "Providing Social Benefits in Russia: Redefining the Roles of Firms and Government," Simon
Commander and Richard Jackman, World Bank, 1994.
18
the protection they offer. In addition, many registered unemployed are not granted benefits; in December
1993, only 66 percent of this group were actually receiving benefits. These problems likely contribute to
increased worker anxiety about the adequacy of the social safety net and, consequently, to worker and
employer resistance concerning layoffs.
The main aspects of the system, which is administered by the SES, are as follows:
-- The required employment record for eligibility is short (12 weeks in the previous 12 months),
and workers are entitled to 75 per cent of their previous monthly wage for the first 3 months of
unemployment, with the percentage decreasing to 60 per cent then 45 per cent for a total period
of up to 12 months. There is a minimum unemployment benefit equal to the minimum wage.
-- In case of redundant workers, benefits are somewhat higher: provided the dismissed worker
registers with the state employment service, he is entitled to his previous average monthly wage
for a period of up to three months, (or until he finds another job within that three month period),
plus 12 months of benefits as outlined above. The worker is thus effectively entitled to
unemployment compensation for a period of up to 15 months.
-- The law provides for a minimum form of assistance to school leavers, other first-time job
entrants, and re-entrants (benefits equal to the minimum wage).
-- Benefits are paid from the Employment Fund31, which is financed from obligatory payments
by employers (2 percent of the monthly wage bill) and to a limited extent from voluntary
contributions of regional and local governments for special purposes. Eighty percent of the
proceeds are retained at the regional and local level, with 20 percent transferred to the Federal
Employment Service (FES), which oversees the system. Additional funds are provided from the
state budget to cover certain current costs of the FES. Despite the low contribution rate, the
system exhibits a surplus on a whole.
High-unemployment regions, however, are facing financing problems. As the contributions are
paid by local enterprises and collected locally (i.e., at the raion level), the areas with the greatest
economic disruption and needs find their Employment Fund resources the most limited. Some
regions are able to offset this problem by redistributing resources internally between raions. Yet,
an increasing number of regions are falling into deficit; some projections for 1994 see one out of
three regions in deficit. To date, transfers from the limited Federal share of the Employment
Fund are used to top up deficient local collections.
-- For unemployed who exhaust their benefits, the situation is varies by region. The SES
theoretically provides a continuing cash benefit, up to the level of the minimum wage. Article
39 of the Employment Law, on additional assistance to the dependents of unemployed and those
who have lost their rights to benefits, however, is vague on the type of assistance to be offered.
It leaves the regional and local offices a fair amount of discretion in this matter. In many regions,
it appears that benefits to exhaustees continue to be paid at the rate of the minimum wage. Other
regions report that they routinely cut most benefits at the end of 15 months (or only offer limited
material assistance).
-- The number of registered unemployed who do not receive benefits is striking: 34 percent in
December 1993. In many cases, this is due to a failure by the unemployed to satisfy all the
31
As are the costs of most of the SES operations.
19
administrative requirements or in some cases due to exhaustion of benefit entitlement or violation
of benefit conditions. There is also anecdotal evidence that in some cases benefits may have been
arbitrarily denied by local employment centres. Finally, certain regions, such as Dagestan, have
also introduced their own rules to avoid large numbers of new entrants qualifying for a minimum
benefit.
ii) The State Employment Service
The present SES was build upon the previous network of "job placement bureaus" which existed
in the USSR under the State Committee for Labour and Social Questions. In June 1992, the SES was
established as an independent agency. With a legal mandate established in the Employment Law, the SES
network is being entirely restructured and has already been greatly expanded.32
The SES is playing an active role in the period of economic restructuring, helping to facilitate the
functioning of the evolving labour market. In addition to the payment of benefits, this is done through the
provision of counselling, training, temporary employment and placement support in varying mixes for
individual job seekers who register. Services are provided to employers through referral of job candidates,
counselling, and support for restructuring or job creation.
The SES generally stresses "active" labour market policies in response to unemployment, rather
than concentrating solely on "passive" measures. Although most vacancies are filled without the assistance
of the SES (only about one third of all vacancies are listed with the SES according to some estimates), the
SES is providing critical services to a population that is in many cases still unfamiliar with the working
of the labour market or is in need of assistance in exploiting opportunities under the new system. The SES
can provide an important route by which the unemployed can exit from their dependence on the social
safety net. However, there are problems in importing western-type solutions to labour market problems
in the transition period.
First, the SES does not currently have the equipment or the staff to operate as public employment
services in most OECD Member Countries. In some cases, understaffing and physical conditions in the
offices present serious limitations. This varies considerably by region. The staff of the SES has grown
from 16,500 positions in 1992 to roughly 24,000. Nevertheless, this implies a ratio of staff to working age
population that is much less than in many Western European countries (0.28 staff members per 1000 of the
working age population, compared to 0.9 in the United Kingdom and 0.6 in Germany).
Second, many staff lack sufficient training, although efforts are underway to correct this situation.
In addition, in some regions low wages or poor image of the State Employment Service may make it
difficult to attract high qualified personnel.
Third, access to offices has improved, but is still not satisfactory in all areas. There are currently
about 2,300 local employment centres, and 88 regional centres at the oblast level. In large districts, some
unemployed must travel long distances to reach the nearest centre. In some cases, travel costs can equal
a large portion of the potential unemployment benefit. One solution has been found in certain regions that
have introduced mobile service units. These greatly increase client access, but may require enhanced
organisation and a measure of automation to be fully effective.
32
The previous service certainly did not function efficiently as a central agency capable of matching
large numbers of jobseekers and vacancies, and it did not have the task of offering the unemployed
help in finding redeployment solutions.
20
In terms of responding to the needs of job seekers and employers, one very positive strategic
development is the implementation of a system of employment programmes. The Employment Law
provides only general framework for the operations of the SES. A national employment programme helps
to restate the law in terms of policy and programmes corresponding to the current labour market situation.
Local and regional centres develop annual or biannual employment programmes that provide assessments
of the labour market conditions and lay out the specific responses to be carried out by the appropriate
authorities. These programmes generally focus on the operations of the SES, but also outline inputs from
other participants in local labour market developments (e.g., the local civil administration and employers).
These documents are developed through a consultative process that works horizontally across the
community and vertically in the SES. Potentially, these strategic plans can serve as a vehicle for addressing
the above outlined problems.
A recent innovation that provides more specific guidelines and instruction for SES staff is the
"Methodical Handbook" of the FES. This manual was approved by the FES Board in January 1994. It
represents an important step in ensuring minimum national standards in service and in staff training. The
document will be put into service during the second half of the year.
The Employment Law allows for private employment agencies, but they are supposed to operate
only if they receive a license from the SES. It was reported that by the end of 1992 there were already
140 private agencies operating; although a fairly broad definition seems to be applied, i.e. job mediation
will not always be their primary activity, and only 7 had licences.33
E. Lack of wage-bargaining structures
A significant amount of adjustment in the relative levels of wages has occurred, as described
above. In practice, the lack of formal wage-bargaining structures is likely to have contributed to this
growing differentiation in wages and to weak wage performance. There is virtually no direct government
control over wage formation outside the budgetary sphere. Wages are discussed in the tripartite commission
created in November 1991 comprising representatives from business, workers and the government.
However, nation-wide agreements have not materialised, and in practice a significant portion of wages are
fixed through informal processes at the plant level. On this point, some analysts have speculated that in
the absence of formal structures, the sense of social obligation on the part of some managers has helped
to limit an even greater differentiation in wages.
Government policy influences the wage formation indirectly, through two main instruments,
namely the minimum wage and the excess-wage tax. As noted above, due to insufficient adjustment for
inflation the minimum wage is so low as to be of limited use as a form of social protection (14,620 roubles
in 2/94). Instead, it serves primarily as a benchmark for the calculation of certain benefits and taxes. The
excess-wage tax, as well, is proving to be a less than fully effective. It is intended to provide incentives
to employers to limit the growth in wages. However, many enterprises reportedly evade their liabilities by
understating their wage bills or overstating their employment. Thus, the incentives provided through
government intervention in the wage formation process may actually contribute to distortions in the
statistical reporting while failing to provide a suitable earnings threshold for the working poor.
33
ITAR-TASS 7 December 1992.
21
IV. Conclusions
Since the start of reforms in January 1992, the labour market in Russia has been affected by the
collapse in production and demand, as well as uncertainty about the direction of reforms. A remarkable
feature has been the relative stagnation of employment, which in the context of rapidly declining output
has translated into a dramatic decline in labour productivity. Although there has been an increase in open
unemployment, this has been lower than expected. It is clear that reluctance on the part of enterprises to
fire labour has cushioned the pressures for higher unemployment.
Relative employment stability has been achieved at the cost of falling real wages and incomes
(which dropped by roughly half since end-1991). Yet, the cut in real incomes has not affected all
individuals alike; there is indeed evidence that wage and income differentials (which according to official
statistics were very narrow in the past) have widened considerably. By the end of 1993, wage differentials
have come close to levels found in the United States. On the other hand, a large portion of the population
has fallen below the poverty line.
Drawing on the available statistics and taking into account their limitations as well as other
evidence, this paper has identified a range of factors that have inhibited adjustment:
First, soft budget constraints have continued for state sector and some other enterprises. Many
forecasts of mass unemployment were based on the assumption that reform would imply the imposition of
hard budget constraints on these enterprises and that as a result the latter would be forced to shed workers
and in some cases to go bankrupt. By the end of 1993, however, there had not been a single complete
bankruptcy process. This situation is not sustainable.
The use of wage arrears as a means of credit expansion may have a damaging effect on incentives
for work. Obviously, a clear relationship between work and pay can be an important motivating factor for
labour. Wage arrearages disrupt that relationship and imply that mutual obligations between employers and
employees are non-binding.
On the other hand, the use of leave-without-pay (LWOP) by enterprises during the transition
period may ultimately prove to have been a useful strategy. LWOP does not violate the relationship
between work and pay. Instead, it enables the employee to retain his ties to a workplace during a period
when alternative employment may not be available. The access to social services and benefits through the
enterprise during periods of LWOP play an important role in supporting the living standards for some who
would have been worse off drawing limited unemployment benefits. Finally, LWOP has provided helped
to limit demands for employment services, thereby allowing the SES time that it has used to develop.
Future unemployed will benefit from the internal development work carried out by the SES during the first
two years of the transition.
Second, resistance to adjustment has been intensified by the fact that the social safety net is still
in the making. Despite progress in introducing a credible and sustainable social safety net, results so far
have been uneven. Should bankruptcies occur, redoubled attention will have to be given to the problem
of easing the redeployment process of workers made redundant during the reform process. This means
ensuring in all regions that there is a safety net in place and operating which can guarantee such workers
adequate protection during unemployment. Obviously, this protection will need to be structured such that
job search incentives are maintained.
The social safety net would profit from improved integration. There is room for improvement
in coherence between labour market and social policy at the national level. For example, early retirements
are granted by the SES but must be financed by an already depleted pension fund managed by a separate
22
agency, before eventual reimbursement from the Employment Fund. At the local level, opportunities for
co-ordination between various service providers often are not fully explored. For example, in some cases,
there is little interaction between local offices of social assistance and local employment centres.
In addition, the unemployment benefit system would profit from clarification. There are several
aspects which make the scheme unnecessarily complicated. Benefits calculated on the basis of different
percentages of previous earnings seem especially complicated, since they: i) imply separate benefit
calculations for each worker by an employment service which carries out many administrative tasks
manually, and ii) result in benefit payments that on average do not vary significantly from the minimum
wage. In addition, the local discrepancies in interpretation of benefit eligibility seem undesirable in a
situation where it is important from the point of view of social stability to ensure that workers have clear
rights with regard to unemployment.
Finally, if unemployment does begin to rise significantly (i.e., if bankruptcy legislation is strictly
enforced), then benefit levels will likely need to be reconsidered. Higher levels of unemployment may
mean that increasing numbers of households will become dependent on the unemployment benefits which
currently are well below the poverty lines described above. Avoidance of substantial increases in poverty
will require consideration of new options for increasing support to those temporarily unemployed.
Third, there is insufficient development of market-oriented labour regulations and institutions.
One example is the stringency of employment security regulations. Another problem is the fact that
wage-bargaining structures are in their infancy, impeding an efficient adjustment of wages and labour. The
lack of a well-functioning wage bargaining system may have contributed to the widening wage differentials
that are not justified by corresponding productivity trends.
These three challenges, and the manner in which the Russian government responds to them, will
play important roles in determining the shape of the socio-economic situation in post-transition Russia.
While enhanced labour market policy alone will not resolve the current economic crisis, it can make a
contribution in that regard, easing and facilitating the process of adjustment.
23
Table 1
Employment by Branch of the Economy
(millions)
1991
1993
Absolute
change
Industry
Agriculture
10.0
Transport & communications
Construction
Trade & catering
Services
Health,sport,soc. security
Education, culture, art
7.3
Science
Credit & state insurance 0.4
Public administration
2.0
Other
22.4
9.6
5.8
8.5
5.6
3.2
4.3
7.7
3.1
0.9
2.4
1.2
20.8
-0.4
5.2
8.0
5.6
3.2
4.4
0.4
2.4
0.5
0.4
0.8
-1.6
-4.0
-0.6
-0.5
0.0
0.0
0.1
5.5
-0.7
125.0
20.0
-0.4
Total
73.8
71.0
Percent
change
-7.1
-10.3
-5.9
0.0
0.0
2.3
-22.6
-33.3
Source: Unpublished Russian Federal Employment Service paper quoting
Russian Goskomstat data, 1994.
Table 2
Share of Total Employment in State-Owned Enterprises
(percent)
1990
1991
1992
1993
82
76
67
59
Source: Centre of Economic Analysis 1992, 1993.
24
1994 projection
48
Table 3
Registered with State Employment Centres
(in thousands)
Out of Employment
_________
of which:
Registered Unemployment
_________
1992
March
June
September
December
616
779
921
982
118
203
367
578
1,097
1,003
969
1,085
732
717
706
835
1,267
990
1993
March
June
September
December
1994
March
Source: Russian Economic Trends using Federal Employment Service Data.
Table 4
Goskomstat Labour Force Survey Results
Unemployed
Percent of economically
active population in the
15 - 72 age group
End October 1992
3,588,000
4.9
End November 1993
3,800,000
5.1
Source: Unpublished tables, Russian Goskomstat, 10/92 & 11/93 surveys.
25
Table 5
Distribution of Population Registered as "Out of Employment"
by region
1993
Russian Federation
End of Year
Out of Employment
Percent of
Total
1,084,509
100
Northern Region
85,713
8
North-Western Region
69,448
6
Central Region
242,201
22
Volgo-Vyatsky
109,644
10
Central Chernozem Reg
34,568
3
Povolzhsky Region
79,995
7
North Caucuses Region
115,833
11
Urals Region
130,218
12
West Siberia Region
83,583
8
Eastern Siberia Reg
64,464
6
Far Eastern Region
50,411
5
Source: Russian Federal Employment Service, Statbuleten Nr. 1, 1994.
26
Table 6
Labour Force Survey Unemployment
(November 1993)
LFS number
% Econ
Active
For Reference:
Registered
Out of Employment
(End 1993)
North-Western Region
Saint Petersburg City
Leningradsky Oblast
183,000
54,700
7.1
6.3
31,511
16,681
Central Region
City of Moscow
286,700
6.0
27,617
12,300
30,700
7.2
6.3
4,957
8,491
14,500
101,400
7.3
13.5
4,678
39,133
33,300
30,700
9.2
10.2
4,651
7,563
102,200
135,500
22.7
6.2
17,588
21,752
West Siberia Region
Altai Republic
Tomskaya Oblast
5,600
37,600
6.4
7.7
2,207
6,512
Eastern Siberia Region
Republic of Tuva
11,200
6.8
3,215
Far Eastern Region
Evreiskaya Aut. Oblast
Magadanskaya Oblast
Sakhalinskaya Oblast
6,800
14,200
27,700
6.0
6.1
6.8
446
3,202
9,587
Povolzhsky Region
Republic of Kalmykia
Astrakhanskaya Oblst
North Caucuses Region
Republic of Adygeya
Republic of Dagestan
Kabardino-Balkarskaya
Republic
North Ossetia Republic
Chechin & Ingush
Republics
Krasnodarsky Krai
Source: Labour force survey data - 11/93, Russian Goskomstat, unpublished table;
registration data, Russian Federal Employment Service, Statbuleten Nr. 1, 1994.
NB, Only sub-regions with relatively high LFS unemployment are shown (minimum 6 percent).
27
Table 7
Registered "Out of Employment" Per Vacancy
(as of 31.12.93)
Russian Federation
3.1
Northern Region
Arkhangelskaya Oblast
5.9
18.7
North Western Region
Pskovskaya Oblast
1.8
23.8
Central Region
Bryanskaya Oblast
Yaroslavskaya Oblast
2.0
23.7
31.6
Volgo-Vyatsky Region
Mari El Republic
Mordovskay SSR
Chuvashskaya Republic
8.1
67.7
18.3
30.5
Central Chernozem Region
2.7
Povolzhsky Region
Republic of Kalmykiya
2.7
18.5
North Caucuses Region
Republic of Adygeya
Republic of Dagestan
Ingush Republic
(Chechen Republic
5.5
26.9
37.4
133.4
3.7)
Urals Region
Komi-Permyatskii Aut. Okr.
4.2
18.6
West Siberia Region
2.6
East Siberia Region
Aginskii Buryatskii Aut. Okr.
4.8
15.6
Far Eastern Region
Koryakskii Aut. Okrug
Sakhalinskaya Oblast
2.5
23.1
19.3
Source: Russian Federal Employment Service, Statbuleten Nr. 1, 1994.
NB, Only sub-regions with relatively high ratios are shown (greater than 15:1).
28
Table 8
Comparative Labour Market Indicators
GDP growth rates
Hungary
Poland
Russia
1991
1992
1993
-10.0
- 9.1
-14.3
- 5.0
1.0
-18.5
0.0
2.5
-12.0
Total employment growth rates
Hungary
Poland
Russia
1991
1992
1993
- 7.8
- 5.5
..
- 5.5
- 4.0
- 2.4
- 6.4
- 1.0
- 1.4
.. Data not available.
Wages (in US $)
Hungary
Poland
Russia
Sources:
1992
1993
282
206
27
283
217
59
IMF Survey, Aug. 19, 1992, p. 265; Rossiyskiye Vesty, Oct. 27, 1993;
Commersant, No. 46, 1993; Argumenty i Fakty, No. 34, 1993.
Employment observatory, Commission of the European Communities.
Labour Force Survey and Establishment Survey.
29
30
31
32
33
34
35
36