LABOUR MARKET AND EMPLOYMENT IN RUSSIA:
BEGINNING OF CHANGES
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NATO ECONOMIC Colloqium,
30 June, 1 and 2 July 1993,
Brussels
ECONOMIC DEVELOPMENTS IN COOPERATION PARTNER COUNTRIES
FROM A SECTORAL PERSPECTIVE
EVOLUTION DE LA SITUATION ECONOMIQUE DANS LES PAYS
PARTENAIRES DE LA COOPERATION DU POINT DE VUE SECTORIEL
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PANEL I
Living Standards, Social Welfare and Labour
Chair: Daniel George, Director, NATO Economics Directorate
Panelists: Michel Gaspard
Lulzim Hana
Vladimir Gimpelson
Silvana Malle
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LABOUR MARKET AND EMPLOYMENT IN RUSSIA:
BEGINNING OF CHANGES
Vladimir Gimpelson
I. Labour in the USSR
The Soviet economy was totally state dominated and
extremely militarized. The labour market existed, but only
in a limited and distorted form. The enterprises, without
any budget constraints, could never satisfy their demand
for labour. The expansion of demand for workforce was
stimulated by the very cheap labour costs and
low labour productivity. The low (and equal) earnings were
compensated through considerable flows of non-wage
benefits, depending on the administratively-imposed
priorities of a particular industry or enterprise, on the
social status of employees or on access to the
distribution of goods and services. For these reasons,
unemployment was hidden and looked like excessive
employment. All this inevitably led to the decay of work
ethics and aggravated the decrease in production
efficiency and quality.
Gorbachev's half-way reforms at the end of 1980s, despite
their inconsistency, provoked a turning point in
employment. Both total and industrial employment began to
decline. The 1987-1989 legislation partially legalized
private business activity. This development opened the way
to the emergence of the non-state sector and labour
market.
II. The Beginning of Reforms and Changes in Employment
The Gaidar-Yeltsin government focused on financial
stabilization, which has not been achieved for many
reasons. The institutional transformation began with delay
only at the end of 1992. The failure of stabilization
policy and weak privatization have slowed down the general
dynamics of change in employment and the labour market.
And although it is still too early to summarize the
results, we can ascertain some tendencies which have
already developed.
The main positive trends are as follows: the element of
compulsory (or non-voluntary) labour has practically
disappeared, excessive employment has started to decline,
the formation of labour market institutions has gone on,
and some vague contours (just contours as yet!) of
employers independent from the state and hired labourers
have appeared on the Russian social scene. But perhaps the
most important, is that we are witnessing a normal, really
market-like and rational way of adjustment to the new
difficulties. The flexibility of the labour market and the
mobility capacity of the employees appear to be much
higher than expected. That was indirectly confirmed by the
results of the referendum showing people's confidence in
Mr. Yeltsin and his government.
On the negative side we can see insufficient speed of
positive changes. There is still considerable
overemployment feeding inflation. The development of
labour market institutions is lagging behind, the
essential statistics do not exist, and practically nothing
is being done for training people to act under the new
situation. The formation of independent employers and
trade unions is very slow.
While the centralized wage policy has collapsed,
decentralized wage setting through collective bargaining
has not yet emerged. The inter-industry wage differentials
have grown enormously, increasing the wage gaps between
employees in mining, manufacturing, and organizations
financed from the budget. These differentials, in turn,
are resulting in extraordinary regional variations
in living standards.Let us consider some of these
tendencies in more detail.
III. Major Trends in Employment, Unemployment and
Dismissals
In 1992-93 the share of state-run enterprises in total
employment continued to decrease. The number of employed
in the state sector declined due to privatization
of the state-owned enterprises, voluntary labour mobility
to private firms and to redundancy.
The hidden unemployment became obvious and labour demand
of state-owned enterprises has notably decreased. For one
year the number of officially registered unemployed went
up from 62 to 578 thousand, or by 9.3 times. At the same
time we see a decrease in the number of vacancies, from
841 to 377 thousand, or more than 2.2 times. These two
indicators became equal by October, and by the end of 1992
there were more jobseekers than free vacancies (for the
first time in the post-NEP history!). Meanwhile the
capacity of employment services practically remained
constant: they helped to place in new jobs about
50-60 thousand people every month. The trends in the
labour market are shown in Figure 1.
Noteworthy is the fact that unemployment in 1992-93 did
not reach the threatening figures predicted earlier by
both political supporters and opponents of the government
course. Despite the 20% decrease in industrial output
during the year, the unemployment rate, according to
official data, made up 0.7% of the economically
active population by the end of 1992 and 1% by May 1993.
By no measure has the rate of unemployment reached any
dangerous level, even if the officially-used definition is
enlarged. Nowadays it is obvious that the alarming
predictions of the jobless level were either too
influenced by political speculations or too simplistic.
They did not take into account the diverse and specific
economic, social and cultural realities of Russia.
The main source of unemployment is that of mass
redundancies. In 1992, according to data from the Federal
Employment Service, over one million people (or about 1.5%
of the economically active population) were laid off,
mainly from state owned industrial enterprises. This is
far less than forecast by enterprise managers. For
instance, in the middle of 1992 the military industrial
complex (MIC) enterprises alone declared their readiness
to fire as many as 1.5 million employees by the end of the
year.
In all the countries of Eastern Europe the rates and
numbers of dismissals highly correlate with the dynamics
of unemployment, determining largely its real nature.(1)
The contribution of the layoffs to unemployment in
Russia is so far relatively modest as compared to other
post-socialist countries of Europe. In 1992 it accounted
for slightly over 40%, though it reached as high as 60% in
several regions.(2) More than a third of all unemployed
left their jobs of their own free will. Apparently this
often hides involuntary "quits" which are not registered
as compulsory dismissal.
Unemployment in Russia has clear social and demographic
features. Two-thirds of the jobless are women and half
have higher or specialized secondary education. However,
the proportion of men with workers occupations is
rapidly growing. The regional picture is shaped by an
increased unemployment rate in some of the central and
north-western regions (Yaroslavl, Pskov, Kostroma,
Ivanovo, Murmansk and Archangelsk regions) and some
autonomous republics (Dagestan, Mordoviya, Udmurtiya,
Adygeya). In certain regions (Krasnodar and Stavropol in
particular) the employment situation is affected by the
inflows of refugees and involuntary migrants.(3)
The emerging financial constraints and the necessity of
adjustment to the changing environment stimulate the
enterprises to develop various strategies of more flexible
employment. In August 1992 about 5.5 thousand
industrial enterprises actually used part-time work or
leave without pay. As much as two million industrial
workers or 9% of the total work force in industry were
employed part-time.(4) No doubt such underemployment
prevents an outburst of open joblessness. It also
preserves the surplus labour actually blocking the
dismissals, even in a situation of a 20-30% fall in
production.
IV. The Adjustment of State-Owned Enterprises
The unemployment situation largely depends on how the
state enterprises are adjusting to the changing economic
rules of the game. It should be also stressed that the
irreversibility of reforms is determined a great deal by
the behaviour of economic agents.
The changes in labour and employment at the enterprises
during 1992 depended on their conditions before the
reform. Some of them are withdrawing from use of
involuntary labour, where they earlier did use it, others
are cutting vacancies and redistributing jobs within the
enterprise, others resort to dismissals of real workers
when all other reserves have been exhausted.
So, why have not the forecasts of unemployment and mass
layoffs come true? One reason has been the failure to
pursue a tight credit and monetary policy. This has been
intensively discussed, but other factors are no less
significant.
The concrete personnel policy at state enterprises seems
to be influenced by distribution of property rights. The
break-up of the central planning system and lagging
privatization are accompanied by confusion and overlapping
of property rights. The number of agents whose powers
duplicate each other is increasing. The management,
the worker teams, the central and local authorities are
all claiming their rights to control over production. Each
of them has enough power to block the decisions and
activities of the others, allowing only mutually
acceptable policies.
The consensus in employment policy is being achieved by
attempts to keep employees as long as possible, avoiding
any displacements. That is what really took place through
1992. Another possible option actively practised by
enterprises is part-time work and underemployment.
Employment flexibility in various forms has become a
specific quasi-market response of non-state (de facto) and
yet non-private enterprises. This peculiar situation in
employment is similar to that in finance during the
so-called "payments crisis" in summer 1992, when a huge
mutual indebtedness of enterprises nearly paralyzed the
country's financial system. This unpredictable enterprise
behaviour has refuted all the forecasts of a massive
avalanche of unemployment. Meanwhile, the list of reasons
for slack layoffs may be continued. All this could have
been envisaged, though it is extremely difficult to make
any quantative forecasts.
The arguments presented above bring us to the conclusion
that the impact of macroeconomic policy on employment in
post-socialist Russia is not as straight forward as could
have been expected, but it is largely determined and
modified by the process of privatization and the change in
property rights. I do not mean here a formal conversion of
a former state-owned enterprise into a joint-stock company
but rather setting up efficient control over production by
individual or institutional private shareholders.
As soon as such control is established, the process of
displacements may accelerate and turn into an avalanche.
Such conclusions are prompted not only by the interviewed
managers but by the analysis of several earlier privatized
enterprises. Those who have managedto exercise real
control started to lay off on a massive scale. This
ownership transformation may take as long as three to five
years or more after joint-stock company is officially
registered.
Such rigidity in employment caused by unwillingness of
enterprises to shed labour in a situation of prolonged
recession forms a powerful source of inflation.
The necessity to pay the mass of employees producing
nothing exerts a great pressure on the state budget,
demanding massive credit allocations. The persistence of
the state enterprises in this strategy could only result
in a more dangerous outburst of unemployment as soon as
excessive employment becomes unbearable. Unfortunately,
despite the fact that this danger is now more real than
ever, government institutions do not seem any better
prepared for it.
V. The First Records of Non-State Employment
By the beginning of 1993 as many as 950 thousand new
economic units and organizations were registered. This
includes partnerships, joint-stock companies,
cooperatives, and other private enterprises which together
employed 16 million people, or about 22% of the total
number of employed in Russia.(5) Thissector is forming up
in two ways: via privatization of the acting state-owned
enterprises and via new entrepreneurial initiatives. Among
those in the first group there are units which have
already passed a considerable part of the way to freedom
and those who have just managed to change the sign-board.
Correspondingly, the labour situation in various segments
of the non-state sector differs considerably.
Wherever the transformation into joint-stock companies
took place in 1992-93 there are few real changes yet,
while the enterprises privatized a bit earlier are already
changing economic behaviour. In the latter personnel
dynamics is higher, dismissals are more frequent, work
discipline is more strict and management control over
production much stronger.
The new private firms operating mostly in trade,
consulting and finance are distinguished by a prevalence
of younger and better educated people. However, this
employment offering sufficiently high remuneration is
often devoid of social guarantees and depends entirely on
the employer's good will. The labour legislation functions
with considerable deficiency in this segment of the labour
market. Here the work is more intensive, job satisfaction
is higher and there are fewer superfluous jobs. At the
same time a closer examination shows that the work
organization and the reward system in these firms have
"successfully" inherited many of the traditional features
of the socialist economy.(6)
The private sector is beginning to take part in job
placement of those who search for a job, as well as in
generally stimulating social mobility. Every fourth worker
placed in a new job, after dismissal from the state
sector, was hired by private firms. The work here is of
higher priority, especially for the young and better
educated people.
There is much evidence that the involvement of the Russian
population in the private sector is far above the figures
reflected in available official statistics. This is due to
the extremely poor statistical registration of activities
outside the state sector. Considerable primary and
secondary employment is not registered at all. One can
ascertain nowadays that the Russian population, despite a
long historical experience in building socialism and
importunate communist propaganda, has no serious
objections against the private entrepreneurship economy
and is ready to participate in it.
VI. Wages: Dynamics and Differentiation
A detailed discussion of this set of problems is beyond
the scope of this paper. Let us only consider some most
important features.
In 1992-93 considerable change took place in wage policy.
The governmental bodies retreated from rigid wage
regulation at enterprises which became economically
independent. In fact wages were deregulated. The minimum
wage level was raised and a universal tariff system in
budget-financed organizations was introduced. All this has
resulted in significant change in pay level and wage
differentials.
The wage dynamics in 1992-93 were mainly determined by the
following factors: 1) opportunities for enterprises to
increase prices for their products, and 2) readiness of
workers and managers to assert their claims by use of
force (strikes or threats of strikes, for instance) or
lobbyist pressure.(7) This explains, in particular, the
leading position of the coal and oil industries.
Accounting for less than 10% of total industrial
employment, these sectors receive over 21% of the total
wages fund. Let us point out, to compare,that the
machine-building enterprises receive less than 27% of the
total wages fund but have about 39% of all employed. The
highestlosses fell on many of the previous
beneficiaries, such as military-industrial enterprises,
devoid of guaranteed state financing and support.
The development of non-wage forms of remuneration may be
pointed out as another typical tendency in wage policy in
1992. A number of enterprises are trying to maintain
barter relations in order to protect themselves against
high inflation, mutual indebtedness and lack of available
funds of their own. Some part of consumer goods produced
at a given enterprise or received by a barter deal is
allowed to be used for paying their workers. For instance,
at AZLK (a big car producer in Moscow) the total sum of
consumer goods sold to the workers at discount prices
exceeded the annual wage fund.(7) At the Moscow Tyre Plant
each worker regularly received a set of scarce tyres for
cars. All this makes the pursuit of any regular wage
policy very difficult.
Despite the universal tariff system introduced in the
budget-financed organizations and regular indexation, the
wage gap between these and industrial units is increasing.
The average salary level in the education, research and
health sectors is abouttwo-thirds of the average wage in
industry. Facing opposition to its monetary policy from
the various industrial and agrarian pressure groups, the
government attempted to compensate for its weakness by
tough measures in the budget-financed sector, where the
resistance power is much weaker. As a result, a
considerable part of intellectuals and white collar
employees found themselves below the poverty level,having
lost in current incomes and in savings as well. The social
group that has generated the reform is thereby in danger
of beingturned into marginals and lumpens. Besides, it is
a great loss of human capital. There is a flow of the most
qualified specialists to other activities and occupations,
or into business. Another way is to stay formally on the
payroll in an R&D centre, while spending most of the
working time at a secondary, more profitable job.
According to the RF Goskomstat data, the number of
employed in the R&D sector fell by 28% during 1992.(8)
The much higher pay level in the mining industry has
increased regional wage differentials. The industrial
profile of a regional economy greatly affects
its income and living standards. In the northern and
north-eastern parts of Russia, which are mostly mining
(coal, oil and gas) areas, the average wage level is five
times more than in the central industrial regions of
Russia. This interregional differentiation reflects first
of all the export capacity of local enterprises and their
bargaining (very often monopolistic) power to raise prices
for their products.
VII. Transforming Labour Relations
The general social and economic change has accelerated the
transformation of labour relations which are losing their
former command and state-paternalistic nature. The state
has practically withdrawn from any direct influence upon
employment and wage setting, which are now regulated by
the enterprises themselves. At the same time some of the
old features are still alive, not only due to the absence
of well-established social partners - those of employers
and hired workers - but also to the social inertia and
cultural stereotypes.(9)
Some of the laws adopted since 1987, as well as the
collapse of the former administrative subordination,
have given considerable power to managers of state
enterprises. Very often this power is not supported by any
personal economic responsibility. As a result we have a
populist model of managers' economic behaviour in labour
relations, totally ignoring the interest of the owner. The
managers prefer to increase wages for all employees,
instead of fighting with labour redundancy even under a
deep recession (see, for example 7).
It would also be appropriate to remember the well rooted
tradition of the relationship between the Russian
industrial directorate, the workers, and the state. The
Soviet system has brought up the top managers of state-run
enterprises to carry a strong corporativist-paternalist
responsibility for the living conditions of their
employees. The hypertrophic sense of paternalism is still
there. Moreover, nowadays it often becomes a specific
moral-ideological ground for the management's action in
privatization and also affects the employer's attitude to
labour relations. In labour disputes occurring at state
enterprises the management prefers to claim a lack of
rights and responsibility, readdressing all the demands
directly to the government.
The underdevelopment of employers as actors in labour
relations partly explains the weakness of the unions and
associations. The most known and numerous among them is
the Russian Union of Entrepreneurs and Industrialists
(RSPiP), headed by A. Volskiy. The RSPiP acts, however,
partially as a political organization and partially as an
industrial lobby. Only to a small degree does it reflect
the employers' interests in bargaining with trade unions.
The opposite side of labour relations, i.e. trade unions,
does not look much better. At present there are two main
types of trade unions in Russia.
First, the old and formally most numerous trade unions
genetically linked with the socialist system (the
Federation of Independent Trade Unions of Russia (FNPR)
and some of the branch trade unions). They are trying in
many ways to prove their independence and to wash out the
brand of "the party drones". Being rather active in
politics at the national level, they turn out to be
absolutely helpless in negotiations and bargaining at the
enterprise and shop-floor level. There are two dominant
tendencies in these unions at the enterprise level: either
to be transformed into special bodies for social benefits
distribution under the management supervision, or to
disappear in fact, existing only formally for some
time.
Second, new, so-called free trade unions. The best
known are the Independent Trade Union of Miners (NPG),
Socprof, Confederation of Free Trade Unions and some
others. These grassroots movements are not connected with
soviet party and union traditions. They are not very
numerous but contentious enough, and they often stimulate
transforming labour relations. For instance, at a large
car plant in Moscow (AZLK) a small but very active Socprof
unit has greatly influenced collective bargaining.
VIII. Labour Conflicts and Labour Discipline
After a wave of strikes in 1989-1990, and despite the
sensitive price shock in 1992, the general propensity to
strike is low. In the beginning of 1992 a number of
collective actions involved schools and hospitals
demanding an increase in salaries. However they didnot
last very long. Even though the number of enterprises and
organizations engaged in strike activity in January-August
1992 increased more than eight-fold, compared to the same
period of 1991, the number of participants did not grow
more than twice. In industry the number of both
enterprises and participants involved in strikes fell by
five times. Despite occasional strike threats, the level
of social tension in industry is far from critical.
The threat of unemployment (both real and imaginary), as
well as strengthening management power, have started to
affect work attitudes and discipline of employees. There
is a lot of evidence of positive changes in this field,
first of all at the enterprises already privatized. The
fear of unemployment reduces informal shop-floor power of
employees who have to follow administrative and
technological rules. This fact is confirmed by some
directors and managers of enterprises recently interviewed
by myself.
IX. Labour Market and Employment Trends in the CIS
Countries
The disintegration of the USSR has caused the collapse of
the statistical institutions and enormously complicated
cross-republican comparisons (cross-country now). Due to
many reasons the statistical departments cannot provide
valid data. Besides, military actions which have occurred
in some of the former Soviet republics complicated data
collecting. There is also a problem of methodological
comparability. However, let us try to observe the main
employments trends.
The total number of employed population in the
Commonwealth countries is about 130 million: 72 million
work in Russia, 24 million in Ukraine, seven million in
Kazakhstan, eight million in Uzbekistan, five million in
Belarus.
The major trends typical of Russia are also seen (with
various differences) in all the CIS countries. The rate of
unemployment does not correlate with the indicators of the
national income and industrial production. By the end of
1992 the unemployment rate varied from 0.1% in Kyrgizstan
and in Uzbekistan, to 0.5% in Belarus and 0.7% in Moldova.
Everywhere the fall in industrial production was much
higher: from 10% in Ukraine and Belarus up to, for
example, 27% in Kyrgizstan, 50% in Armenia and 22% in
Moldova. As for registered unemployed, three-quarters of
the total number in the CIS is that of Russia.(10)
The number of dismissed was quite insignificant in all the
republics. the share of those laid off in total labour
turnover is less than 10% everywhere. Nevertheless, the
reduction of vacancies goes on, and their number has
become less than the number of job seekers registered.
Job placement by employment services is everywhere in
decline, too. Despite the limited redundancy rate,
dismissed people generally become unemployed (57% in
Belarus, 60% in Kazakhstan, 64% in Moldova). Another
general trend is the growth of blue collar share: up to
two-thirds among the unemployed.
Notes
(1) Employment Outlook, July 1992. Paris, OECD,
pp. 250-251.
(2) Goskomstat of the RF, Press release N165-BC,
30.09.1992;
(3) Delovoy mir, 17.03.1993.
(4) Statistical Press Bulletin N. 11, Goskomstat of the
RF, 1992, p.15.
(5) Ekonomika i zhizn, 1993, N.7.
(6) V. Gimpelson. RFE/RL Research Report, 1993, Vol. 2,
N 6.
(7) A. Matyzin, A. Stavnitskiy. Ekonomitcheskaya reforma i
zarabotnaya plata, M., 1992.
(8) Ekonomika i zhizn, 1993, N. 18.
(9) L. Gordon & E. Klopov, POLIS (Politicheskiye
issledovaniya), 1992, N. 1.
(10) Statisticheskiy Bulleten, Statisticheskiy
Komitet SNG, 1993, N. 1-2.
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First edition 1993
ISBN 92-845-0079-6
This is the latest in a series bringing together papers
presented at the NATO colloquia organised by the NATO
Economics Directorate and Office of Information and Press
on economic issues in the former USSR and Central and
East European countries. For further information please
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