So, the state of the labor market already fixed by statistics so far has not afforded ground to assert that the bottom of the crisis has been already passed. Hence, the question arises as to what degree lessons from the past crises can be useful from the perspective of evaluation of consequences of the ongoing one and minimization of its costs for all the participants in the labor market.
Demand for labor constitutes a derivative from the one for final produce. Being a negative shock, a decline in the volume of output compels producers (employers) to act towards cutting production costs. As far as the labor market is concerned, such an employer’s ÝÊÎÍÎÌÈÊÎ-ÏÎËÈÒÈ×ÅÑÊÀß ÑÈÒÓÀÖÈß Â ÐÎÑÑÈÈ ÝÊÎÍÎÌÈÊÎ-ÏÎËÈÒÈ×ÅÑÊÀß ÑÈÒÓÀÖÈß Â ÐÎÑÑÈÈ RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES behavioral strategy means that in response to negative shocks in demand he will save on labor force by slashing “extra” jobs or axing salaries.
By contrast to the developed countries’ labor markets, the distinguishing feature of the Russian one lies in the price fine-tuning, rather than in the quantitative adjustment.
It means that in a period of slump real salaries and wages decline more substantially than volumes of gross domestic product, while the decline in employment is far less by magnitude. In periods of growth, it is salaries and wages that are the first to increase, while employment rises at a far less significant rate.
Key features of the labor market that determine the nature of its transformation engendered by external shocks comprise the system of labor market institutions, characteristics of labor offer and labor demand.
The peculiarities of the institutional structure of the Russian labor market (provisions of the labor law and their enforcement by employers) coupled with peculiarities of formation of salaries and wages and their structure to a significant extent explain the dominance of the market’s price fine-tuning strategy.
The labor law specifies conditions of layoffs due to economic reasons, for instance, in the period of an economic slump. The respective high costs (the layoff notice timeline, severance pay) deter the employer from a mass “discharge” of the labor force in the period of a slump. In addition, the authorities’ policy (both at the federal and regional levels) also centers on precluding from mass layoffs. Regional authorities together with trade unions often happen to hold consultations with executives of large enterprises. Such “talks” can focus on tax benefits and different forms of subsidies as a trade-off for retaining jobs. Plus, in periods of mass layoffs, in the event a labor dispute requires a trial, the court of law often stands by the employee’s interests.
By contrast, the institutional constraints on mobility of labor compensations until now have been less rigid than the constraints on fluctuations of employment, and as such, they fueled the reproduction of superflexibility of salaries and wages.
Until recently the lower threshold of salaries and wages, that is the minimal wages, and a miserable level of the unemployment benefit that form the lower margin of salaries and wages in the economy have been on a low level, and as such, they did not help maintain rigidity of salaries and wages, thus making them unstable from the perspective of their cuts.
But it should be expected that a considerable rise in the minimal wages (from Rb. 2,400 to 4,200 since January 1, 2009) and in the minimal value of the employment benefit (from Rb.
4,900 since the same date) should constrain the volatility of salaries and wages.
The structure of Russian employees’ salaries and wages exhibits the presence of a great share (over one-fourth of its variable component) of additional payments, bonuses, etc. By contrast, in other countries such payments do not account even for 10%1. Employers adjust themselves to changes in the economic situation primarily at the expense of the variable part of salaries and wages – in the conditions of a negative shock, they cut their costs for labor by compressing the variable part of payments. Should the production dynamic be positive, the rise in payments to employees (in the period of economic growth) is made again at the expense of the variable part. Thus, surveys of employers held between December 2008 and January 2009 showed that they had lowered salaries and wages offered to newly hired personnel at 16% on average.
Overall, the institutional structure of the Russian labor market blocks mass layoffs due to economic reasons and moderate fluctuations of employment in slump periods and, on the contrary, it “provokes” a high flexibility of salaries and wages in the economy.
1 “Zarabotnaya plata v Rossii”, V. Gimpelson, R. Kapelyushnikov (eds), M., GU-VSHE Publishers, ÍÀÇÂÀÍÈÅ ÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ ÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ ÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ THE RUSSIAN LABOUR MARKET ÐÀÇÄÅËÀ In the 1990s, the labor offer was characterized by a high level of participation in labor force1. The phenomenon was intensified by peculiarities of the nation’s demographic structure. Since 2006 Russia has no longer benefited from the so-called “demographic dividend”, as the proportion of the able-bodied population and its absolute number began to shrink. According to Rosstat, since 2008 the able-bodied population will be shrinking by 800-900,000 annually.
In the 1990s, employees enjoyed a possibility for opting for alternative employment strategies, as the labor market saw the rise of a broad array of nonstandard forms of employment and a growing informal employment. In addition, the educational system, with a rapidly growing number of university students, was able to absorb a fraction of the younger labor force. Finally, the mass depreciation of human capital powered a huge interprofessional mobility. The current situation with labor offer is a striking contrast to the earlier noted one. With the able-bodied population shrinking both in absolute and relative terms, there unfold tendencies that will be aggravating the negative consequences of the crisis. More specifically, the capacity of the inter-professional mobility has been limited significantly; opportunities for the secondary and informal employment appear far scarcer;
a high proportion of the young people receiving education does not leave a “spare room” for the rise in demand for educational services.
On the labor market, a new alternative to employment becomes one’s transition to the state of the registered unemployment. After the maximal size of the employment benefit was raised, a fraction of low-paid employees should be more eager to quit the labor market.
Demand for labor has also undergone substantial changes. Thus, the corporate governance experiences of the 1990s-2000s, paired with a considerably renewed managerial cohort that appears less committed to paternalism towards employees, have changed the corporate HR policy. Overall, under the present circumstances employers are more apt to resort to layoffs in a period of economic decline than their predecessors were.
So, the general situation is characterized with a rapid rise of unemployment against the background of falling growth rates of GDP and levels of salaries and wages. It should be expected that in contrast to previous crises, the ongoing one will engender more sweeping job cuts. Meanwhile, a low elasticity of the demand for labor by output, which is inherent in the national labor market, does not afford grounds to forecast an avalanchine rise of unemployment, expectations of which appear every time after a negative shock to the labor demand (as it was noted in the period of the transformational slump of the 1990s, in 1998, post-default, and nowadays).
The evaluation of effects the ongoing crisis has on the labor market is not limited by the scope of unemployment and fall in real salaries and wages across the economy on the whole. The differences behind average indicators overshadow a different scope of losses borne by different sectors of the economy and different groups of employees.
The impact of the crisis on the economy varies from sector to sector. It is the financial sector (banking and financial services, and services rendered to businesses) wherein the fall in the volume of employment and in sizes of real salaries and wages was the greatest one, while in the real sector it was the construction and metallurgical industries that in the late-2008 reported the greatest slump indicators.
While evaluating the magnitude of the layoff process, one should reference to alternatives the employee have. In addition to the aforementioned non-standard employment, another option may become the inter-sectoral mobility that does not involve a sizeable investment 1 The level of participation in labor force is calculated as the correlation between individuals participating in the aggregate labor force and the population as a whole.
ÝÊÎÍÎÌÈÊÎ-ÏÎËÈÒÈ×ÅÑÊÀß ÑÈÒÓÀÖÈß Â ÐÎÑÑÈÈ ÝÊÎÍÎÌÈÊÎ-ÏÎËÈÒÈ×ÅÑÊÀß ÑÈÒÓÀÖÈß Â ÐÎÑÑÈÈ RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES in human capital. To exemplify, it is possible for the former financiers to move to the real sector, albeit for a lower pay.
Traditionally, wages in the budgetary sector (education, healthcare, culture and science, public administration, housing and utilities) are relatively low. While salaries are being cut and employment opportunities are becoming scarce in the non-government sector, jobs in the budgetary one grow to be more attractive than before. In the event no decision is made on the regional level to considerably scale back financing of the social sphere and cut jobs therein, it may well happen that employees from other sectors would flow into the budgetary sector.
The situation in the segments of the labor market wherein there are no “employment buffers” or they are minimal appears more challenging. The core problem is the so-called “monosectoral” locations. According to the Institute of Regional Policy, there are monosectoral towns in Russia whose residents combined account for 25% of the country’s urban population. By January 2009 their enterprises had already suspended production operations or reported a lower loading of their capacities.
The labor market’s mechanism of adjustment to external shocks dictates a form of transferring the crisis costs onto groups of employees. In the event the market responds to the lowering demand with layoffs, while salaries are cut insignificantly, the losses concentrate within the group of the laid-off employees. On the contrary, in the conditions of a high flexibility of salaries and wages and given substantial cuts in the real salaries and wages, the crisis costs are spread across all the economically active (both employed and jobless) individuals, which is the very distinguishing peculiarity of the Russian labor market.
But, no matter how paradoxically it may sound, in addition to huge negative effects, the crisis has given rise to some positive ones.
Russia’s labor market has recently been overheated from the perspective of salaries and wages. The growing economy was hungry for labor force, while the latter not just failed to expand, but began to contract. Under favorable macroeconomic circumstances that has fueled the “wages race” – between 2000 and 2008 the real salaries and wages have been rising at an average annual rate of 15%, thus outpacing the labor productivity growth rate.
The tendency could not help but stirred concerns, as the gap between labor costs and labor productivity downgraded the national corporations’ competitiveness. The current slump is envisaged to close the gap to some extent.
Finally, the crisis is expected to give rise to structural changes in the economy. It can help “cleanse” the market from the least viable and unproductive enterprises and give impetus to the structural renewal of the economy. But this depends, among other things, on to what extent the government, in an effort to diminish the magnitude of negative effects from the crisis by earmarking funds to support enterprises and sectors, is (and will be) guided by rationale and criteria of a given enterprise or an industry branch’s economic efficacy.
ÍÀÇÂÀÍÈÅ IN RUSSIA: CRISIS HASÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ ÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ NOT...
EDUCATIONÐÀÇÄÅËÀ ÍÀÇÂÀÍÈÅ ÐÀÇÄÅËÀ EDUCATION IN RUSSIA:
CRISIS HAS NOT INFLUENCED SECTOR YET T.Klyachko The economic crisis that started to outline in the economy in the middle of 2008 has not affected the system of education yet. It is the demographic processes that continue to determine the situation in the education. However the first signals of the crisis started to become obvious in the educational system.
In February 2009 the Federal State Statistics Service published the preliminary data on the development of the educational system in the Russian Federation in 20081.
These data testify that the economic crisis that started to outline in the economy in the middle of 2008 has not affected the system of education yet. It was primarily the demographic processes that continue to define the situation in the education.
In school education there was a contraction in the contingents resulting in the contraction in the school network.
Over the period of 2000-2008 the number of students in the state and municipal comprehensive schools reduced by 31.7%, it should be taken into account that at the same time the number of state and municipal schools reduced by only 11.8%, and the number of teachers – by 16.1%.
As a result the number of students for one teacher constantly decreased over the past years: it dropped from 11.7 people in 2000/01 study year to 9.5 people in 2007/08 (fig. 1).
Federal State Statistics Service has not revealed the information on the primary vocational training in 2008 so far.