Labor market in Russia

Plekhanov Russian Academy of Economics 

International Business School 
 
 
 
 
 

Coursework on labor economics

Topic: Labor market in Russia 
 
 
 
 
 

Prepared by:

Group:

Supervisor:  
 
 
 
 
 
 

Moscow

2010 
 
 

Table of content 
 

Introduction ……………………………………………………3 

1. Russian labor market during 1990-2007 …………………..4

   1.1 Labor market flows in transition ………………………….4

   1.2 Employment in Russia during 1990- 2007 ………………..5

   1.3 Income disparity in Russia ………………………………..8

   1.4 Labor differentiation by gender  …………………………..9 

2. Russian labor market at the time of financial crisis ……..11 

  2.1 Labor market at the beginning of crisis …………………11

   2.1.1 Impact on specific industries …………………………………12

   2.2  Salaries and compensations at the beginning of crisis …..13

   2.3  Real crisis impact on labor market ……………………....14

      2.3.1 Unemployment …………………………………………………..14

    2.3.2 Real wages and shorter working hours ………………………15

      2.3.3 Impact on industries and regions ……………………………..15

3. Current situation on the labor market ……………………16

   3.1 Governmental support …………………………………....19

Conclusion ……………………………………………………..20

Endnotes ......................................................................................22

Bibliography ……………………………………………………23

Appendix ……………………………………………………….24 
 
 
 
 

Introduction 
 

In general, such a science as labor economics seeks to understand the functioning and dynamics of the market for labor.  Labor markets operate through the interaction of workers and employers. Labor economics takes into account the suppliers of labor services (workers) and the demanders of labor services (employers), and attempts to understand the resulting patterns of wages, employment, and income. 

This particular work intends to make a deeper insight into the situation on the Russian labor market from 1990 and until the present days, analyzing various aspects of market, its peculiarities and main drivers that caused the market changes. At the same time the analyses, made in this work, give an opportunity to see the main tendencies and dynamics of the Russian labor market and to determine the factors that had influence on them. 

One of the chapters of this course work is devoted to the situation on the Russian labor market at the beginning and at the height of financial crisis. It shows the impact of the crisis on the Russian employment, level of real wage and determines the labor market changes in regions and industries at the time of financial instability.  

Generally speaking, this work analyses the Russian labor market in different  time periods, it describes the market structure and its response to different economic events in the Russian Federation.  
 
 
 
 
 
 
 
 
 

Russian labor market during 1990-2007

Labor market flows in transition 

The transition from a command to a market economy caused a significant reallocation of resources, especially of labor. The public sector was shedding labor throughout the period, with the major flow being to jobs in the private sector. The share of males staying within the public sector declined from almost 80% in 1990 to 27% in 1994. This trend continued in the period 1994-2000 with almost a half of all males leaving the public sector. The share of females staying in the public sector diminished during the early 1990s and then stabilized but at a higher level compared to males. This is consistent with other pieces of evidence that point to the fact that many families in Russia diversify risks across sectors with males working in the private sector and females working in the public sector.  

At the same time the private sector strengthened dramatically during the period and substituted for the public sector. The share of both males and females working in the private sector reached about 60%. The flow from unemployment to work in the private sector increased from 15% to 25% for males and from 10% to 17% for females after 2000. This is another indication of the fact that the private sector overtook the public sector in Russia, and more unemployed found jobs in the private sector compared to the public one. As transition proceeded, more graduates started their careers in the private sector or in self-employment. 

Self-employment served as a buffer in the period of financial crisis. The stock of self-employed in the economy in 2006 reached 3-4% of the working age population for males and 2-3% for females, which is rather low by international standards. Self-employment and entrepreneurship attracted labor from wage jobs, especially in the public sector. The most intensive changes took place in the early 1990s while after 2000 the inflows and outflows balanced out. The stability of self-employment also increased dramatically and then, following one year of self-employment, almost 50% of males and 60% of females stayed self-employed for a second year in a row. 

The transition-related movements of people with the same qualifications between the public and the private sectors are especially pronounced among those in mid and

low qualification jobs. About 20% of males and 15% of females in low position jobs in the public sector moved to the private one. The reverse movement declined steadily throughout the period and resulted in halving the share of people holding low position jobs in the private sector from almost 20% in 1995 to, for example, 10% in 2005.¹ 
 

Employment in Russia during 1990- 2007 

Comparing the unemployment level during the period 1992-2008 (see table 1 “Economically active population and the number of unemployed” below), an increase in the number of unemployed people until 2004 can be easily seen. For example, according to results of the Federal Employment Service, published by Federal State Statistics Service, the total number of unemployed in 1992 was 577,7 thousand people with a number of economically active population equal to 75060 thousand people. Though the quantity of economically active people decreased in 1995 by 6 %., the number of unemployed grew to 2327 thousand people. Starting from year 2005 a slight decrease in unemployment is visible that fell from 1920,3 thousand people in 2004 to 1553 thousand in 2007.  Economic restructuring, increasing investments and consumer demand growth have caused the growing demand for labour force: in 2003-2005 the number of those employed has increased from 66.1 to 69.2 mln. people. In general, the total number of those unemployed has dropped from 6.2 to 5.4 mln. people. 
 
 
 
 
 
 

Table 1. Economically active population and the number of unemployed ²

By 2006 steady upward trends of social and economic development took place:

• Annual industrial growth rate in 2003-2006 averaged 6-7%;
• In 2003-2005 general unemployment dropped from 8.6% to 7.6% of economically active population;
• In 2003-2005 the number of people with incomes below the minimum of subsistence decreased by 8.4% and came to 15.8% in 2005

I fact, by August 2006, the number of economically active population reached 74.6 mln. At the same time 69,2 mln people were employed in the economy and 5.4 mln remained unemployed (7.3% of economically active population). The employment situation, marked by seasonal fluctuations, slightly improved in 2006. The number of unemployed in the economy, according to ROSSTAT, reached 69.2 mln. in early August 2006. The largest shares of those employed were registered in processing sector (17.3% of all employed in the economy), wholesale and retail trade (16.7%).  The decrease of both registered and general unemployment rates in 2006 (as compared with the previous year) was caused mainly by overall economic growth, indicated by the GDP growth (6.4%) and industrial growth (4.4%). Accordingly, that allowed to create additional new jobs. One more positive factor that influenced the unemployment reduction, was implementation of the national projects in the areas of healthcare, education, housing construction and agriculture. The implementation of the national projects gave impetus to the creation of new efficient jobs in the above-mentioned sectors, as well as in those connected with them. 

Figure 1”The Number of Officially Registered Unemployed” ³

Still, the problem, faced  in 2006 was the mismatch between professional and qualification structure. In spite of substantial unemployment, Russian businesses encountered the problem of skilled workforce shortage: state employment agencies had over 1 mln. vacancies unfilled. Therefore the major problem of the Russian labor market was the existing disproportions of both professional and qualification structure of demand and supply. 

Employment of Citizens, Searching for Jobs 

The number of newly employed citizens (who found gainful employment) by the beginning of 2006 was 2 mln. persons. That makes 64.5% of all applicants to the state employment service.

As a result of interaction with employers, the national pool of vacancies (vacant jobs and posts) was growing month by month. In January 2005 employers registered 334.000 vacancies, while by the end of the same year – 792.000 vacancies.

Qualitative structure of vacancies remained unaltered: among workers occupations professions most demanded by employers were truck and car drivers, metalworkers, engine operators, welding specialists, salespeople, electricians. Among other most demanded professions were physicians, policemen, engineers, accountants, inspectors. 
 
 

Figure 2 “Providing Jobs for Those Who Search for Employment” ⁴ 
 

Income disparity in Russia 
 

In November 2007, the average monthly income in Russia was 13,700 roubles (€380). Wage income accounted for slightly over two-thirds of total income. In addition to wages, many Russians got income from such sources as small side businesses, capital earnings and various social payments. During January-September 2007, the top quintile accounted for 47 % of all income, while the second quintile enjoyed 23 %. The poorest quintile received just 5 % of all income. About half of the population had incomes that are only two-thirds of the average income, and nearly 13 % of the population lived on less than €100 a month.  

According to Rosstat Russia’s Gini coefficient was 0.41 at the end of 2006.⁵ When the Soviet Union collapsed, Russia had a Gini coefficient of 0.29. The Gini coefficient indicates income disparity in a given society, ranging from zero, which indicates perfect income distribution (no inequity), to one, where all income goes to the richest. Income disparity took off in Russia during the 1990s, but even with the booming economy in the 2000s, Russia’s Gini coefficient barely changed. Russia’s Gini coefficient reached 0.40 in 2000 and increased slightly since then to 0,42 in 2008. ⁶

While estimating regional inequality of Russia, it can be said that the locations with the highest welfare are predominantly resource-rich and/or export oriented regions of Siberia (Tuymen, Tomsk oblast , Krasnoyarsk Krai Irkutsk, Keremov oblast), and the Northwest (Rep. of Komi, Murmansk). The richest  group include also several southern regions of the Volga basin – light pink (Tatarstan Republic, Rostov, Perm, and Samara). And for sure the capital city if Russia- Moscow is in the group of the highest performers in Russia as well. The group of the poorest Russian regions comprises the South republics of Ingushetya, Karachaevo-Cherkessk and Dagestan (North Caucasus – bright green), South Siberia (Chita oblast, Tyva and Altai republics) and several regions of the Volga basin (Marii El, Chuvash and Mordova Republics, Penza and Kirov obslast). These are mostly agrarian areas. ⁷

Labor differentiation by gender   

According to the survey of RLMS (Russia Longitudinal Monitoring Survey) conducted in the year 2000 both, men and women, share the same point of view that male employees have better chances to be hired.  

Recent studies of gender discrimination in Russia show that the vast majority of vacancies’ advertisements are neutral in their gender preference. However occupational segregation is strongly developed in the Russian labour market and gender stereotypes are counted to be generally accepted.  
 

Figure 3: Opportunities men and women have in job ⁸ 

 
According to the data presented by the Federal State Statistics Service of Russia the ratio of women to men employed in the Russian economy in the end of 2006 was equal to 0.97, what means that for every 100 of working men there are 97 women working in Russia. However kinds of activities in which men and women are employed vary a lot. Thus, from Table 3 it is clear that men are employed preferably in heavy industries, such as mining, construction, machine-building and metal-casting, in executives’ and administrative positions, in natural and technical sciences as well as in engineering and transport. Women on the contrary occupy public health, education, secretarial jobs, as well as services and sales industries’ jobs. 

      Table 3: People employed in economy by gender and activity (selected), 2006 (%)⁹

As mentioned before the main reasons for occupational segregation and gender inequality are seen in the stereotypes and prejudices about men and women productivity and their role in the society. In general two kinds of stereotypes, which support gender inequality, can be distinguished in the labour market: position stereotype and behavior stereotype. Occupational segregation, which is strongly developed in the Russian labour market, verifies the existence of gender discrimination and demonstrates settled stereotypes of employers to certain gender preference. A deep study devoted to the revelation of masculine and feminine occupations conducted in the beginning of 1998-2001 (Figures 2 and 3) showed that secretary or personal assistant and accountant are considered to be the most feminine professions, while programmer or IT specialist, engineer and lawyer turned out to be preferably masculine professions. 
 

Russian labor market at the time of financial crisis  

Labor market at the beginning of crisis 

In many industries, the financial crunch brought changes in the labor market, which was shifting from being candidate-driven (with demand for skilled staff exceeding supply) to being client-driven (with employers starting to dictate their terms). The labor market, which in the middle of 2008 was looking for qualified staff, later experienced an excess of work force in certain industries and for some jobs. 

However, there was a personnel deficit to a certain extent, because year 2008 was effectively Russia's last year with a zero net balance of human resources, when the natural decline in its employable population was offset by the natural increase. According to demographic institutions, starting from 2009, Russia will be facing a negative net balance of the labor force with the employable population expected to considerably decrease. For example, the Ministry of Economic Development predicts that the population of Russia will decrease to 137 million people (142.1 million in 2007) by 2020 with its age profile significantly deteriorating starting from 2009. Senior ages (above 45 years old) will account for a larger part of the employable population, while the share of younger ages (below 29 years old) will decrease. This means that qualified candidates will be sure to find a job, even in the current economic unease. 
 
Professionals are always highly valued, which is especially true in the time of crisis. At the time of crisis, though, employers have been gradually raising their requirements to the experience and knowledge of potential candidates. Reassessment of employees has been under way — with incentive and retention programs being developed for the most precious staff, while inefficient personnel have been displaced with stronger determination than it was the case during a good, growing market. 
 
The crisis has affected the size of salaries, and this slowdown / downward trend persisted in early 2009. This situation favored real-economy companies, which could strengthen their teams and hire the best work force without stretching their budget. In addition, there was a chance that the critical imbalance in the economy could be eliminated, and salary growth rates would be aligned with the dynamics of labor productivity. 

Impact on specific industries

 
1. The labor market in the real estate, metallurgy, and energy sectors has been undergoing significant changes. For example, before crisis businesses were growing fast, thus creating a candidate-driven market. Candidates were in focus, they dictated their terms, which employers were constrained to accept. Today's shrinking business, however, has reduced in many companies the need in core staff, leading to a bigger number of candidates competing for one job. Most businesses in these sectors have optimized their work force structure, adjusting their headcount, suspending recruitment of new specialists or displacing those taken in anticipation of future growth. 
 
2. The banking and retail sectors have been demonstrating slightly different patterns, though optimization of costs, including staff costs, has been on the agenda in these companies too. Banking staff have been more actively migrating between financial institutions — key employees from investment banks have already joined larger universal banks. Due to ANCOR predictions, the next logical step will be a certain part of financial sector staff leaving for related nonfinancial industries. This process will involve specialists and managers of all levels. As for retail sector candidates, the unstable financial conditions have certainly affected developments in the labor market, though not as dramatically as one could expect. The layoffs initiated in some businesses have mainly involved support office personnel, while the number of candidates actively looking for a job has not significantly increased. 
 
3. Professional services companies — marketing, consulting and law firms, consultancies — are traditionally having bad times during the crisis. They are generally trying to retain their best staff, but if they fail, consultants move to the in-house positions. 
 
4. As for sectors like industrial production, engineering systems and sales of technological equipment; chemical industry; medicine and pharmacy; logistics - one could not say the financial crunch has had a material effect on them so far, these industries keep developing rapidly. ¹⁰ 
 

Salaries and compensations at the beginning of crisis 

At the beginning of 2008 as a whole, salaries in Russia grew by 21% against 2007, according to an ANCOR Research Center analyses of data from 490 companies in 33 cities and towns. The fastest growing were salaries in the central Russia (which had fallen behind the others in terms of salary size and growth rate), in the south (driven by the preparations to 2014 Olympic Games in Sochi), in Siberia and in the northwest (due to a large number of industrial investment projects that are being currently implemented). 
 
However, the economic downturn caused salaries to start falling in October-November 2008. Obviously, no negative gain in salaries was observed within the period analyzed due to at least two factors which should be taken into account:  
1) The period analyzed was September, when the crisis was in its early stage and many companies had not responded to it yet in terms of cutting personnel costs; 
2) The labor market is a large, slow-to-respond mechanism and, even though the salary growth rates decreased in the second half of the year, it cannot stop dead or fall below zero right away. In fact, all the regions analyzed showed similar trends: active development in the first half and a downturn in the second half of 2008. 
 

Real crisis impact on labor market

The labor market was adjusting to a weaker business activity via three major mechanisms: reduced employment, lower real wages, and shorter working hours.

Unemployment 

Still, by April 2009, the unemployment rate went up to 10.2 %, which is 4.2 percentage points higher than in 2008. January-March 2009 was the most difficult period. The first signs of decreasing labor market tension emerged in April, as the number of newly registered unemployed decreased against a backdrop of stronger growth of vacancies. Economy-wide employment contraction accelerated in early 2009. Since April 2008, the economy lost 3.4 million jobs or 5 percent of the total number. While lay-offs peaked in December 2008, in the first quarter 2009 they subsided and have remained stable since then, though at a higher level than in previous years. 
 
 
 
 
 
 
 

Real wages and shorter working hours 
 

Over the year 2008 , employment dropped by 5 percent and real wages by 4 percent, on the average. In addition, businesses started to used shorter working hours on a much larger scale, following a drastic jump at the end of 2008.A large number of workers were forced to take unpaid leaves. Manufacturing industries were hit especially hard: up to 25% of all workers were affected by various forms of shortened working time. Also the  real wages was decreasing since February 2009. A 4 percent decrease in real wages compared to the preceding year was relatively moderate; however the fall was more pronounced in the production sectors. A rise in registered unemployment was primarily driven by increase in urban unemployment and among men. Indeed, the crisis has affected, first of all, industry and construction sectors, which are dominated by male employment. As male prime-age unemployment grows, the competition for jobs started to intensify, with potentially negative consequences for youth employment.

 Impact on industries and regions

The labor market crisis has most severely hit workers in the industry, construction and trade sectors. The situation in the power, gas and water production/distribution sectors, that used to be relatively safe during the first months, after the onset of the crisis started to deteriorating rapidly. The crisis has had the strongest impact on economically advanced regions, because industry, construction, finance and trade sectors were hit the most severely. Less developed regions with a high share of agriculture and budget sector employment have been less affected

Regions vary a lot in their responses to the crisis. In 31 regions, the number of unemployed registered since May 2008 has more than doubled while for the whole country it increased by the factor of 1.6. In relative terms, regions with a more favorable pre-crisis labor market conditions have been affected more severely. 
 

The Government’s Crisis Response Program provides for regional programs to alleviate labor market tensions. Available data suggest that these programs are well targeted, as more funds are allocated to regions with worse labor market conditions. Regional programs include 4 types of activities: public and temporary works, training, relocation and self-employment support. Priority is given to public and temporary works, with 80 percent of all regional spending to be allocated to finance these activities. ¹¹ 

Current situation on the labor market

By March 2010 unemployment in Russia has fallen to 8.6 % as the Federal State Statistics Service reported. Official statistics show that there are currently 6,436,000 unemployed people in the country. Since unemployment peaked at 9.2 percent in January, the number of people out of work by March 2010 went down by nearly 620,000.

Due to Alexey Zakharov, the president of one of Russia’s largest recruitment Web portals “SuperJob.ru”, the number of vacancies has been growing since the second quarter of 2009, and at the same time, employers have started to change the initial conditions of their job offers. Besides it, salaries are increasing slightly. The number of vacancies has grown by 7 % monthly since November 2010, as the statistics of “SuperJob.ru” shows.

Currently, trends in the Russian job market are quite positive. While half a year ago experts expected the recovery no earlier than in 2011, now it seems that labor demand might have reached its pre-crisis level in the recent year.

At the same time Sergey Salikov, the general director at the Ancor recruitment holding, pointed out two important factors that have had a significant impact on unemployment statistics in Russia. Due to his opinion, the number people out of work have risen significantly in the beginning of the year 2010 not because of personnel layoffs, but due to concealed unemployment. The official statistics, unfortunately, do not include numerous workers who were sent on unpaid holidays or shifted to part-time work by employers in 2009. The contracts with many of these people simply ended in January, causing the unemployment splash.

The second reason, mentioned by Sergey Salikov, is the average seasonal fluctuation of job markets. Usually, most employers do not hire new staff in January and February, but in spring demand always increases in spring. A recent statistic from Ancor company looks quite optimistic. The number of search requests for qualified personnel in their organisation increased by 43 percent in February 2010 in comparison with the same period last year.

It is obvious that labor demand depends on the region – the revitalization of the job market in central Russia was caused by the development of new foreign investment projects. In the southern, north-western and Volga Regions some business programs, which were stopped due to the financial crisis, are now unfrozen again and are searching for new personnel. In the Kemerovo Region in Siberia some local companies working in the coal industry started hiring new staff after a long recession. Generally, the state of the job market has improved in most regions of Russia, experts claim.

Labor demand is now the highest in sales, pharmacy and insurance, experts said. Only two or three candidates compete for each vacancy in these business segments. The situation has improved in many others industries such as IT, advertising, marketing and PR, logistics and human resources. Each vacancy in these businesses captures the attention of between five and 12 candidates. Positive trends are also noted in the manufacturing industry. Those less in demand now are employees of the metallurgy industry and the real estate sector.

But despite the experts’ optimism, due to Russian Public Opinion Research Center survey, more than half of Russians still worry about losing their jobs. Fifty-four percent of respondents said some of their relatives, friends and acquaintances had already lost a job. Those unemployed are mostly city residents without any work experience, aged between 18 and 29. Many people, both working and not working, have complained about their incomes falling. For example, 38 percent of respondents, mostly unemployed, housewives and laborers, said their incomes have fallen since 2008. Only ten percent reported an improvement in finances. Data from the Levada Center shows the same trends. According to a recent poll, 22 percent of Russians are owed backdated wages, 21 percent experienced salary cuts, 15 percent were fired, nine percent were shifted to part-time work and seven percent were sent on unpaid holidays.

Hidden unemployment grew in Russia in 2009 because unprofitable, noncompetitive factories did not fire workers for political reasons, sent them on holiday. As a result, the hidden number of jobseekers has increased to 3,500,000. Experts believe that this policy creates a burden for the federal budget and impedes the modernization of Russia’s economy.

Hidden unemployment is mostly observed in the regions with many metallurgy and machine plants, such as those in the Ural, Volga and Central Regions. Apart from registered and unregistered unemployed, there are 26 million people of active working age in Russia who do not work for big government and private companies, and are not involved in small or middle-level business. Official statistics do not know anything about them. According to the Independent Institute for Social Policy surveys, 13 million of them might be “informal workers” who do not have any contracts with employers and do not pay taxes. The others probably live off their relatives’ incomes.

According to the poll conducted by the Levada Center, Russians are ready to acquire new skills or even to change professions. They also show a lot of interest in entrepreneurship. Many would agree to work without an official contract, or do a temporary job. The least popular way to earn more money is to move to another city or another country. Only 7 % of the interviewed said that they would move if they lost their job. The traditional Russian mentality implies a “settled life,” with a low level of mobility and flexibility. ¹² 
 

Governmental support

In 2010, the government will continue its anti-unemployment stage-by-stage efforts, as deputy Prime Minister Zhukov said, citing the so-called self-employment program, which is especially popular among those currently on the verge of being laid off. The program stipulates jobless people receiving hefty unemployment benefits to start their own business within a year - something that already helped create at least 127,000 job placements in Russia last year.

More than 40 billion rubles will be allocated in order to help the labor market this year with the Economic Development and Health Ministry already nodding 81 regional self-employment programs to be finalized by year-end.

Some experts say that the main focus should be placed on injecting money into the individual re-training programs that will add significantly to resolving unemployment in Russia now. At the same time Prime Minister Vladimir Putin is personally keeping an eye on the matter and that was recently claimed by President Dmitry Medvedev, who described providing jobless people with work as one of the state's top social policy priorities for years to come. ¹³ 
 
 
 
 
 
 
 

Conclusion

At the end of this work several conclusions can be made about the changes in Russian labor market during different time periods. First of all, the transition from a command to a market economy caused a significant reallocation of resources, especially of labor. The share of males staying within the public sector declined from almost 80% in 1990 to 27% in 1994. At the same time market economy influenced the stabilization and development of private sector that overtook the public sector in Russia, and more unemployed found jobs in the private sector compared to the public one.

Comparing the unemployment level during the period 1992-2007, it can be said that Russia experienced an increase in the number of unemployed people until 2004. Still, starting from year 2005 a slight decrease in unemployment was visible as a result of economic restructuring, increasing investments and consumer demand growth that stimulated the growing demand for labour force: in 2003-2005 the number of those employed has increased from 66.1 to 69.2 mln. people.

When the financial crisis came to Russia, the labor market was adjusting to a weaker business activity via three major mechanisms: reduced employment, lower real wages, and shorter working hours. At this time employment dropped by 5 percent and real wages by 4 percent, on the average. In general, the crisis has had the strongest impact on economically advanced regions, thus, industry, construction, finance and trade sectors were hit the most severely. Less developed regions with a high share of agriculture and budget sector employment have been less affected.

By March 2010 unemployment in Russia has fallen to 8.6 % as the Federal State Statistics Service reported. Due to experts’ opinion, currently, trends in the Russian job market are quite positive and the market is recovering quicker than expected. The statistics show that labor demand is now the highest in sales, pharmacy and insurance. Still, the rate of hidden unemployment is rather high and due to various surveys Russians continue to doubt about the stability on the labor market.

In conclusion, it should be said that nowadays government pays much attention to the problem of unemployment and supports the economy. More than 40 billion rubles will be allocated for the purpose to support labor market this year with the Economic Development and Health Ministry already nodding 81 regional self-employment programs to be finalized by year-end. As the Russian president Dmitry Medvedev said: “…providing jobless people with work as one of the state's top social policy priorities for years to come.” 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Endnotes