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