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09.10.08
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Meet The Layoffs
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By Sergei Balashov
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The Russian labor market is very peculiar, unlike those of most developed countries in Europe and North America. The workforce here lacks mobility, being reluctant to switch jobs, let alone move across the country if opportunities in the regions shrink. This situation is partly due to the absence of institutions that would ensure that the workforce has enough options once hard times hit and wages start going south.
Public employment agencies usually offer low-paying jobs that are almost exclusively suitable for unqualified workers looking for anything that would help pay the bills. Companies usually fill well-paying vacancies through private agencies, or simply search for personnel through their own connections.
“Firms usually hide the better vacancies from the employment agencies,” said Evgeny Gontmakher, the head of the Social Policy Center at the Russian Academy of Sciences. “Today, if you live in Vladivostok it is very challenging to gain information about employment opportunities in Kaliningrad; so how can I go there when there is no place to go to? That’s why we have no mobility, while in other countries such services cushion the outcome of such crises. I think all vacancies should be available to the public,” he added.
The financial troubles that provoked massive layoffs in the United States at the beginning of the decade forced those unemployed to adapt their skills to the new economic realities, and sometimes to downshift to keep the income flowing. Employers usually cut the less qualified or excessive and inefficient workforce to optimize labor costs. In Russia, with its lack of institutions and workforce mobility, the impact of the economic crisis is expected to be absorbed by everyone equally, as the low labor mobility will prevent any layoffs. Yet the shortage of funds will call for certain measures to be taken.
“Our market doesn’t react through unemployment rates, our market reacts through salaries,” said Vladimir Gimpelson, the head of the Center for Labor Research of the Higher School of Economics. “If we look at the preceding crises, the reaction was always the same, we were losing a fourth to a third of our real income. If we look at the detailed unemployment rates during the periods of crises, you won’t even be able to tell something was wrong. The curve was rather static.”
This flexibility is ensured by the widespread practice of paying the bulk of employee salaries in bonuses, while the guaranteed part of wages remains rather low. As legislation doesn’t regulate the employers’ rights to cut back bonuses, it is usually the prime method for optimizing expenses, as opposed to firing personnel.
“It doesn’t break any rules,” said Gimpelson, who estimated that 70 percent of Russia’s workforce gets 40 percent of their salaries in bonuses. “That’s the outcome, nobody loses jobs but wages fall by 30 percent,” he added.
Layoffs will still take place, but they will have little to do with the current economic struggles. The present troubling financial situation is much more likely to be used as an excuse to execute what had already been planned long before the crisis struck.
“The labor market will undergo a shakeup in the coming months,” said the vice president of the Russian Union of Industrials and Entrepreneurs Fedor Prokopov. “This shakeup will be about optimizing the personnel, benefit and motivation systems; references to the financial crisis allow the companies to do what they intended to do before, but couldn’t.”
The industries that will be hit the hardest are the ones that have to do with the financial sector—primarily banks, investment companies, and construction and development firms. According to Gontmakher, retail will also be impacted severely. This has been one of the most consistent sectors in the economy and, according to forecasts made by the Unity Employment Center in January, it was set to post a substantial hike in salaries, which are already quite high, with shop workers earning up to $1,500 a month and development managers and regional directors making as much as $7,000.
“The high rates of economic growth were bolstered by trade, but now people will have less money and won’t go shopping as much as they did before, so I expect a severe crisis in retail by winter,” said Gontmakher.
Today it is clear that Russia is going to face the challenge of adjusting its labor market to economic crises, such as the current one. The lack of layoffs is negative rather than positive, as flexibility is ensured exclusively by pay cuts for all personnel, including the most qualified staff. Yet, employers lack the means to cut excessive personnel once the need arises. Changing legislation would be the first step before reforming employment agencies and improving access to job databases.
The Russian Union of Industrialists and Entrepreneurs is working on amendments to the labor code, which it intends to propose to the legislators. For one, they’re seeking to eliminate the employer’s obligation to pay a fired employee’s salary for two more months in case he struggles to find a new job through state placement services.
“Businesses caught in a difficult economic environment are facing the decision to shut down completely as it is impossible to lay anybody off,” said Prokopov. “We’re anticipating that the labor unions won’t applaud our proposals.”
The situation suggests that further unpopular changes will be necessary. “We’re going through the first market economy crisis, and we have to upgrade our institutions. Right now, I get the feeling that everything is out of the Ark,” said Gontmakher. |
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