Russia’s Fight Against Rising Unemployment

Unemployment, wage arrears and short-time working have increased across Russia’s labor force, with industry worst hit. The economic downturn has quickly revealed the continued unenforceability of labor law and the weak position of workers, although a proposed government support package for ‘core’ enterprises may prevent the situation from reaching the catastrophic proportions of the 1990s.

The most recent official unemployment statistics, published by the Federal State Statistics Service (Rosstat) in early November, put the number of registered and unregistered job seekers at 6.1% of the working population, an increase of 372,000 on the previous year. However, a recent World Bank report predicted that the unemployment rate could increase to 6.6% at year’s end. In light of recent figures indicating declining production across numerous sectors–down by 10.3% in manufacturing, 9.3% in gas and water production and 6.0% in mining–this figure is entirely realistic and may be overly sanguine.

While open unemployment is clearly rising, forms of hidden unemployment are probably even more widespread. As in the 1990s, when open unemployment in Russia remained low compared with other transition countries, employers are adjusting to the decline in demand by reducing or delaying the payment of wages and placing workers on short time. These practices, which were made illegal in 2001, exploit loopholes in, and the lack of enforcement of, Russian labor law.

The government has responded to these developments in the labor market with three policy announcements, all of which will help portray the authorities as taking a proactive, protective approach:

–Support package for ‘core’ enterprises. Around 1,500 enterprises are to be offered support in the form of recapitalization, state orders, tax restructuring and tax credits. The chosen enterprises are those with annual turnovers of more than 15 billion roubles ($530 million) and at least 4,000 staff, including many that employ 30% or more of the workers in a given town.

While the plan clearly has economic as well as social motivations–the enterprises make up around 85% of Russia’s gross domestic product–its focus on the industrial sector further highlights where the greatest threat of mass unemployment is perceived to lie.

–Unemployment benefits and programs. Monthly benefits are set to increase by 1,500 roubles in 2009, and active labor market policies (ALMP) such as assistance with job searches will be extended. Given that only a small proportion of both the ‘open’ and ‘hidden’ unemployed register for benefits or ALMP, these measures will have relatively little impact except on the poorest and lowest-skilled layer of society.

–Migrant workers. The government plans to reduce the quota of guest workers allowed into the country by 50% and tighten up on registration, with the aim of freeing up workplaces for Russians. Since ethnic Russians and economic migrants are unlikely to be in competition for jobs even during a recession, the main impact of this announcement may be to increase ethnic tension.

Russia is in a far better position to deal with the present crisis than it was in 1998, although much will depend on the support package it is able to offer the industrial sector. The government’s timely gradual devaluation of the rouble may also ease the employment situation in 2009 by stimulating demand for domestic production. In the meantime many workers are experiencing a return to levels of poverty and uncertainty that have not been seen in Russia since the late 1990s.


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