Setting The Stage: Macroeconomic Developments
Labor demand is closely linked to output, making it essential to consider product market developments when analyzing labor market trends While this chapter focuses on labor market dynamics, understanding macroeconomic and sectoral policies is crucial for comprehending labor market behavior Therefore, this section offers a concise overview of key macroeconomic trends from the perspective of the labor market.
At the end of the 1980s, the socialist system was characterized by a workforce predominantly concentrated in large industrial plants, with a significant focus on engineering, technical, and skilled labor roles Self-employment was virtually nonexistent as a primary activity, and small firms were rare The labor force participation rate (LFPR) was notably high, particularly among women, while part-time work and flexible job arrangements were minimal Additionally, many towns were monoindustrial, often located in geographically isolated areas.
The Soviet legacy was marked by extensive misallocation across various economic dimensions, including industries, occupations, and regions This misallocation led to overbuilding in the industrial sector, especially within the military industrial complex, resulting in large plants producing goods with minimal civilian demand and engaging in labor hoarding to meet planning targets amid supply uncertainties Additionally, a compressed wage structure existed, supplemented by significant fringe benefits and social services provided by employers, alongside widespread informal activities like household plots The landscape began to shift with a gradual decentralization of enterprise decision-making starting in 1988, culminating in a rapid "big bang" liberalization of prices, market entry, foreign trade, and competition on January 1, 1992 This was followed by swift privatization efforts, initially targeting small firms in trade and consumer services, and extending to leasing larger firms to employees and implementing voucher privatization in November.
1992 — June 1994 and subsequent sales of block of shares in companies
Macroeconomic instability and softcredit policy led to nearhyperinflation in 1992
Between 1995 and 1998, Russia faced significant economic challenges, including a serious nonpayment problem and the rise of a barter economy, as the government attempted macrostabilization Efforts to stabilize the economy involved tightening credit and fixing the exchange rate, despite insufficient fiscal reforms The government avoided imposing strict budget constraints on enterprises to prevent mass unemployment, leading to heavy borrowing due to fiscal resource shortages This resulted in sharply rising interest rates and liquidity issues for businesses, exacerbating nonpayments and increasing the need for subsidies and government borrowing Ultimately, when public debt became unsustainable, the government defaulted in 1998, triggering a severe financial crisis Although the subsequent decline in the ruble's value and the increase in oil prices positively impacted enterprise competitiveness and the state budget, the overall economic situation remained precarious.
Figure I.1 Real GDP (1990 = 100), Russia and Select CEE Countries
GDP, real wages and employment index: 19900
Employment Real GDP Real wages Labor productivity
The Russian economy has faced significant shocks, leading to a dramatic decline in real incomes and the devaluation of ruble-denominated assets, including bank accounts and owed wages Between 1990 and 1998, Russia experienced a cumulative real GDP drop of approximately 40 percent, the largest among Central and Eastern European (CEE) countries Unlike its CEE counterparts, Russia's real GDP growth began much later, with notable increases starting in 1999 at 3.2 percent, followed by a robust 7.7 percent growth in 2000, driven primarily by rising energy prices and adjustments in the real exchange rate Despite this growth, many analysts caution that the Russian economy remains susceptible to fluctuations in energy prices.
Aggregate Labor Market Trends
The shifts in real wages, labor productivity, and employment in Russia before and after 1998 significantly impacted the labor market This article examines how the labor market adapted to these changes, highlighting key trends in aggregate labor market dynamics in Russia.
During the 1992-1998 period, the labor market significantly reacted to the GDP decline, with aggregate employment falling by 12%, the unemployment rate nearly tripling, and nonparticipation in the labor force increasing by a third Despite these changes, the reduction in employment was less severe than the drop in output, resulting in a 20% decline in labor productivity Real wages plummeted by nearly 40%, outpacing the decrease in productivity, which led to a widening earnings distribution and increased poverty among workers Additionally, labor contract violations, particularly wage arrears, affected two-thirds of all workers.
Between 1998 and 2000, the economy experienced significant growth, with GDP rising by 11 percent and employment increasing by 2 percent This period marked a notable shift in labor market dynamics, as much of the output growth was driven by a 9 percent increase in labor productivity Although real wages declined from 1998 to 1999, they rebounded dramatically, rising by 22 percent cumulatively in 1999.
Between 1998 and 2000, cumulative growth in real wages was negative due to wage growth lagging behind output growth, despite a significant decline in real wage arrears by over 50% However, in May 2001, wage arrears rose by 2.2%, particularly affecting public sector workers, indicating ongoing challenges in wage management.
According to data from the European Bank for Reconstruction and Development (EBRD) in 2000, there was a cumulative drop of 45 percent, which contrasts with the 42 percent decline indicated by annual figures from Goskomstat, as noted by Fischer and Sahay (2000).
17 Table numbers prefixed with A refer to annex tables.
Labor adjustment to output shocks in Russia differed significantly from that in high-growth Central and Eastern European (CEE) countries Despite challenges in measurement, researchers like Boeri and Terrell (2002) noted that prior to 1998, employment declines in Russia were generally smaller, while declines in wages and labor productivity were more pronounced compared to CEE nations Consequently, Russia experienced greater price adjustments rather than quantity or employment adjustments in response to output shocks, a trend that contrasts with the experiences of CEE countries This article will delve into the underlying reasons for this disparity in labor market responses.
In the post-1998 period, aggregate labor market trends in Russia exhibit similarities to those of high-income Central and Eastern European (CEE) countries during their initial years of economic growth, with comparable average annual increases in employment and labor productivity However, despite this growth, Russia's labor market faced a more significant decline in wages and productivity during the 1990s compared to Poland and Hungary, where wages lagged behind output and employment growth As a result, Russia must achieve substantial advancements in these areas to bridge the gap with more developed CEE reformers The following sections will provide a more detailed analysis of these labor market trends.
When assessing Russia's labor market, it is essential to consider measurement and definition challenges Official statistics in Russia often face disputes due to measurement and interpretation issues, leading to significant controversy over the extent of output decline in the country.
Real wages in Russia and select Central and Eastern European (CEE) countries have been impacted by the transition economies, suggesting that a significant amount of output may be generated in the unofficial economy or in hard-to-measure sectors like services and home production While there is a general agreement that output has declined, the official statistics may exaggerate the extent of this decline Additionally, the economic shock has not been uniformly experienced across different sectors, affecting both industrial and service sectors unevenly.
Employment measures can be misleading, particularly when relying on outdated enterprise reporting systems from central planning, which often overlook self-employment, family businesses, startups, and small firms, as well as multiple jobholding Additionally, reported wages may not accurately reflect actual earnings due to wage arrears and firms concealing salaries from tax authorities Wage data typically represent amounts owed rather than what is actually paid, leading to discrepancies in real wage figures This average measure fails to capture individual worker welfare, as it only accounts for cash payments and does not consider the availability of consumer goods, which significantly changed during the early transition years Despite these issues, there is a consensus that the general trends indicated by this data remain consistent and robust.
Russia, the largest country in the world by area, is characterized by significant diversity, making generalizations challenging Understanding the complexities of the Russian situation requires a careful examination of regional variations in behavior These regional differences also offer valuable statistical insights that can help clarify competing hypotheses regarding labor market patterns.
Understanding Aggregate Employment Fluctuations
Figure I.4 illustrates the decline in employment in Russia through four data series The top series presents official total employment figures sourced from the Balance of Labor Resources and reported in yearbooks (Goskomstat 2000b) The second series is based on data from the Russian Labor Force Survey (RLFS) Although there is a notable discrepancy between these two series, discussions have focused on the differences in magnitudes.
18 See, for example, Gacs, Holzmann, and Winckler (1995) and Fischer and Sahay (2000) for discussions.
19 See Johnson, Kaufmann, and Shleifer (1997) for a discussion of the unofficial sector.
Clarke (1999) and Gimpelson and Lippoldt (2001) provide insights into employment estimation, with Clarke's approach utilizing all available data while Gimpelson and Lippoldt rely on survey-based measures Clarke's reweighting of the RLFS figures addresses age-related response bias, leading to a smaller discrepancy in employment figures Both studies indicate a similar trend of declining employment until 1998, followed by a subsequent rise Notably, the Balance series reports a 15.5 percent drop in employment from 1990 to 1998 and an 11.7 percent decline from 1992, which is less severe than the 18.6 percent decline observed in the RLFS.
1992 to 1998 In the next two years, the RLFS shows a larger rise, at 8.6 percent, while the Balance series shows only 1.5 percent 21
The employment data in industry, specifically in manufacturing and mining, is sourced from large and medium-sized enterprises as well as a sample survey of small employers The top series accounts for all listed employees, while the bottom series focuses solely on those engaged in industrial production, excluding sales and fringe benefits roles Despite some debate over which series is more reliable, both show a similar trend of decline until 1998, followed by a slight increase into 1999 Notably, there has been a significant growth in industrial employment since 1998.
Total employment from the balances of labor resources Total employment, RLFS estimates
Total employment in industry Involved in industrial production only
Figure I.4 Alternative Measures of Employment
Until 1999, the Russian Labor Force Survey (RLFS) was conducted irregularly during specific months, which may explain discrepancies in data To ensure consistency in the time series and due to the absence of seasonal adjustments, results are presented for October 1998, August 1999, and August 2000 Additionally, quarterly employment figures from Goskomstat indicate a 4.3 percent increase in employment from the fourth quarter of 1998 to the fourth quarter of 2000.
22The industrydisaggregated RLFS employment series are discussed in section IV, below.RLFS figures include the industrial classification only since 1997.
The decline in employment in Russia, while more gradual than in Central and Eastern European (CEE) countries, was still significant, with the employment rate dropping from 67% in 1990 to 58% in 1998 This trend is echoed in the RLFS employment figures, although the RLMS series shows slightly greater declines and recoveries Both series indicate a recovery in the employment rate following this period.
1998 (figure I.6) The labor force drop was largest in the oldest and youngest age groups.
Between 1990 and 1998, employment experienced a decline, but it was less pronounced compared to the significant drop in output and labor productivity This discrepancy can be attributed to the labor hoarding behavior of firms, prevalent in both socialist and capitalist systems In the context of capitalism, the manner of privatization in Russia played a crucial role; asset transfers through vouchers and block sales primarily benefited insiders, such as managers of successful enterprises This concentration of wealth and political power among business elites resulted in resistance to restructuring efforts, as they sought to protect their privileges Consequently, state capture was more extensive in Russia than in other Central and Eastern European reforming countries.
Figure I.5 Employment Trends in Russia and Select CEE Countries
23 Under socialism, see, for example, Kornai (1992) or Oxenstierna (1989) The classic study in a market economy is Oi (1960) For the Russian transition, see Clarke (1999), Com mander, McHale, and Yemtsov (1995), and Kapeliushnikov (1998).
24 Aslund (1999). because Russia possessed fewer strong, marketbased institutions and a larger natural resources base (World Bank 2000a)
Local governments exert pressure on employers to maintain employment and mitigate the adverse effects of unemployment, as highlighted in the McKinsey Global Institute report (1999) This pressure often manifests through discussions with enterprise managers, encouraging them to delay layoffs and adopt job preservation initiatives in exchange for tax and social insurance relief Additionally, the presence of soft budget constraints allows loss-making enterprises to settle utility payments in noncash forms, further diminishing the motivation to restructure Collectively, these factors significantly weaken the incentives for companies to reduce their workforce.
Quantifying the accumulated labor surplus presents challenges, as indicated by the REB (Russian Economic Barometer) survey, which revealed that in 1996-97, 60% of enterprises retained surplus labor, while 40% of workers were engaged in nonproductive roles However, a subsequent study by Tchetvernina et al (2000) suggests a decline in surplus labor within enterprises, a trend that aligns with the significant reduction in formal employment observed over the past decade.
Post-1998, employment growth was notably limited compared to output growth, with annual employment increases in the initial two years of recovery resembling those in Central and Eastern European (CEE) countries, where output growth similarly exceeded employment gains This disparity suggests that rising labor productivity contributed significantly to output growth, indicating that the increase in production was driven not only by higher employment but also by enhanced efficiency within the workforce.
Po la nd Slo ve nia
OE OECD Average Cz ec h R epu blic
Employment rates (percent): employment/working age population
Recent data indicates that employment rates in Russia and select Central and Eastern European (CEE) countries have shown improvements in labor allocation However, the diminished response of employment to output growth suggests a persistent issue of overstaffing within enterprises.
Between October 1992 and October 1998, total employment in Russia declined significantly from 71.1 million to 57.9 million, resulting in a loss of 13.1 million jobs, according to the RLFS data This raises the question of where these workers went, with three primary factors contributing to this employment drop: population growth, decreased labor force participation, and rising unemployment This section will explore the significance of each of these factors in relation to the overall decline in employment.
Economic factors significantly influence population dynamics, particularly in Russia, where fertility, mortality, and migration are interconnected From 1992 to 1999, the population decreased by approximately 2 million, with a notable shift towards an older age distribution and a 1.6 million increase in the working-age population While mortality trends have shown fluctuations, there has been a clear and significant decline in fertility rates during this period, indicating that economic hardships have had a more pronounced effect on fertility than on mortality Understanding these demographic changes is crucial for analyzing employment and the social costs associated with economic transitions.
Net migration flows have influenced Russia's population dynamics beyond natural increases, raising concerns among government officials regarding both immigration and emigration Key immigration issues include the influx of Russians from former Soviet Republics, returning soldiers, and increasing Chinese migration in the Far East On the emigration front, notable trends involve outflows to former Soviet Republics, temporary migration of unskilled workers to Europe, and a significant "brain drain" to countries like Israel, Western Europe, and the United States It is crucial to approach available official statistics with caution, as they are derived from administrative registrations and likely exclude many individuals, although the extent of this omission remains difficult to quantify.
According to Goskomstat (2000a), in 2000, there was a small, positive net inflow from the former Soviet Union to all regions of Russia except for the northern and far
The figures presented are derived from the Labor Force Survey (LFS), which encompasses employment in small businesses, informal activities, and self-employment, differing from official enterprise reports It is important to highlight that the RLFS questionnaire employs standard global definitions of employment, though it does have some ambiguities regarding home production, as elaborated in the subsequent discussion.
26 See, for example, Field (2000), who also argues that the roots of the population crisis can be traced back to the 1960s.
Regional unemployment rates in Russia vary significantly, with Dagestan experiencing a rate of 19.5 percent compared to 6.6 percent in St Petersburg Eastern regions show net outflows, primarily to Belarus and Ukraine, while migration from China and Cuba to Russia remains minimal Current migration statistics indicate a trend of skilled and educated individuals leaving the country, contributing to a brain drain However, this may be balanced by a notable influx of highly educated migrants from former Soviet Union countries Overall, the changes in migration flows have a limited impact on Russia's population dynamics.
Adjustment through Hours of Work
The labor productivity analysis so far has not taken into account changes in hours of work If hours of work have declined, then employment (totaling all workers)
31 The Russian definition of employment appears to be inconsistent with the ILO (1998, p.
The International Labour Organization (ILO) suggests that individuals producing economic goods and services for personal or household use can be classified as self-employed if their contributions significantly impact household consumption However, the ILO also indicates that data on the economically active population typically excludes those living solely on their own means, implying that subsistence farmers may not be recognized as employed This creates ongoing definitional ambiguity regarding self-employment and the classification of subsistence farmers.
There is a lack of information regarding whether certain individuals are actively searching for jobs, which complicates their classification in labor force statistics as either unemployed or nonparticipants If these individuals were counted as employed, it would significantly inflate employment figures and reduce the unemployment rate However, they are likely not classified as unemployed, as they would have responded to standard labor force survey questions, and any job seekers or discouraged workers are already categorized appropriately This misclassification could lead to an overestimation of labor usage and a distortion in labor productivity metrics Additionally, firms in Russia often respond to economic shocks by avoiding layoffs, opting instead for work-sharing arrangements such as unpaid leaves and short-time work, while allowing employees to supplement their income through secondary activities.
In many countries, the adjustment of work hours is typically a temporary measure related to business cycles or uncertain times; however, in Russia, this adjustment has evolved into a permanent aspect of life Given the widespread acceptance of this perspective and the challenges in obtaining relevant data for assessment, this section will thoroughly explore various types of evidence surrounding the issue.
Table AI.15 presents data from the RLFS, indicating that average hours worked in respondents' main jobs, whether defined as "usual hours" or "actual hours in the reference week," remained relatively stable from 1992 to 2000, with only a minor dip in 1994-1995 This stability suggests that significant hour reductions likely did not occur before 1992, as there was no noticeable decline in the aggregate figures even in October 1998 Notably, "actual" hours reported tend to be lower than "usual" hours, with a difference of 2.6 hours in October 1992 and only one hour in November 1999, hinting at the use of work hours for temporary adjustments Interestingly, most individuals reporting a discrepancy between actual and usual hours indicate that their actual hours are higher, a trend consistent across all RLFS data except for March 1996, when the two measures were nearly equal.
In the 1999 RLFS, 49.4% of workers reported involuntary reasons for working fewer hours, with 37.2% citing firm management's decision, 10.0% due to lack of orders, 1.9% on unpaid leave, and 0.3% on paid leave However, these involuntary part-timers represent less than 1% of the total labor force When combining underemployed individuals with the unemployed, the overall labor underutilization figure closely aligns with the RLFS unemployment rate Other factors contributing to reduced working hours include illness (8%), vacation (8.2%), normal work regime (14%), and seasonal work schedules (3.6%), with miscellaneous voluntary reasons making up the remainder.
Perhaps the rather constant length of the average work week is masking differen tial trends at a more disaggregated level The RLFS figures in table AI.15 do show that,
In Russia, employment figures reported by enterprises are calculated based on various metrics, including contractual days for full-time and involuntary part-time employees, contractual hours for part-time workers, and actual hours for civil contract workers However, this method of calculation falls short of establishing a comprehensive full-time equivalent measure.
After an initial decline, the dispersion of work hours has seen a slight increase, especially among those working over 40 hours a week, which dropped from 14.5% in October 1992 to 2.0% in October 1995, before rising to 10.2% by October 1999 There has also been a minor uptick in part-time work, yet the overall part-time employment rate remains low by international standards, with only 5.6% of employed individuals reporting a typical workweek of 30 hours or less, and just 2.8% working 20 hours or less This low rate of part-time employment, a legacy of the Soviet era, suggests that employers have not adapted to more flexible working hours.
The industrial sector in Russia, a remnant of the socialist era, has seen a decline in working hours, while the burgeoning private sector has increased them, leading to minimal overall change in average work hours Evidence indicates that self-employed individuals in Russia do not consistently work more hours than employees, contrasting with trends in other countries where self-employment typically entails longer hours Instead, self-employment in Russia often serves as a means for part-time work due to the rigid hours imposed by employers In November 1999, 17% of self-employed individuals reported working 30 hours or less, compared to 4.8% of employees, and 9.4% of the self-employed worked 20 hours or less, in contrast to only 2.3% of employees.
Table AI.16 analyzes the variations in average actual work hours across different industries using RLFS data from 1998 to 2000 The findings reveal that the average work week shows minimal differences across sectors, suggesting that adjustments in working hours are not significantly impactful on the overall economy This conclusion challenges common assertions about factory shutdowns and workers abandoning their jobs for alternative activities.
An analysis of work hours data from the Russian Longitudinal Monitoring Survey (RLMS) reveals consistency with the Russian Labor Force Survey (RLFS), despite RLMS questions focusing on the previous 30 days rather than a standard reference week Both surveys indicate high levels of hours worked across primary and all jobs, with only minor fluctuations observed Additionally, when broken down by industry, the RLMS data aligns with RLFS findings, showing minimal deviation from a typical full-time work week.
Between 1980 and 1996, large and medium-sized industrial firms reported a notable increase in "not worked days," with an almost 8-day rise in 1992 compared to 1991 This trend is highlighted in Table AI.18, which outlines the distribution of worked and non-worked days during this period, reflecting higher estimates of hours adjustments in firm reports and surveys.
In December 1999, 16 percent of workers in the United States were employed on part-time schedules, which are defined as working fewer than 35 hours per week This definition encompasses a broader range of part-time work compared to the figures reported in Russia.
In Russia, gender differences in working hours are minimal, with men working only 1 to 2 hours more per week than women, according to Goskomstat (1999a) Despite an increase in holidays, vacations, and permitted absences, work stoppages due to reduced production only rose by an average of 3 days However, by 1996, work stoppages had increased to 22.8 days, indicating that industrial workers took approximately four and a half weeks of leave, resulting in a 10 percent reduction in working time While this adjustment is significantly less than the 38 percent decline in industrial employment, it highlights a notable shift in working hours within the sector.
In Russia, a common approach to adjusting working hours is through involuntary, unpaid leaves, akin to temporary layoffs in the United States Data from Goskomstat, as presented in Table AI.19, highlights the prevalence of these involuntary leaves and short-time employment practices among large and medium-sized enterprises.
19952000 The use of involuntary leaves peaked in 1996 in these data, when 15.8 percent of employees in the reporting enterprises had an average leave duration of
318 hours, or about eight weeks Across all employees in these firms, the average was
In 1996, short-time employment peaked, with employees experiencing a reduction of approximately three days of work, which represents about 2.5 percent of their annual hours, equating to 50 hours While the data on reduced hours is less comprehensive, the overall adjustment in hours, estimated at around nine days, highlights a notable, though not insignificant, impact on employment trends.
Time Allocation
In Russia, significant adjustments in work hours have coincided with an increase in second jobholding and engagement in the shadow economy, with surveys from the State University Higher School of Economics indicating that around 7.5 million individuals work solely in this informal sector, while an additional 18 million hold both formal and shadow jobs Many who are classified as economically inactive, such as students, pensioners, and housewives, are also involved in shadow economy activities, particularly in construction, trade, and services Collectively, these individuals represent about 33 percent of the labor force, utilizing informal work as a crucial strategy for households to cope with declining real wages and blurring the lines between formal and informal economic activities in Russia.
The robustness of the findings regarding multiple jobholding is questionable, as evidenced by Goskomstat's RLFS data, which indicates that only 1.3 percent of employed individuals held multiple jobs in March 1996, increasing slightly to 1.6 percent by November 1999 These figures appear incongruent with anecdotal observations, suggesting that second jobs may be irregular and less significant as a survival mechanism Even when considering the previous month for data collection, the percentage of workers with second jobs remained low at 2.2 percent in November 1999 Additionally, the average weekly hours worked in second jobs were only 14.7 in August 1999 and 11.8 in November 1999, likely influenced by seasonal factors Overall, the estimates of multiple jobholding are surprisingly low, and few surveys, including the RLMS, report significant rates, with only about 7 percent of workers indicating they have second jobs.
To assess the impact of secondary activities on employment calculations, one can combine the hours spent on these activities, including home production for personal use, with the hours worked in primary and secondary jobs By dividing the total by the average usual work hours (39.3 as of November 1999), we can estimate the full-time equivalent (FTE) employment in the economy This analysis reveals that Russia had an average of 69.6 million FTEs.
In 1999, employment was recorded at 60.4 million, according to GKS data This analysis offers a time-based perspective on employment changes, moving beyond mere headcounts to better understand shifts in the labor market.
According to Goskomstat (1999a, table 2.44), the data on second jobholding in Russia may have inconsistent definitions, as it includes respondents who reported having second jobs in the previous month rather than just the reference week While there is a widespread belief that second jobholding is prevalent in Russia, the evidence suggests that it plays a relatively minor role in the overall employment landscape.
The analysis indicates that employees did not markedly alter their working hours, pursue secondary jobs, or experience substantial involuntary leave Consequently, the primary adjustment in the labor force was attributed to a decrease in the overall number of workers.
Understanding Unemployment
Understanding the evolution of unemployment in Russia is crucial for grasping the dynamics of its labor market and shaping effective labor policies Initially, during the early years of economic reforms, Russia experienced relatively low unemployment rates compared to other transition economies, with a rate of 5.3 percent in 1993, significantly lower than Poland's 16.4 percent, Hungary's 12.1 percent, and Romania's 10.4 percent This slow pace of restructuring contributed to a gradual increase in unemployment, leading many analysts to commend the "Russian way" of labor adjustment, which emphasized wage flexibility to mitigate the social impacts of layoffs and unemployment.
Despite the flexibility of wages, unemployment rose significantly in the late 1990s, peaking at 15 percent in February 1999 The inflow of individuals into unemployment was highest before 1995, showing a gradual decline over time By August 2000, the unemployment rate had notably decreased to 10 percent, and further dropped to 8 percent shortly thereafter.
Despite a low administrative unemployment rate of 2 to 3 percent in Russia, it is misleading to label the country as a "low unemployment economy." This figure is largely influenced by minimal incentives for individuals to register at local labor offices, including low and often delayed unemployment benefits, as well as a lack of retraining and job placement support Consequently, these factors contribute to a significant increase in unemployment rates.
Even if secondary employment is more prevalent than suggested by surveys, it is unlikely to significantly alter our findings on declines in labor productivity Commonly, it is believed that work hours are inflexible, with employees potentially working full-time while selling in-kind goods received as wages during their shifts, effectively acting as sales agents for their firms and retaining all sales revenue Alternatively, some argue that wages remain unchanged because workers utilize company facilities for secondary jobs during regular hours, producing output for the firm while keeping all profits as wages However, for this output to substantially impact labor productivity estimates, it would need to be considerable.
39 See, for example, Layard and Richter (1995) and OECD (1995).
The duration of unemployment lasting one month or less is indicative of significant economic challenges This sharp rise in unemployment is a result of ongoing restructuring and a persistent economic downturn, highlighting the economy's struggle to generate new job opportunities.
Post1998, as a consequence of economic growth, the unemployment rate has declined rapidly The unemployment rate declined to 10.0 percent by November
In the early 2000s, unemployment rates in most high-growth Central and Eastern European (CEE) countries, with the exception of Hungary, initially increased due to rapid restructuring, before experiencing a slight decline However, this decline was modest, at around 2 percent over two years, compared to a 3 percent decrease in Russia between 1998 and 2000 Recently, unemployment rates in many high-growth CEE countries have either stabilized or risen again as restructuring efforts resumed, particularly in Poland In contrast, Russia demonstrated a significant decline in unemployment, suggesting a more flexible labor market responsive to economic growth, potentially due to less stringent enforcement of labor laws, such as high minimum wages and restrictive termination conditions prevalent in other CEE nations.
In 2000, significant disparities in unemployment rates were observed across various socioeconomic groups, with younger, less-educated, and less-skilled workers experiencing higher unemployment Gender differences were minimal, as women had a slightly lower unemployment rate compared to men These trends of elevated unemployment among youth and individuals with lower education levels are consistent with patterns seen in many regions.
The key trends in unemployment, analyzed by age, gender, and education levels, are consistent with findings from the RLMS data This conclusion holds true even when accounting for additional factors and regional variations in a regression analysis.
42 The comparisons are with the 1996 data.
Education * Previous work history (percent)
** Period of job search more than 12 months.
Table I.1 The Socioeconomic Composition of the Unemployed, 1999(Percentage)
In Central and Eastern European (CEE) countries, female unemployment rates often surpass those of males, contributing to significant economic challenges Households led by unemployed individuals frequently experience some of the highest poverty rates in the region, highlighting the urgent need for targeted employment support and social assistance programs.
The majority of unemployed individuals in Russia are around 40 years old, with 65 percent falling into this age group A significant portion has completed secondary education (69 percent) and possesses previous work experience (81 percent), indicating that many are seasoned workers This demographic trend, along with the exit of employees from enterprises and prolonged low aggregate demand, has contributed to the rise in unemployment rates Although recent declines in unemployment have slightly decreased the proportion of experienced workers among the unemployed, the overall profile remains consistent.
Duration How long do the unemployed stay without a job? The average dura tion of unemployment (uncompleted spells) increased sharply, from 4 months in
Between 1992 and August 2000, the duration of unemployment fluctuated, initially lasting 10 months before decreasing to 9 months During the early 1990s, the unemployment rate was low, leading to a quick turnover in the unemployment pool However, as the unemployment rate increased, the percentage of long-term unemployed individuals also rose By early 1999, approximately 50% of the unemployed reported being without work for over 12 months, highlighting the growing challenge of long-term unemployment.
Longterm unemployed ( Longterm unemployed (percent)
Figure I.9 Percentage of LongTerm Unemployed, Russia/CEE
The decline in the share of job losers and the increase in job quitters in Russia presents a complex situation, as distinguishing between these categories is challenging due to employers often encouraging voluntary resignations over layoffs By the late 1990s, Russia's long-term unemployment share rose significantly, aligning with the upper range observed in OECD countries, yet it remains lower than in many Central and Eastern European (CEE) nations, except for Poland and Lithuania Factors contributing to this disparity may include less stringent enforcement of labor regulations, a less generous unemployment benefit system, and a better alignment of skills among the long-term unemployed with labor market demands Further research is necessary to fully understand the reasons behind these cross-country variations.
Despite showing favorable comparisons to Central and Eastern European countries, unemployment duration in Russia remains largely unresponsive to economic growth This phenomenon may be attributed to structural factors that hinder the alignment of labor supply and demand across various skill sets and regions, which is crucial for understanding the prolonged unemployment rates in the country.
Skills mismatch is a significant issue in the labor market, particularly affecting older and less-educated groups, with 52% of unemployed individuals falling into this category Among those laid off, 56% are over 45 years old, and 47% have prior work experience Although unemployment rates have generally decreased across all demographics, the most notable improvements have been seen among younger workers and those with some level of education Meanwhile, the unemployment rate for individuals with only basic education remains unchanged.
In 2000, long-term unemployment levels reverted to those of 1998, following a brief increase in 1999 This persistent unemployment can be attributed to a skills mismatch and insufficient market demand for older, less educated, and laid-off workers Additionally, this skills mismatch sheds light on the socioeconomic composition of unemployment in Central and Eastern European (CEE) countries, as highlighted in World Bank reports from 2001.
44 Goskomstat (2000c) is unclear about the boundary of the category "912 months" and
"12+ months," but the qualitative picture is little affected.
45 Of all unemployed workers in this category, those that are longterm unemployed.
Table I.2 Regional Unemployment Rates: Standard Deviation andMax/Min Ratios