The Russian labor market has adapted to the economic crisis remarkably well, as fears of mass unemployment have been proven wrong. However, many temporary solutions to keep workers employed now show signs of weakening.

The unemployment rate in Russia stands at 5.9 percent. Photo: TASS

In the period from late summer to early autumn 2014, when the economic crisis in Russia was just starting to unfold, oil prices started falling rapidly, followed by the ruble’s collapse and surging inflation. Not surprisingly, many experts predicted that the Russian population would inevitably face the serious scourge of mass unemployment.

The logic of such forecasts was clear – the country was suffering from a heavy economic downturn, which had an impact on almost all sectors of the economy. The state clearly did not have enough resources, just as in 2008-2009 during the earlier financial crisis, to provide large-scale financial investments into all spheres affected by the crisis.

It seemed that in these conditions, the natural reaction of distressed industries would be to engage in massive layoffs, in order to reduce costs and save money. However today, almost two years after the beginning of the crisis, the forecasts of skeptics did not come true. The unemployment rate in Russia, calculated using the methodology of the International Labor Organization (ILO), which is used by the whole world, has almost never exceeded the very modest figure of 6 percent.

By way of comparison, the unemployment rate almost reached 10 percent in the U.S. during the peak of the 2008-2009 crisis. The average unemployment rate in the EU is currently below 10 percent, and this is considered a success, since six years ago, it surpassed 12 percent. In the midst of the economic crisis, in countries such as Spain, Greece, and Italy, this figure went as high as 40 percent. Even today, about one in five people find themselves without work in those countries. How did Russia manage to avoid such a fate?

What makes Russia different

According to Tatyana Maleva, director of the Institute for Social Analysis and Forecasting at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), since the 1990s, Russia has been developing its own labor market model, different from the Western model.

While in most countries of the world, companies reduce production and staff sizes in times of economic turmoil, in Russia, fearing the worsening of social tensions, all market actors behave quite differently. Employers, instead of firing inefficient workers, prefer to lower wages. In addition, the Russian labor market has resorted to a system of hidden unemployment, in which workers are transferred to a shortened working week, sent on unpaid leave, or have their hours and production rates reduced.

Workers, in turn, gladly accept this system, in view of the small amount of real alternatives – the risk of not finding a new job for a long time scares people even in large metropolitan areas. The state is also quite satisfied with such behavior of employers and employees, as this ensures that there will never be a large influx of people seeking unemployment benefits, which could undermine the already weakened budget.

As of today, the minimum monthly unemployment payment is 850 rubles (approximately $13 at current exchange rates) for people looking for a job for the first time, or one year after being fired for violation of labor discipline, while the maximum is 4,900 rubles (approximately $76). It is clear that such small amounts are insufficient for survival, and thus do not encourage people to register as officially unemployed. In fact, a little more than one million of such people exist in Russia today.

“The one great advantage of such a labor market model, which has suited everyone since the 1990s, is that it makes it possible for society to avoid tensions, and above all else, a calm political landscape to prevail. However, the main disadvantage is that as a result, we have an economy suffering from sluggish processes. That is, an economy in which all have job security, and no one has an incentive to fight for jobs,” says Maleva.

Recommended: "Social transformations in Russia: A guide for Western policymakers"

Lower wages

Today, the unemployment rate in Russia stands at 5.9 percent, which corresponds to about 5 million people. At the same time, last year, real wages fell by almost 10 percent. This is the reason that the country did not see a sharp increase in unemployment – the decline in real wages dampened this process.

The fact that the deterioration in the labor market leads to lower wages, and to increased part-time employment was noted this May by analysts at the Higher School of Economics (HSE) and RANEPA

As was shown by their research, not only have real wages declined because of the fairly sharp rise in inflation (12.9 percent in 2015), everywhere, workers are not always paid on time.

Wage arrears in the regions have doubled in size – from 2 billion rubles ($31.2 million) in early 2015 to 4 billion rubles ($62.5 million) in May 2016. This, of course, is a significant and painful fact of life for the population. Although everything is relative – in 2009, at the peak of the last crisis, wage debts reached 8.7 billion rubles ($14 million).

Employers continue to respond to the crisis, first of all, through a reduction in wages, according to a survey conducted by the HSE. During the past three months, 24 percent of the families questioned saw their wages reduced, 19 percent had the payment of their wages delayed, and 9 percent had their working hours reduced, were forced to go on unpaid leave, or were dismissed.

Vladimir Gimpelson, director of the Center for Labor Studies at the National Research University at HSE, believes that if wages continue to decline, then sooner or later, workers will nevertheless be facing a choice: Are they happy with such a salary or not?

However, both the employee and the employer are hoping that things will not come to such a point, when such a hard choice would have to be made, and the situation in the enterprise will have time to improve. After all, for the worker, it is preferable to live on a reduced salary, than to lose it completely and live only on a miserable unemployment allowance.

Temporary employment

Given that the overall unemployment rate is virtually not growing in the country, there has been noted a significant growth in so-called partial or temporary employment. At the end of May 2016, according to the Ministry of Labor, this sector of the labor market has grown by 18 percent, compared with the same period last year. Overall, during the past year, the number of underemployed workers has increased by 41,500, and now surpasses 273,000. On the one hand, this is not that much for such a large country as Russia; on the other hand; this is equal to the population of a large city.  

However, most importantly, the number of temporary workers is growing, and a definite trend can be seen here. Yes, employers are seeking to avoid massive layoffs, obviously realizing that if this happens at their enterprise, the state, represented by the regulatory authorities, will clearly not be pleased. Elections to the State Duma are on the horizon, and no one is interested in the appearance of hotbeds of social tension on the map of Russia.

At the same time, the economic crisis is not behind us yet, and GDP continues to decline, albeit not as sharply as last year. Nevertheless, most business owners are still faced with the need to optimize their costs, including wages – otherwise their business simply cannot survive. Hence, solutions are being implemented that involve moving workers to various forms of part-time employment.  

Thus, Russian businesses are reducing their expenses by implementing part-time employment. “The crisis in regional labor markets is developing on the model of slow growth in part-time employment,” according to the findings of RANEPA.

At the beginning of 2016, an increased share of those working part-time, being idle or sent on unpaid leave were found in the regions with developed railcar, automotive and textile industries – Samara, Kaluga, Tver, Ivanovo and Ulyanovsk, as well as the Republic of Tatarstan. This figure ranged from 5 to 8 percent of employees on payroll lists.

The greatest amount of workers not working full weeks, the Ministry of Labor notes, can be found in the automobile manufacturing, electrical and computer engineering sectors, as well as machinery, metal products, equipment and transportation industries, in the banking sector, in mining and electricity production.

“The main problem is that our market is creating very few new jobs,” says Gimpelson. The peculiarity of the Russian labor market is that it “provides a high level of employment and low unemployment at the cost of highly differentiated wages, and a significant portion of low-wage employment,” the expert explained.

Also read: "When will the Russian economy finally emerge from recession?"

Push-pull migration

Another factor, mitigating the situation in the Russian labor market, has become temporary labor migration, which experts call “push-pull” migration. According to the analytical agency, in certain months of the last year and a half, it increased suddenly by 10 percent. That is, over 150,000 people left their home regions in search of work.

In personnel agencies, they explain that the increase in the flow of applicants from the Russian regions is contributing to a mass transfer of employees of large companies to the mode of underemployment. They are moving personnel into their “reserve,” which is encouraging people to look for any opportunities for “remote” earnings.

Experts at the CTC Group, a company that specializes in outsourcing of personnel, noted an increasing demand from temporary labor migrants for temporary or rotational employment. “We have recorded an increase in the number of applicants for temporary vacancies from such regions as Moscow, Volgograd and Rostov,” said Kseniya Yurkova, representative of the CTS Group. An especially high level of mobility has been seen among residents of Saratov and Orenburg, as well as Bashkortostan.” The expert believes that “rotational workers” today have great choice when it comes to places and conditions for temporary work. Retailers, manufacturers, logistics and transport companies, as well as shopping centers are increasingly turning to “borrowed” personnel.

For their part, the residents of economically depressed Russian regions are forced to take advantage of every opportunity to earn temporary wages, something that personnel outsourcing companies offer, practitioners of the rotational method of filling staffing needs. These provide real labor mobility for the unemployed, and thus enable their families to survive in difficult economic conditions.

According to experts, at the beginning of 2016, Russia had about 6 million temporary labor migrants, while just a year before, there were less than 4 million such people.

There is growing demand in the labor market for temporary employment – freight handlers, casual laborers, maintenance workers, drivers, packers, sellers, cleaners, cooks. “Earn your money and go home,” this has become the quintessential slogan of modern internal labor migrants in Russia,” says Kseniya Yurkova.

The labor market remains stable

To summarize, the Russian labor market was able to meet the challenges of the economic crisis using its own model, in which natural disadvantages were converted into temporary advantages. Reduction of salaries, transfer of people to temporary employment, reduction of working time, the intensification of internal labor migration, transfer of people to remote employment – in principle, these processes are just temporary measures at best. Nevertheless, they do allow many workers to remain afloat, not losing their jobs and having at least some source of income during hard economic times.  

Of course, the government is monitoring the situation with unemployment, including hidden unemployment. The Ministry of Labor is promising to take special measures to prevent unemployment from increasing. “Prospects for maintaining or downsizing staff are mainly related to the presence or absence of demand for products or measures of state support,” said the press service of the Ministry.

In 2016, there are plans to provide temporary employment for workers at risk of being laid off. “In addition, workers will be able to obtain a professional education and receive on-the-job training,” according to the Ministry of Labor.

The specialists at the Ministry of Economic Development also do not expect a sharp spike in unemployment in the country. According to them, this will be made possible not only by the processes in the labor market itself, but also due to demographic trends, namely the reduction of the working age population in the next few years – nearly one million people annually.

However, there is no need to be happy about the fact that the Russian labor market, during the economic crisis, has retained its stability.

“Although up to one-third of the population, according to surveys, are already talking about having problems when it comes to employment – or have already lost it, or have been transferred to part-time work, the official unemployment figures are showing only modest increases. The job search question will depend on the duration of this crisis. World practice shows that after the loss of an old job, a person needs to find a new one within two years, at maximum. Thereafter, the worker loses employment and social skills, and becomes economically inactive. Thus, for Russia, the extension of the current crisis would be doubly difficult – as it is, we already lack sufficient manpower, and now over the country hangs the threat of economically active segments of the population dropping out of the labor process,” says Tatiana Maleva.