Even with the economic crisis, the unemployment level in Russia is still not as high as once predicted. However, the labor market faces a number of structural weaknesses, such as growing youth unemployment.
A waitress, right, takes customer orders in the dining area of a Planeta Sushi restaurant in Moscow, Russia. Photo: Getty Images
According to the Russian Ministry of Labor, as of the beginning of October, the number of officially registered unemployed workers in Russia stood at about 917,000 people – 1.3 percent less than during the previous month. By way of comparison, in the spring of 2015, this figure exceeded one million people.
At the same time, the unemployment rate, calculated according to the methodology used by the International Labor Organization (which takes into account all unemployed, not only those who have registered) stands at 5.4 percent of the economically active population of Russia – about 4.4 million people. However, this is far from the peaks reached during the previous financial crisis of 2008-2009, when the unemployment rate surpassed 8 percent.
The current economic crisis has not resulted in rising unemployment
The number of unemployed, registered in the employment offices of 74 Russian regions, has gone down. In addition, according to official statistics, today, for each registered unemployed person there are 1.5 job vacancies available. These figures are an eloquent testimony to the fact that a surge in the unemployment rate, which seriously worried some labor market experts last fall, never materialized.
The logic of the skeptics back then went something like this – the crisis in the Russian economy began with a sharp drop in oil prices, thus residents of large cities would be the most vulnerable, whose jobs in one way or another depended on oil money.
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And this talk was not so much about the oil workers themselves, who still remain in demand, but about the service sectors (in the broad sense) in the major cities – where oil money has many secondary (and even tertiary) effects on total economic activity.
Of course, the Russian government has not been sitting idly by – in order to reduce tensions in the labor market, 52 billion rubles ($825 million at today’s ruble-dollar exchange rate) of subsidies was allocated in 2015 for the “implementation of additional measures in the field of employment.” Subsidies, in particular, were provided to the largest enterprises, including KAMAZ and AvtoVAZ, in order to keep up their levels of employment and not create social tensions.
And now, after more than a year has passed since these forecast were made, we can safely say that the skeptics have been humbled. In short, no dramatic rise in unemployment occurred. It will suffice to compare Russian figures with the situation worldwide. For example, in the U.S., at the height of the 2008-2009 crisis the unemployment rate, calculated using International Labor Organization (ILO) methodology, reached almost 10 percent, and now, when the U.S. economy growing, this rate is about at the same level as in Russia – 5.1 to 5.5 percent.
The average unemployment rate in the EU is currently just below 10 percent, and this is considered a success, because when the crisis hit, it exceeded 12 percent. The most affected by the crisis in Europe are countries such as Spain, Greece, and Italy, where this figure climbed up to 40 percent. Even now, in these countries, about one in four or one in five residents remain unemployed.
The Russian labor market has adapted to the impact of the economic crisis, however, this does not mean that no problems exist.
Hidden unemployment in the Russian labor market
One of the main problems of the Russian labor market is so-called “hidden unemployment,” when people are sent on unpaid leave, or their working days, or shifts are reduced. According to Tatiana Maleva, director of the Institute of Social Analysis and Forecasting at RANEPA, it is this factor that makes the Russian labor market different from many in the West.
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Whereas in most countries of the world, in times of economic turmoil, industries and companies downsize, first of all through staff reductions, in Russia, fearing the worsening of social tensions, all market actors behave differently. Employers prefer, instead of firing redundant workers, to lower people’s wages, reduce their weekly working hours, send them on unpaid leave, and reduce the number of hours worked per day and lower production norms.
Employees, for their part, adapt themselves to this system, in view of the limited alternatives – the risks of not being able to find a new job for a long time scares people, even in large metropolitan areas. The state is also quite satisfied with this behavior of employers and workers, as it ensures the absence of a large influx of people seeking unemployment benefits, which could undermine the already depleting budget.
We should recall that at the moment, the minimum allowance of 850 rubles ($13.5 at the exchange rate of 63 rubles per dollar) is paid to citizens seeking employment for the first time or after a year’s break after being fired for violation of labor discipline, and the maximum is 4,900 rubles ($77).
Yevgeny Gontmakher, deputy director of the Institute of World Economy and International Relations of Russian Academy of Sciences, calls such unemployment – when people are not registered at employment centers, having non-permanent, casual work – as latent unemployment. “Now we have increased the number of nominally employed people, working part-time and receiving 10-15 thousand rubles ($158-$238) per month. That is, by external signs the people are working, but in fact they are superfluous in the labor market,” the expert believes.
The problem of youth unemployment
Another serious problem of the domestic labor market lies in the fact that almost one quarter of all unemployed people in the country are to be found among young people. According to the information portal W-City.net, unemployed young people under the age of 24 in Russia are five times greater than the number of unemployed 30-49 year olds.
Today, one in five young Russians under the age of 25 cannot find work, and problems with finding employment are noted by every third respondent from this category. Turnover among the youth, in general, is breaking all records – more than 45 percent of young people do not stay in their positions for even one year.
This trend in the Russian labor market is very similar to the situation in the EU countries, where the recession, which has stretched now for many years, has led to mass youth unemployment. At the beginning of the second quarter of this year, the unemployment rate among people under 25 years of age reached 20.9 percent in the EU, while in the Eurozone it was 22.7 percent. The largest number of unemployed youth has been recorded Greece (50.1 percent), Croatia (45.5 percent) and Italy (43.1 percent). The employment situation of young people remains the most important social and economic problem in the Old World. Now, to a certain extent, it has come to Russia as well.
The experts we surveyed believe that this situation can be corrected by the state providing support to labor mobility. “Young people, by definition, are mobile, but without public support, young people can only rely on luck and their own entrepreneurial spirit,” says Nikolai Ryzhkov, head of recruitment at the STS Group.
Nevertheless, life is forcing young people to become increasingly more active and mobile – each year, more than 100,000 young people from the regions come to Moscow in search of work and happiness. However, very few of them succeed in gaining a foothold in the city – in most cases the main problem they face is the lack of knowledge and skills.
“Today, we are noting that more young people from the Russian regions are discovering the rotational work system – they come to Moscow for a few months, earn the necessary funds, and go back home,” says Ksenia Yurkova representative of a recruitment company working in the capital city. According to her, many businesses and companies in the retail and services sectors prefer to hire young people for such work, giving them jobs as cashiers, vendors, laborers and waiters.
The rapid “rejuvenation” of the unemployed audience has also been noted by Natalia Shipilova, representative of the website portal ‘There is Work for Everyone’: “If just five years ago, the average age of job seekers was 34, now it is about 25-27.”
For his part, Nikolai Ryzhkov says there are three factors that can help overcome the growing unemployment among the young – these are professional “navigation” balanced with labor mobility, assistance in adapting to the workplace, and the acquisition of professional skills.
The mismatch in supply and demand
Experts say that in the Russian labor market there is a clear distortion – a mismatch in qualifications possessed by those people that have lost their jobs and the currently available vacancies. An analysis carried out of the federal bank of vacancies shows that today rapidly increasing is the demand for skilled workers and specialized personnel, while 70 percent of job seekers only have skills as office workers and specialists servicing business structures.
Thus, according to the data as of the beginning of October on the Rostrud website, there were listed only 450 vacancies for lawyers in the whole of Russia, while demand for millwrights was 100 times greater – 42,000 openings.
Thus, in the labor market, the mismatch keeps growing between the skills possessed by job seekers and the requirements for available positions. This situation is particularly difficult in the regions, where in thousands of settlements not a single vacancy is available. The Russian economy in recent years has demonstrated a growth in territorial disparities – in the Central District, unemployment is almost 50 percent lower than in the rest of Russia. For example, in the North Caucasus it is about 2.5 times higher than the average.
On the official labor market today, up to 60 percent of vacancies are seeking skilled workers. Wanted are crane operators, welders, and fitters. The regions are in dire need of doctors and educators, however, other than in the regional capitals, there are few vacancies offered in these areas.
Risks and prospects
Natalia Zubarevich, professor at Moscow State University and an expert at the Moscow office of the ILO, noted that, “At a time when onto the labor market is coming the not-so-numerous 1990s generation, and the 1950s generation is leaving, to allow an additional exit of the working population would be a big mistake.” Therefore, to keep the labor market from going into a crisis, actively being discussed today is the possible raising of the retirement age in the country.
Of course, if such a decision is made, the natural question will arise: Will the competition not increase among new entrants of the younger generation and the older generation that remains at work? However, experts say that in fact, in our labor market, the different age groups seek work in different fields.
The older generation consists mostly of working hands, the lack of which employers are increasingly complaining about, While more and more young people are learning trades in the services and retail sectors. Therefore, in the near future, the market risks being faced with a paradox – a shortage of hands in certain industries with a relatively low level of average unemployment.
In general, despite the expected significant decline in the GDP, the level of unemployment in Russia in 2015 will increase by no more than 0.6 percent, and already by 2016, it will start to go down again. This is stated in the forecast of socio-economic development of the Russian Federation in 2016, which was published by the Ministry of Economic Development (MED).
According to experts at MED, a sharp rise in unemployment will prevent the working-age population from shrinking over the next few years, by nearly one million people annually.
In addition, during the crisis, labor costs for employers have decreased. The reduction in real wages just in the public sector in 2015 could reach, according to forecasts of Ministry of Economic Development, more than 12 percent, and in the economy as a whole – 10 percent. Because it is clear that during difficult times, companies will reduce the informal part of the salaries that they pay, and introduce shorter working weeks.
Tatiana Meleva believes that in the near future, even with a further decline of GDP, the unemployment rate, calculated using ILO methodology, will not exceed 6 percent – which is a very low figure by international standards.
“In fact, low unemployment rates is our tradition at all stages of the economic cycle, whether it is a period of growth, crisis, boom, or recession. During the quarter century in the market economy Russia never really knew what unemployment means,” said the expert.