ReportNo. 11748-RU Russia Social Protection During Transition r and Beyond Public Disclosure Authorized (in two volumes) VolumeIt: Annexes February2, 1994 Human ResourcesDivision CountryDepartments Ill Europeand Central Asia Region FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized
Documentof theWorld Bank Public Disclosure Authorized
Thisdocument has a restricteddistribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization FOROMCIAL USE ONLY
RUSSIA: SOCIAL PROTECTIONDURING TRANSITION AND BEYOND
Volume II
Annex 1 Tables and graphs 1
Annex Z Wage and EmploymentDecisions in the Russian Economy An Analysis of Developmentsin 1992 13
Annex 3 The Role of Women in Rebuilding the Economy 76
Annex 4 Housing and Labor Market Distortionsin Russia 131
| This document has a restricted distributionand may beused by recipientsonly in th performance of their oMcal duties Its contents may not otherwise be disclosedwithout World Bankauthorization. .tmx 1
MacroeconomICTrends arel Figrs IB
70a -
m-h
0114 onl SIll 0961 914 Quarter
Vigur* Al 1
-J g.1~1011.10 ConsumerPrice Trmend Quarer F,re, 1 2 ,
150goo 4t )
*V4 OV~~~0414 Quarter Figure *1.2
:1 Benefitsas a ftrcentage of GDP1992
.
II £.3~~~~~44
4~~~~~~~~ Ilk"-AL1: R1ssian Federation: Distribution of Penioners as of Jamazy 1, 1993 (thousands)
Cateory
Labor p nioners 34,109 Old-age 28.538 Disability. 3.275 survivor 2,204 Social pensioners 961 Ivalids frau childhood 470 Disabillty pnsioners 60 Men above 65 and werno above 60 330 Childre u&o have lost a breadwinnr 20
Mlitary pensios 1160 Disability peioiner 140 Disability pensioners-war invalds s0 Survivor pnsiones 420 TOTAL 35,469 Ratio of pensioners to wozkforce .49
Source: Minitry of SociaL Protection,Pensios Fund.
3 Bo2Alx Eliilitv foA Panio,ns and DisOiliv Benafits Those eligible for old-age labor pensioa benefits must meet both the contribution MEd the age conditions. Contribution conditions require 20 qualifyitg years (25 for men), which incelude periodg of study, military service and maternity leave. for those with at least five qualifying years, a pension is paid ro rata, e.g. a woman is paid balf a pension after 10 qualifying -jears.
pggenigngbLaAg is normally J5 for women and 60 for men. Sore groups (especially those working under hazardous conditiona) may receive their pension earlier and/or with shorter qualifying years. For example, teachers and certain types of artista (e.g. ballerinas) can retire provided only that they satisfy the contribution condition; miners in exceptionally difficult conditions can retire provided that they have contributed for 25 years an are aged 50 or over; mothers of at least five children, or of disabled ehildren become eligible for benefits witt1 15 qualifying years at age 50. Unemployed individuals within two years of pensionable age may receive tbeir pension without penalty.
Eligibility for general disability benefits depend.i on (1) the degree of permanent physaial or mental disorder resulting in substantial loss of ability to worX, and (2) qualifying years of empioyment (up to 15 years), unless the individual became disabled when sbe was under 20 years of age. Thete are three groups of disability, defined as follows: Group I disabled suffer from .otal disabiUty and require, constant attendance; Group II suffer from total disability and are incapable of work; and Group UII suffer from partial disability. In theory, continuing eligibility for Group I disability is subject to teview every two years, and annually for Groups II and III unless the recipient is over pensionable age. Thare is no retirement condition for the Group III disabled. Neither the eligibllity review nor the retirement test for Groups I and Ir are rigorously enforced, however, as official statistics fox January .192 shoved that 6.6 percent of the Group I and 7 percent of the Group IX disabled receiving penaiens oontinuod to work.
Iligibility for disability resulting frau work eceid.nts, aoecpatlisl disoease, or wAr* requires eertifioation of permanent aondition of total or partial incapacity -for work, wthout any qualifying year. of employment. Determination and classification of diaebility are'as for those dboe.` Surviver pensions are payable to non-working surviving dependents 0b0 (1) are either under n6e 18 -(o 23 -fot studeats).i disabled since childhood, over normal pensionable age, or giandparen-- without y * support; and (2) were dependent on the deceased as a permanent and prinoipal source of material -spot (waivedwhere cause of death was related to military service). There ars oontribution requirements as. fcr disability pensaon) for the deceased, except where cause of death is related to wrk or .i, service). Invalids of World War II are entitled to two old age-pensions. *~~~~~~~~~~~ Pension Benefit levels.,-;
WA age. The old-age pension when first awarded is calculated as 55 perceat of tha indidual*s wage (either over the -previous 2 years, or over any -continuous 5-year petiod); plus 1 peyegnt of te ag base for each year of service over 20 (A5 for mmn) but bot e pera2$ . -receiving tae minimae pension receive -1percent of the minimumpension for each year of serviceaor 25 (25 for man). The benefit cnot- exceed 75 Percent of the Andivid4al's p wage- nor .3 inimumbenefit t3,5times for certain hazardous occupatics),.
Disability. The basic benefit levels for Group I and Group II disability- rwar way as the-old-age pensiou. The Oroup I disabled also receives a suppleent for constanta (again, at two-thirds of the minimum pension). The Group In disability bonafit is lt at 9 , of tho tndividual's previous wage, and not leos than two-thirds of the minimum peaion.: isabled pensioners who reacb retirement age are eligible for retiremet -or disibilityeon wie higher. Levels of linimum and maximm benefits are same as for the old-age aension. -
Survivor. Pensions payable to each offthe urvivIngdependens t 0percent of -thdceaed oto wage, for the maximum benefit under the old-age pension, whore death was related te r *zica,0iU£ - Pension Beft Levels---:
ll tenpicsanrs can continue to work acciumlating pensions rigbts apd withbut a reduton n benefit 4cunts. ln early i99a,Z1.S percent- old-age pensioners wre -woring, *a wse"0+6 paoe: nt of disabled pensioners (general ot work-!related dsability) of all three groups 62.4 percent of roup If l disabiLity), and 11.1 Vertcent of tisabledmilitar pesioners. , vse amongndvils tirtwo years before the pensionable age becqee of redgundan,y,37.1 precentt:era eloya.i Peoe whebeta worked or live ina hadship .are, ha their wage-nd benefits ehanced' bye Z facl:tor ofi bewe 1 a ,e toee e-aled.sorthern coffiie ts, in 'ddition, to ay we a:pa tswia ' th a of ay cash benefit related to the previous w..e.
4 Table Al.2 RkQRNU AND IPNDITURS OP Tl RUSSIA PINSION FD (in billlon of rubles)
ITEM 1Q. Budget 1993 2 of total |6. budget 2 of total 6m. 1993 Z of total
REVENUES 1022.3 100.00 2642.9 100.00 3196.9 100.00
Insurancepayments by employersand 939.5 91.6 2560.1 96.9 2675.7 83.7 employees l
Transfersfrom the Fed. Budget 82.82 8.1 82.82 3.1 87.64 2.7
other revenues'
Carry-over from the previous year _
EXPENDITURES 930.45 100.00 2565.3 100.00 2430.4 100.00
Work-relatedpensions 895.58 91.3 2294.2 89.43 2238.6 92.1
Other expenditurese 5.4 0.2
Allowance for childrenunder < 1.5
Expenditureon federal funded 82.82 8.4 258.0 10.1 174.92 7.2 benefitse
Operation costs' 2.05 0.2 13.05 0.51 11.48 0.45
Surplus/Deficit (-) 41.87 77.68 *t66.45
Debt repayment (with interest)
Capitalization
FINANCING (net bank borrowing I ______
MDrRANDA' 34.5 Number of labor pensioners (mln.)
No. of children under 1.5 (mln.) 7.3
Average Labor Pensi.n (r.mo) 14872
Effective employee contribution-PY
1./Includes penalties, self-employed, and interest. 2./Includes funeral benefits, early retirement, and pensions to those abroad. 3./As of 1 April 1992. this expenditure was shifted to the 8IF 4./See Table 2.5. The total budgeted expenditures were R. 87.66 billion for 1992. Includes military pensions, social pensions, various maternity and child allowances, and Chernobyl benefits. 5./Includes pension delivery, maintenance, and data base costs. 6./Includes0.75 billion rubles for information systems development. 7./The 1992 figures are based on the first quarter estimates.
5 ble AI13: Russian Federation Pension Fund Ezpenditures Paid for by Federal Bud8et (billiens of rubles) _ _. . . . -. - ITEM 1991 1 1F 1992 S O 1 6 "SNTHS S OF ______TOM TOTAL 1993 TOTAL
|-TOTALEXPENDISURES iS.88as lO00 7 80.49 100.0 156.7 1000
MiLitary pensionl 1.62 11 5 13.80 17.1 40.8 26#0,
ocial pensions 0.95 | 06 |993 12.3 9.6 6 1
1 Family allowances 11.63 73.2 53.49 66.5 95 3| 60.8
Chernobylbenefits 0.00 0.0 3.27 4.1 11.0 7.0
Operatingexpenses 1.46 9.3 7.70 9.6 8.31 5.3
No. of military pensioners 0.85 0.85 1.13 (in millions)
No. of social pensioners (in 0.47 0.88 .97 millions) No. of children between 1.5 9.20 10.70 9.2 and 6 (in millions)
No. of single mothers (in 1.40 1.40 1.4 millions) Average social pension 168 312 9901 (rubles per month) I Average children's 95 175-200 2110.4 allowences Average single mother 71 154 2286.2 allowances10.=" _ = ml = = = * I
Source: PF of the Russian Federation.
j/JncIudpawikn, towihe and fmamle of aed" ve erlune, a/=_. alowb forchblde from 1346 yars ofage, cbrld _wae fr dnge mours, aed alwaxis forchidr ntsed by HIV.
Iim isb deanfrstd quarr dta.
6 Tble AIA4 Russian Federation EmploymentFund (in billions of tubles)
1991 1992 1993 Znd balt lot half
REYVEUE 2.10 36.02 146.04
Payroll contributions 1 85 35.01
Local budget 0.03 0.12
Federal budget 0.22 0.05 Voluntary donations - 0.20
Other revenues - 0.64
EXPENDITURE 0.17 7.46 53.75
3ployMent sevices total 4.10 a. Training - 0.28
i. stipends - 0.05 b. Public Works - 0.03 a. Unemploynent benefits 0.01 1.86
d. Job creation - 1.94 Operational expenses total 0.1 3.35
a. InWomation systen - 0.54 b. Payroll expenditure 0.05 1.36
c. Staff training - 0.10
d. Other expenditure 0.04 1.37
-JRPLUS/DEFICIT (-) 1.93 28.57 92.29 (as percent of total tevenue/expenditure)
Pavroll contributions 88.1 97.2
Unemployment benefits 7.0 24.9 18.6
Job creation - 26.0 19.0
Operational expenses 67.2 44.9 35.2
Investments
Sources: Federal Employment Service.
7 Table A1.: Family Allowances (in Rubles)
USSR USSR USSR/RS Rua. Rua. Rus. 10/9/ 10/1/ FSR Fed. Fed. Fed. 89 90 4/2/91 1/1/92 6/1/92 2/1/93
Children's Benefits by Age Groaos
Birth of Child 50-2'0 3 x mw Zso 3 x sU 2,700 6750
Up to 16 months 35-S0 mw 110 60X s mw 500 1250 Up to 1S months old n.a. 5OS 2 80 452 x mw 400 1000 18 months to 6 yeasrs' 12 SOX x 80 452 x mm 400 1000 To single rothe-a with child up to age 6 4-20 SOS x mw 80 45X X mm 400 1000 To single mothers with child age 6-16' n.s. 5SO x mw 90 502 x me 450 1125 Up to age 16' n.a. n.a. 40 25 s mw 200 500 Affected by BIV or AIDS ip to age 16 n.a. n.a. 110 60S x me S00 1250 Age under 6 where parants evading support n.a. n.a. n.a. n.e. n.a. 1000 Age 6-18 where parents evading support n.a. n.e. 90 50 x mw 450 1125 Disabled children n.a. 5O2 x mw n.e. n.s. n.s. 750
Ccmpensltion for Costs of Children's Goods
Up to age 6 n.a. n.a. 200 302 x mw 250 625
Age 6-13 n.a. n.&. 240 352 x me 3ro 750 Age 13-18 n.a. n.a. 280 402 x mw 350 875
3/ Monthly benefits in rubles for each child, unless otherwisespecified. I/ For childrennot receivimgsubsides under social security,for students not receivingstipend, until completion of educationalinstitution. QQuarterly copensation in rubles for each ohild.
Note: In June 1992, minimm subsistence requirerment for a child under 6 was R.1132, and R. 1636 for children 7-17 years.
8 Table Al. 6
0atn Amn, ,od A, m W e Al oft agota
V- fr iA%, mOd ma by Xw Mouy Ol3 0.01 A
lottl catotfotb match to anittIunttalmb 0.03 0.02 6.4
Saattorlomsfor miitrm of muWV t 0.07 0.06 1US
1aIo of eampota to uv=aMWprmmageni. s 0.63 0.33 tODO ekIngacu of rih t hmu'
TOWa 0.63 0 33 10.0
Source: Ministry of social Protection.
u The Ministry of Finance actually credited the MSPaccount R.475 million before June-end altbough most of this was received towards the end of June, and not fully spent. a Financing of two houses for lone, elderly and hendicapped. Maintenance of 43 clinics and hospitals for fitting artificial limbs. R.126 million was spent on purchasing sanitoria vouchers for invalids, and R.12 million on issuing new IDs and documents as part of the pension reform.
Table A1.7: Parental Leave and Benefits on Child Birth for Selected European Countries and Russia Time (weeks) Percent of Conditions Eligibility Before After Wage Level of Participation
Belgium 6 8 80-75Z 6 mth contr. insured Denmark 4 24 90a min. income father/mother France 6 10 902 10 mth insured Germany 6 8 100l 12 wk mother + cash grant ibid. parent Great Britain 11 7 90X 26 wk contr. employees Italy 9 13 802 none insured, incl. father Netherlands 4 12 1002 none women esoloyees Portugal 4.5 9 100l 6 mth ins employees Spain 6 8 75X 9 mth ins. empl.ind.& services Sweden 7 64 90C insured child- caring parent Russia 10 10 1002 of 12 mth work mother + casb grant 3002 ' 78 302 of min. wage
Naow tmedo u m# ath I co be do u give compti fomatn or exq*m ax peoW ct,umswe.
sI of minimum wage 9 Table Al.8: Level of gducationby Sex. for the Employed Pouulatin. 1989 Census of Population
Higher and Secondary, 91 93
of vhich
Higher 14 16 Incomplete Higher 1 1 Secondary Specialized 19 30 General Secondary 37 30 Incomplete Secondary 20 16 Primary 8 6
Sourc: Sofoi-Dzrathic Cbaractastics of tbe Russian Pouulation 1989, Moscow,8,SST. 1991
10 '.. 554 j|0g;"S LO 0| 9
-~~~~~~~~~~~i
______SR Annex 2
Wage and EmploymentDecisions in the Russian Economy An Analysis of Developmentsin 1992
Simon Comander, Leonid Liberman and Ruslan Yemtsov 5
The World Bank, Institute for Eczenomic Forecasting, Russian Academy of Sciences and Moscow State University
V113gmpwha ba ppd asa couibulln tode WrM Danksect dudy _- "SciulPmtclm nt mitanFedwal. Th _rs_ dki lbo* lUngmi Ja Kig. or abbe d cane; Nat*a Golhe nd Z. Ryzhei of R_mm Gu.mrwt or hlp uft dab.
12 Introduction
1. In this paper we providean analysisof recentchanges in the Russian labourmarket. Our emphasisis on the path of wages and employmentin a context of partialprice liberalization,high and rising inflationand considerable ambiguitywith respectto the natureof governmentand centralbank policy. Asidefrom attempting to map usingofficial data the path of basicvariables over the recentperiod, we also attemptto developa set of simpleanalytical models that capturethe wage and employmentdecisions made by firms. For, given the mannerin which the formerSoviet economy was organized,the firm in effectwas the bedrockof the plannedsystem. While subordinatedto a centralauthority, normally a ministry,the clear potentialfor firms to arrogatedecisions motivatedthe relativelytight retentionof centralizedcontrols. And indeed when those controlswere relaxed,the decentralizationthat was validated predictablyyielded strongernominal wage claims and considerablelabour turnover.Nevertheless, it did not resultin very substantialemployment losses. This can be attributednot only to the implicit'moral economy' of the etatiste era but also to the fact that constraintson wages and their intra-firm allocationwere retained. The result,as we show, was that by 1991 the wage structureand employmentlevels in the statesector of the economycontinued to exhibitsurprising stability. In fact, this stabilityspills over into 1992, pointtngto the immenseinertia in the system. 2. The paper is organizedin the followingway. Sections1 and 2 provide discussionof the initialconditions and the backgroundagainst which the 1992 changesneed be set. The emphasisis on wages and employmentand the starting point the new EnterpriseLaw that was enactedin January1988. In Appendix1, we also providea simplebargaining model which seeks to capture the main intendedfeatures of wage and effortsetting in firms still regulatedby a centralagency but motivatedthrough incentive payments. The same sectionsthen concentrateon developmentsin 1991 and 1992drawing not only on time seriesbut recentfirm and establishmentlevel information. Aside fromusing official data provided by the Russian Goskomstat,we complementthese discussionsby extensivelydrawing on a new dataset--asurvey of 41 firms in the Moscowand Volga regions--thatwe organized. The samplecovered firms in 10 branches, includingtrade and services. The firms were randomlyselected and all interviewswere held over a periodof two weeks in mid-November1992. While the samplesize is clearlysmall and by no means representative,we feel that it providesa usefulcheck on more aggregateddata, while also providinga rangeof informationthat cannotbe pickedup elsewhere. 3. It is shown in the paper that despitesignificant negative shocks to output,there has been littlesignificant change in employment.Consequently, labourproductivity has generallyfallen. Sector,branch and regionaldata appear to confirmthe apparentsluggishness of the adjustmentin terms of quantities.With respectto wages,changes in effectivepurchasing power, given shortages,are difficultto identifyso thatchanges to the statisticalreal wage need be treatedwith considerablecaution. Further,institutional rigidities resultingin cash shortagesand other bankingsystem constraints continued to enforcea wedge betweennotional and actualpurchasing claims in the firsthalf of 1992. Thus, the strong impressionthat is gained is of significantwage 13 flexibilityover 1992 with relativelylittle adjustment to employment.At the same time,we observelarge and fairlysynchronised downward movements to output. Appendix2 sketchesa model in which incumbentworkers in a de facto worker controlledfirm are primarilyconcerned with employmentstability, one resultof which is that wages prove more flexible. Section 3 provides a detailed discussionof unemploymenton both a Russianand regionallevels. It is shown that unemploymenthas yet to attainsignificant levels and has been rather uniformly distributed across regions. Among those who are unemployed,women, younger labour force participantsand white collarworkers dominate. Indeed, over three quarters of the unemployed in mid-1992 were women. Sections 4 and 5 relatethe changesin wages and employmentto the wider changes in economic policyand particularlyto the monetarystance of the CentralBank over 1992. The natureof the shocksto outputand employmentare discussedand the apparent dominanceof aggregateshocks emphasized. Section 6 complementsthe discussion by focussingon the role of benefits--cashand non-cash--providedby firms to labour. It is shownthat such benefits comprise up to 25X of labourincome using the informationcollected from our surveyand hencenecessarily constitute a key area in the reformof wage paymentsand firm expenditures.Section 7 concludes. 4. A final caveat is in order at this stage. The discussionthroughout centreson the state sectorand ignoresrecent and increasinglysignificant changesin controland ownership. Already,there is evidenceof widespread small-scaleprivatisation in the retailsector, particularly in Moscow,alongside spontaneousprivatization in statefirms. Indeed,one recentpaper incautiously suggeststhat private sector employment in Russiamay now approach20% of total employment6.-;t for obviousreasons, information on the private sector is difficultto secureand we choosefor the timebeing to limit our attentionto the state sector. Furthermore,it is as yet unclearthat the title changes occurringamong state firmscorresponds to any meaningfulchange in behaviour. 1: Wage Setting
1.1: The System of Paymenats 5. It is well appreciatedthat wages in the Sovietsystem were originally intendedto squarea circle;to fulfilbasic efficiency criteria- -in other words, motivate workers--whileconstraining distributional effects likely to be associatedwith an efficiencybased scheme of payments. The result was a centralizedor tariffsystem which toleratedsome limitedwage dispersionby skill,seniority and otherattributes. In addition,a set of mechanicalregional coefficientswere appliedto all rangesof the tariffwage structureto reflect differencesin the price level and workingconditions as well as to channel labourto prioritysectors 7. However,there was an increasinguse of bonuses to motivateworkers with the distributionof bonusesdetermined within the firm. Piece rates and bonus schemeswere widespread.The overallsize of the bonus fundwas ultimatelydetermined by the centralagencies. Thus, while the Soviet wage system remainedheavily regulatedfrom the centre it had increasingly
11Asmd (199)
VIA M deua_o of theasm Is pro,idedin O _nden(199). SeeWo Am (1960). 14 absorbed payments practices that explicitly linked pay to individual or firm level performance.
6. By the mid-1980s bonuses comprised over 16.5% of the average industrial wage rising to just under 21% in industry. A broader definition encompassing some measure of surplussharing indicatesindicates that in industryover 80X of establishmentsoperated profit-sharingschemes with those schemes contributing between 10/12% of average earnings in 1991 8. The performance of work collectiveswas the dominant base for bonus calculationswith a further 15/20% of cases relatingbonus paymentsmore mechanicallyto the firm's gross revenues. Of further note has been the growing use of additional monetary payments supplementingtariff based wages; roughly 75% of firms paid such supplementsand these comprised ornaverage over 40% of total earnings.
7. The structure of relative wages that resulted had a number of striking traits. First, one notes the relativelylow returns to skills or grade. A 1991 establishmentlevel survey of 500 firms in the Moscow and St.Petersburgregions indicates,for example, that managerialwages as a multiple of unskilledwages were rarely more than 2.5 9. The World Bank survey carried out over 41 firms in the Moscow region points to a similardifferential in the third quarter of 1991. Management wages were barely 35% on average higher than for professionalstaff and/or skilled workers. In general,wages of supervisoryand specialistmanual workers in all sectors were either equal to or higher than for specialist employees. This gap was adjusted upwards when measuring over average earnings (including bonuses and other non-wage monetary payments). Nevertheless,the impressionof a compressedstructure of wage differentialswhen measuredover job functions is reinforced. This conclusion holds when further classifyingover type of control structure. Thus, while joint-stockand cooperativefirms had clearly higher wage levels for comparable skills, the within-firmdistribution remained very similar to that for the dominant state sector.
8. Disaggregatingby sector, it is clear that industrialsector workershave remained privilegedwith wages notably higher than in non-productivebranches. Priority seccors,such as energy and to some extent the military,had wage levels at the peak of the wage ladder. Factoringin bonus paymentsto a fuller earnings measure tended to exaggeratethis differentiation.Even so, availabledata show rather low spreads across branches and it is striking that with respect to the average state sector wage the average branch variation was no more than plus/minus 25% by 1985 10.
9. These features suggest the following conclusions; (i) that greater decentralizationof wage decisionsand growth of non-statefirms was associated with some departurefrom the tariffwage structure,permitting greater dispersion in wages across skill and other categories,(ii) that performance-linkedpayments shifted average earnings up and permitted a further widening in wage
S/Sanig (1992a)
2/ SeeS ig ) lo/oamtem (0), ppl44ff
15 differentials,(iii) that these resulted from an explicit objectiveof inducing greater effort from workers and, by associatingearnings more closely to firm performance,to induce managerialbehaviour on the part of managers rather than have them act as simple transmissionbelts. While the degree of differentiation should not be exaggerated,there is some evidence to indicate that these shifts reversed in part the earlier (pre-1985/86)tendency to lesser relative wage dispersion.
10. From the beginningof 1988 firms were subject to a new EnterpriseLaw that enhanced the weight of firm level decisions with respect to the centre and provided for worker participationin firms decisions 11. Greater discretionwas granted to the firm in disposing of bonus payments while maximum wage ceilings were abolished. While in principle the Law allowed for firms to determine the employmentlevel and composition,until very recentlywe can consideremployment to have still been determined outside the firm. Separations continued to be difficultto enforce. The EnterpriseLaw explicitlylinked wages and bonuses to financial resultswith the amounts available to the wage and bonus funds being directly associated to gross revenues in the first case and residual income in the second. The principalfeatures of the Law were that firm workforceswere to have an active say in management,including electing the head of the firm. Firms were intendedto be self financingwith payments to the budget predeterminedand fixed over five year periods. Firms could also determine the size and structure of employment as well as wages. Initially, there was no maximum limit on individual wages, but this was amended in 1989 as wage demands accelerated. Appendix 1 provides a more detaileddiscussion of the wage rule that was adopted by the vast majority of Russian firms 12.
11. In addition to cash wages, includingbonuses and surplus sharing,workers commonlyreceived significant non-monetary benefits, including housing. This was primarily true for industrial firms. A fuller discussion of this issue is reserved until Section 5 below.
1.2: Wage Path in 1991 and 1992
12. We have the obvious problem in measurement across scarcity regimes, complicated in 1992 by the additionalproblem of cash shortagesand liquidity constraints. Both drive a wedge between notional and actual claims making identificationof the real-realwage almost impossible. Further, the presence of secondarywork--in 1991 this was measured at 3.5X of total employment in the state sector--andits likelyexpansion omits componentsof aggregatewage income. In addition, increasingrecent evidence of short time work and unpaid vacations forced on workers by firms would result in reduced de facto nominal wage payments. An October1992 Goskomstatsurvey of 22,000 firms found that a quarter had shifted to short time working or unpaid vacations for workers. Approximately,401 of the compulsory leave was unremuneratedwith partial wage payments in a further 54X. These developmentsin 1992, parallelingthe sharp
LI s led tbe rigt to eled fim managersevery five yeas wih bhna genral meet of thework force. fl Fora full dseumn and pr otbnof thetwo possiblerule for deten redu lnc, see Ozendea (19Y).
16 downwardshift in capacityutilization, obviously reduce effective wage payments. Despitethese important caveats, the aggregatedata carryinformation both with respectto the directionof changeand the structureof relativewages. 13. At firstglance, official wage data show sectoralstatistical real claims acceleratingin 1991. Ignoringmoney illusionand goods shortages,we see roughly20X increasesin averagestate sector as well as industrialwages over 1991,with most of this increasefalling in the secondhalf of the year, At the peak in December1991, statisticalreal wages were roughly50X higherthan in January1991 and doublethe level of January1988 when the Law on Enterprise Reformwas enacted. However,cash constraintsand deterioratinggoods market supplymake comparisonproblematic over time. In addition--asFigure... mak-es clear--Russianprice series display considerable variance, particularly in 199,.
14. The climb in statisticalwages is followedby a precipitousfall over the first quarterof 1992;a declineof over 551 over end-1991.The declineis yet larger--around 751--when measuring average industry sector product wages. There are somesigns of slightupward drift again (seeFig.l) after January 1992. This leavesstatistical real wages at aroundtheir mid-1991 levels by the sameperiod in 1992. The secondround of the ILO establishmentsurvey, covering 109 units, in June 1992reports an averagewage declineof around30% between September 1991 and June 1992. This wouldbe broadlyconsistent with stabilityover the period mid 1991 to mid 1992. 15. We can supplementthe discussionof branch level wage developmentsby lookingin somemore detailat the evolutionof regionalwages. Thishas merits for severalreasons. First,for institutionalreasons the data appearsto be more reliable.Second, for realwage calculations(putting aside for themoment problemsassociated with scarcityregimes) we need factorin the non-trivial differencesin regionalprice levels.We observehigh coefficientsof variation for the firstquarter. The spreadover maximumand minimumrates of changein retailprices remains quite significant throughout. However, it is evident(see Table 1) that regionalvariations in inflationhave declinedover the courseof 1992 and further data disaggregatedby state and kolkhoz markets further substantiatesthe view thatregional inflation rates have strongly converged over the courseof 1992. Third,we need note the differencesarising from the system of regionalwage coefficientsapplied to base wages. 16. Nominalwages disaggregatedby regionare strikingfor the high variance acrossregion as indicatedby the coefficientof variation.While we observeno trendover 1992we do finda major increasein variancewhen comparedwith 1991. Deflatingby regionalretail prices, we observeconsiderable dispersion and instability. The coefficientof variationindeed increasessignificantly throughout1992. Differencesin the path of regional real wages, given convergencein price changes,can thus be assumedto be drivenby divergent nominalwage claimsthan by variationsin regionalinflations.
17. The strikingdivergence in real wage claimsis matchedby the apparently strongrebound over 1992 thatwe observesince January. Using the retailprice deflatorswe reportregional real wage indicatorsfor the firstnine monthsof 1992 in Table 2. Basingto January,we observean averagereal wage expansion 17 of over 80X in a period less characterized by large divergences in goods availability. The expansionin real claims relates to all regionsbut is highly uneven in its temporal distribution.
18. Relating statistical real wages to July 1991 (prior to the extreme scarcitiesof the last half of 1991) levels we can see that the initial fall in January and February 1992 is rapidly recuperated. However, the picture is somewhat changed when using the consumer price index; wages remain broadly constant. But the consumer price index is a less appropriate deflator, particularlyover the earlier months of 1992, given high dispersion in regional price changes. The broad picture thus appears to be that the real wage contractionassociated to the price shock of January 1992 has subsequentlybeen largely reversed.
19. This conclusionappears true across most sectors,though of course current statisticsdo not adequatelycapture the movement of wages in the privatesector. The IIO survey reportsreal wage contractionsin the private sectorvery slightly lower than in the state sector but aggregate 'official' private sector, cooperativesand joint ventures data report a wage fall over early 1991 exceeding that for state firms and persisting through to mid-l99?. But the situation is muddied,particularly given the rapid and ambiguoustranslation of title occuring over this period. Sectorswith above averagewage expansion in 1991 maintained that process, while more gradual wage increments continued to characteriseex ante lower wage sectors,particularly in the non-materialbranches.
20. Evidencefrom the World Bank survey provides some interestingevidence for the path of wages over the period 1991(3) - 1992(3). Table 3 provides the raw informationcategorizing in terms of firm size. Several features are notable. First, the predictablylow dispersionin the wage levels across firm size class and the bias in the wage structure toward skilled workers. Nominal changes across the period show a generally high degree of convergence, though with clearlystronger wage increasesreported in the larger firms and for higher level staff, in particular. Real statisticalwages computed using consumer prices indicate a fall of between 35-452 for most workers, with, however, much lower decline for all workers in larger establishments. Indeed, top management in the largest size class slightly improved their statisticalreal wage, with other categoriesregistering declines of around 10/20X (see Table 4). This is broadly consistentwith the informationimparted by official,aggregate wage series.
1.3: Relative Wages
21. With respect to relativewages, there is some upward drift in the standard deviationand coefficientof variationacross sectorsand some initial evidence of that continuing in 1992. But Figure 2 shows relatively limited shifts in sectoralwage rankingsbut dispersionof the levels acrossbranches increasesin 1992. Industry, transport,construction and financialsector wages remain the wage leaders but the spread around the average wage is not that powerfully altered, with the exceptionof agriculturewhose relative wage has fallen
18 sharply13. Indeed,looking at relativesectoral wages over 1991 and January- August1992 we observevery littlechange, indicating the powerof institutional featuresin the wage settingthat have tendedto dominatethe distributive effectscommonly transmitted through high and unstableinflation. This is confirmedby our firm surveywhich indicatesthat in over 80X of cases wages remained administrativelyset, rather than bargained. This points to a continuingde facto role for the tariffwage structure. 22. There is, however,some fragmentaryevidence that wage differentialshave widenedin favourof groupsof organized--largely but not exclusivelyblue-collar --workersand that thisprocess likely reflected more the exerciseof respective bargainingpowers rather than any explicitassociation of wage to outputchanges 14. Minersand energysector workers have initiallyexpanded their ex antewage differentialsboth with respectto industryin generalas also with respectto skilledor professionalworkers. It is indicativeof the perversityof the Russianwage structurethat while minersand universitylecturers' wages were roughlycomparable in 1989by May 1992 the formerreceived average wages over six times that of the latter. This gap may have narrowedby the third quarterof 1992 but was still arounda multipleof four 15. 23. Yet, while it is clear that certain groups of organizedlabour have succeededin consolidatingtheir role as wage leaders,this processis more muddiedelsewhere. For instance,evidence from the World Bank surveyprovides limitedand somewhatambiguous evidence of a changein wage relativitiesover a range of branches. While over two-fifthsof samplefirms reportedan increase in wage differentials,this proportion was exactlymatched by firmsreporting no change.And the remaining171 reported decreasing inequality in wagesover 1992. For thosewho did reportan increasein wage differentials,most attributedthis to marketfeatures rather than, say, any explicitassociation to privatesector wages or differentiallinking to prices. More uniformwas the perceptionthat privatesector wages were consistentlyhigher across all comparableskills or grades--thiswas the view in nearly751 of sampledfirms. 24. Confrontingthis perceptionwith the actualevolution of wages over our samplebetween the thirdquarters of 1991 and 1992 respectively,we find rather close convergencein rates of increaseacross the main grade categories.The only apparentloser in relativeterms were professionalor ITR staff,such as engineers(see Table 3); but the shift in relativitiesis not that large. However,it is also clear thatwage changesat the top of the grade structure-- for the best paid managers--havebeen consistentlyhigher. The standard deviationacross firm size classesfurther shows a sharp divergencefrom other functionalcategories. This pointsto the fact that the relativewages of top level staff have improvedmost in the largestfirms. In addition,we note a clearwidening in wage differentialswithin functional categories, particularly again among top managers. This suggeststhat the compressionimposed by the
l But tis ecdus the Jiwo= ad ke desates dh a pah.
141Comande ad Yesnv (19)
W/ a gazta, May 1992 and Delvmy Mir, Ocober 1 19 previoustariff wage structureis at leastbeginning to come apart,even if the processremained (as of November1992) somewhatmuted.
25. Furtherdecomposing relative wage changeswithin industry provides a more nuancedpicture. The ILO datasetindicates that thevariance over firm sizeand propertyform increasessignificantly over September1991/June 1992 but the rankingremains unaltered. Employeesin medium (500-1000)and large (>1000) firms generallyhave higher average wages and earningsprofiles. Clear improvementsin relativewages can be found in energyand heavy industry. By contrast,the main relativewage loseris engineering;the branchaccounting for the bulk of job lossesin industry.The World Bank surveyresults report little shiftin relativerankings and surprisinglylow variationin wage rates classed by skillover branches16 26. The correlationbetween employmentlosses and relativewage falls is furtherconfirmed by analysisof regionalwage movements and relativities.Thus, while wages in the 'extremities'remain adjusted upwards uniformly by coefficientsof 1.5/2.0,it is notable that wages in the North-Westernand CentralRegions--the areas with the largestnet job losses--declinerelative to the nationalaverage in earlyand mid-1992.This is supportedby the ILO survey in June 1992where wages were foundto be systematicallylower in firmswith the highestemployment contraction 17, This may indicatethe emergenceof a weak, emergingassociation of wage behaviourand levelsof unemploymentin regional labourmarkets. Given very limitedmobility of labour,local unemployment, ratherthan national, could be expectedto be the incipientlytargetted variable.
1.4: Wage Controls 27. Prior to 1992wage controlswere largelyjettisoned, both explicitlyand implicitlythrough reductions in the share of firm incometransferred to the statebudget. Nevertheless,the departuresfrom the earlierstructure of wages and theirrelativities was reasonablycontained. The nominalwage explosionwas concentratedin the secondhalf of 1991. In 1992--perhapssurprisingly--wages were not explictlyused as an anchorin the projectedstabilisation. Even so, wage controlswere not completelydiscarded as wage paymentsin excessof four times the minimumwage were taxed at the same rate as profits--32X.For 1993 this has been amendedto 50X alongsidea reductionin taxationof enterprise income. Figure 3 providesan estimateof warrantedas againstactual wage paymentsfor each month in the periodJanuary to August1992. The calculation is however somewhat impreciseas the use of complex intra-regionalwage coefficientsis difficultto accountfor fully. Nevertheless,the obvious conclusionthat can be drawn is that the wage rule has been a weak one and has been unableto containwage claims. In all months,except January, the actual
161Se Comanerw,ljbeim andYaun (9) for aor dbcon ofthee _es
17/ SeeSu (1992) 20 economy-widewage bill has exceeded the norm-given wage bill by a significant margin. The ratio of the actual to the norm has averaged 1.6 over the first eight months of 1992.
2: Employment
2.1: The Pre-ReformContext
28. We start with a feature common to all socialistregimes; high labour force participation,in part a function of legal restraints on non-working. This includes strikinglyhigh levels of participationby women, possibly around 85X for women aged between 16 and 54 years in 1987. We also note the rather high participationof pensioners in the labour force--estimatedat c30/35X in the early 1980s--a factor encouragedby the labour legislationand the facilityby which pension rights can be maintainedalongside full or part time work 18.
29. The occupationalstructure was and remainsrather particular. A heavy bias toward unskilled and skilled manual labour has existed reflecting production technology and the extensive growth strategy adopted in earlier periods. In industry skilled workers have comprised around 651 and unskilled workers a further 15X of total employment.
30. Several other factors stand out. First, the high degree of concentration and attentuated extent of competitionyielded large firms with high average employment; second, the emphasis on heavy industry and military production generated a pattern of labour allocation significantlyat odds with market industrialeconomies; third, as in other dirigisteeconomies, the servicessector was rudimentarilydeveloped- -the trade and communicationbranches accounted,for example, for less than 91 of total employmentin 1985; fourth,open unemployment was kept very low (though estimates pre-1990 vary widely); frictional unemploymentwas variouslyput at between 0.6-2.7X of the Soviet labour force in the 1980s.
31. We do however observe reasonablyhigh turnoverrates, particularlyat the base of the skill structure 19. This was in part induced by changes to the relative wage structure associated with the development of priority sectors. Measures to reduce turnover, such as provision of firm-financed housing, contributedto greater regional immobilityof labour and to a rather lr-alized pattern of labour turnover. The consistentlyhigher postings of vacancieswith respect to job seekers (pre-1991)and the apparent downward mobility of skilled workers point to major problems of mismatch, in laige measure related to the educationt.land training system and the rules for compulsory placement of professionals 20. And it is striking, for instance, that turnover in 1991 remained at high levels--inthe Moscow and St.Petersburgregions at over 151 in industry. Nevertheless, it is worth emphasizing the predominantly localized
w See ar 992) _ILaour Turne InIhnsnt wa aroud14% beween L19W-1.
yL AQcended dba_un Is pvded inOxstr (1990),pp2lsff
21 natureof turnoverand labourmobility, in part resultingfrom firm provided housing,in part from institutional-cum-legalconstraints, including prc '.ska, enforcedby localauthorities.
2.2: Changesin EmploymentIn 1991 and 1992 32. It is importantto understandthat since1985/87 we can observedownward employmentadjustments in the majorsectozs that preceded any attemptsat system- wide reform. Figure 4 shows that - ir.ustry,in particular,aggregate employmentin 1991was down nearly8% over the peak in 1986and this trendholds for the major branches,save corstruction.This is generallyrelated to the enterprisereform law (mentionedabove) and thewage settingregime allowed under thatreform. In so far as greaterdecentralization of wage bargainingcombined with an explicittax on wages gave incentiveqfor employmentreductions and enhancedlabour flows conditi.ned by relativeprice effects this result could be expected.
33. Aggregatedata providesome insights into employment changes over 1991and 1992and are strikingfor showingrelatively little apparent employment toss has been generatedto date,given the size of shoeksto output. This holdsfor both the statesector as whole and for industry. rotalstate s&-tor employment fell by less than 3.5% betweenJanuary 1991 and January1992 ariaby a further1.3Z betweenJanuary and August1992. In the same period,GDP is estimatedto have fallenby at least ...X. For industry,the declineis yet smaller;employment beingdown less than 3% in the iLrstreference period and fallinga further0.5% betweenJanuary and June 1992. Part-timework appearsalso to have declinedover the courseof 1992;possibly by around5/6% in industry.Across other sectors, no clearpattern can be do.tected.
34. For industry,there appears little immediate evidence that part time work has substitutedfull time employment,though current methods of classification wouldnot captu-echanges in workingtime in thisway. Formalizedpart timework may indeedhave been trimmedmore than for full time employees. Of more significancehave been changes--particularlysince June--inthe numbers of workers on short time work and forced holidays. As alreadymentioned, a Goskomstatfirm survey in October1992 indicated that as much as 25% of all firms have placedsome fractionof theirlabour force on unpaidleave ur shorttime working and that this share had doubledsince June 1992. Moreover,other evidencesuggests that in significantnumbers of state firms,management has effectivelylost controlover labotvdiscipline 21; a furthernegative shock to labourproductivity.
35. The strategyof choosingunpaid leave or shorttimework could be consistent with the generalreluctance to imposeinvoluntary separations and ratherinduce activejob searchbehaviour or secondaryemployment by de factoreducing wages and time allocationsin primaryemployment. But the WorldBank surveydid not find that thiswas a whollygeneralized process. Therewas evidencethat use of involuntaryleave and shorttime work had increasedover 1992 but by 1992.3under
L Thou&htbi does dn up Inaddfial labmsfor sk pay- a tgmuboneued melhod of shkdng. - 22 35X of firmsreported use of the firstand 17X use of the secondprocedures. In sum, under 5X of the totallabour force was on prolongedinvoluntary leave; and nearly 901 were concentratedin machinebuilding and light industry. Firm- specificoutput changes were, as expected,inversely correlated with involuntary leave. A further5X of workerswere reportedon shorttime work but 70X of those on shorttime were fromone firm. Unfortunately,the data on short-timework and unpaidleave remainfragmentary and do not allow us to &st a clear picture. 36. A numberof furthernuances in the changesto employmentcan be observed in the regionaldata. First, there is more variancein 1992 with several regions--theNorth Western region, includingSt. Petersburg,and military dominatedenclave, Kaliningrad--experiencing employment contraction of between 4-5X. Declinein employmentin the militarysectors is likelyto accountfor a significantshare of the fall in employmentin the NorthWest. Tkutin general, this associationcannot be assumed. We observeno major job lossesin other heavilymilitary dominated regions, such as the Urals,even if anecdotalreports speakof huge drops in output. For two oblasts--Novosibirskand Saratov--where we know thatmilitary employment ranged between 43-51X of totalemployment pre- 1991,we observeno markedlystronger downward pressure on employment.Second, for industry,employment contraction over 1991/1992appears slightly lower than for the state sectoras a whole. Moreover,branch data show stationaryor slightly increasingemployment in 1992for all branchesbar engineering.Almost the entirechange in industrialemployment in 1992can be attributedto changes in the machinebuilding and lightsectors. 37. While the storyon the state-sideof the employmentpicture is of gradual job destruction,alongside a ratherhigh degreeof churning--withworkers moving at quite high ratesbetween firms--the picture with respectto the privateand cooperativesectors--the sectors in whichwe mightexpect some job creation--is less evident. Thus is partly because of confusionarising from the very widespreadreclassification of title thathas been occuringin both years2. 38. In the case of cooperatives,official survey data show a 40% declinein employmentbetween January and July 1992, while private firms' employment increasedby over 101. Even so, this would imply that combinedemployment in thesecategories in mid-1992comprised no more 3X of totalemployment. Further, the relativelyhigh shareof secondaryworkers--161 as againstthe economy-wide averageof 3.51--suggeststhat many of these firms may be small, part-time operations.It seemslikely that officialdata capturevery inexactlythe path of privatesector employment and likelygrossly underestimate.
2.3: EmploymentChanges: Firm Level Data 39. Officialdata coveringthe state sector also appears subject to measurement error,in part arisingfrom a breakdownin traditionalreporting procedures and coverage. This makes firm level data attractiveas a countercheck.We can exploreemployment decisions in more detailusing the WorldBank surveyresults,
21M o surveyin Je repotb27% of eda as_ea.s, 55%staft ud 18% prkat buttbe dbtln Istit itppwrs, mey nweaiugtin ter ofeconmnic beourn. T statsor my bedning bfs (down8% ove teirsamp bdwenSeotme M1 andJumne1M) but pmarit bymm oftie change. 23 as well as informationfrom the IL0 dataset. The former,in particular,yields somestriking results that can be summarizedalong the followingbroad lines; (i) high rates of turnover,especially among workers, (ii) very low levels of involuntaryseparations across all firm size classes and branches, (iii) considerablenew hiringby firms,largely to replaceseparating workers and, consequently,(iv), a generallylow levelof job lossesthrough 1992.
40. For the firms sampledin the WorldBank surveyit is notablethat while nearlythree-quarters of the samplereported net employmentlosses for the third quarterof 1992,over 25% actuallyposted net employmentgains. Further,in one quarteralone nearly 3% of the labour force experiencedsome labourmarket transition.The main resultsare condensedin Table 5. Severalpoints emerge. First,for 1992.3total separations amounted to around8/10% across the firmsize classesand the separationrate was fairlyevenly distributed. Second, net job losseswere much smaller,amounting to no more than 5% for the totalsample. The dispersionis fairlylow but in generalnet job lossesare more concentrated among smaller firms. Indeed, the largest firms actuallyexperienced net increasesto theirwork-forces. Expected job lossesover the fourthquarter that are reportedare similarlylow and inverselyassociated with firm size. 41. The ILO establishmentsurvey provides a longerperspective. Over the periodend 1990/end1991 employmentin the 500 establishmentsfell by around7%; thatover 80% of firmscut employmentand thatthis was fairlyevenly distributed across industrialbranches, save for food processingsector. Further,for roughly20X of theestablishments (109) that were re-surveyedin June 1992,total employmentdecline since end-1990 was 15%. BetweenSeptember 1991 and June 1992 alone employmentfell by over 8% in their iu-pleand over two-fifthsof the establishmentsexpected further employment cuts. But employmentchanges in 1992 appear uncorrelatedwith changesin sales and displayno very strikingor systematicdifferences over propertyforms 23.
42. The evidentacceleration in job separationsin 1991 and 1992 only very partiallysubstantiates the claim that a major changein behaviouron the part of firms is occurring.The lack of a robustassociation of employmentchanges to saleschanges (and by implication,to outputchanges) points to a generalized but fairlyweak processof labourreleases and gross flows inducedby a change in employmentrules and wage settingpractice. It is revealingthat the continuinghigh ratesof turnoverremain dominated by voluntaryquits; over half the separationsreported in Table 6. being of this nature. Explicitjob reductiondecisions displayed considerable variance and amountedto no more than 17.5% of gross job lossesfor the full sample. Total involuntaryseparations amounted to less than a quarter of reported total separations. This pattern similarlyemerges in the IL0 data. The principalreasons for involuntary separationremain 'conduct' rather than the currentor predictedpath of output and/ordemand. Fallingdemand for firmoutput was citedin lessthan 3X of cases as a factormotivating forced separations. Indeed, gross flowswere primarily voluntary-- 72% of turnoverwas throughresignation and under10% were dismissals. Surveyevidence thus suggests that voluntary rather than involuntaryseparations
WI tdUd be edt h theWod Bankad ILO suqe re*slee geseed inregis andobasb withrdatv hib besofA baosrae to othrregon. 24 have dominatedand thatthese quits appear motivated by changesin relativewages and to have been concentratedamong unskilled workers. There is some evidence that forced separationshave also been concentratedamong unskilledmanual workersand, to a lesserextent, among temporarylabour 4. 43. Despiteconsiderable difficulties in interpretingemployment changes due to data inadequacies,the overridingimpression is of significantinertia. For a start,the absenceof a robustassociation between sales and employmentchanges suggeststhat gross labourflows conditioned on relativewage changesresulting from relaxationof centralizedcontrols have dominated.There is, for example, no evidencethat establishmentemployment changes have been associatedwith job lossesamong women and pensioners;groups that one might hypothesizeto be at greaterrisk. The respectivedatasets do not permit identificationof the destinationof quits. Consequently,we haveno way of capturingexits out of the labourforce. However,the informationon the characteristicsof thosewho quit through1991 suggeststhat exit from the labourforce was not the dominant motivation. 44. The ILO data on vacanciesindicate rather low speadsacross branches for end 1991. Vacanciesaveraged about 6X; were fairlyevenly distributedover propertyforms and firm size and were higherfor firmsthat had experiencedthe largestemployment losses. The vacancyrate declinesmore sharplyin 1992, droppingover 401 over September1991 for the same sampleof firms. The World Bank sampledfirms reportedvery low vacancyrates for 1992.3,equivalent to under 2% of currentemployment with even lowerpostings at the LabourOffices. 45. Interpretationof the vacancydata remains difficult given divergences in reportingpractices and in confusionover the underlying,'desired' level and structureof manning. This partly explainsthe conjointexistence of high turnoverrates and a continuing,widespread perception of laboursurpluses or underemploymentin firms. Indeed,given technology, a re-arrangementof relative wages, resultingfrom an institutionalshock and from ex ante firm-level mismatch,could exacerbate that mismatchas firmscompete for particulartypes of workers. This mightnot showup in the aggregatevacancy posting. One notes that despitea clear majorityof firms reportingaggregate excess employment amountingto between5-20X of currentworkforces 25, many firms still complain of selectivelabour shortages, resulting in upwardwage adjustmentsto attract labour. As in the past, perceivedlabour shortages appear concentrated among skilled,manual workers. The domiraniceof quits could then reasonablybe expectedto be associatedwith the continuedposting of vacanciesalongside complaintsof over-staffing.These factorsindicate a certainstability of objectivesacross industrial firms and reinforcethe view that grossflows were largelydriven by institutionalshocks rather than by a processof firm-level restructuring.Consequently, involuntary separations have remainedat ratherlow levels,given the size of negativeshocks to output.
W/Ndet tanpurmylabour amounted to ns me tm 1% d tot idara anpiymet in 11.
W MTeWoM Bok survey bas 651 o Orms reprtng esem anpymnt In 199_ wth that ezm amountin to rough S% of cum.t apyeat Abe hIgh_ - 20% - figre i derved ftrm the MO survey. 25 3: Unemployment
46. The spectre of mass unemployment in &ussia haunts current policy discussions. Generalized output losses and the recognition that structural changes are likely to induce significantjob destructiononly partially offset by job creation in growing sectors, includingthe private, promote this anxiety. As yet, however, it is only a spectre. Although the changes to measured unemploymenthave been significantin absolute numbers, they have started from a very low base. This is not to say that job losses are unlikely to occur, merely that the apparentlydominant strategyof firms over 1991 and 1992 has not been to induce large scale forced separations. Further, as relative wages and benefits have been subject to larger movement than the aggregatedata capture, turnoverhas remained high and separationsin 1991 remained ciominatedby quits. What is striking is that this broad picture remains only partly modified by the autumn of 1992. In summary, such adjustmentas there has been has largelybeen borne by wages (and possibly by benefits)with little change on the quantities side.
47. Different shocks have their counterparts in the type of unemployment generated. In principle, some component of changes in employment can be attributedto aggregate,sectoral and labour supply shocks. Given the nature of reform one might expect sectoral shocks to have larger than normal effects on both demand (unemployment)and supply sides (vacancies)of the labou_ market 26, Further, we might expect the latter to be non-trivial, given ex ante high participationrates across sexes. This might be offset if a decline in real incomes--hencesubstitution effect--dominates. At this stage,we lack sufficient informationto pin down the extent of exit from the labour force.
48. Figure 5 plots the path of unemploymentover several measures for the latter part of 1991 and the first ten months of 1992. Using the more inclusive measure--seeBox 1--we observe a doubling of registered job searchers and the unemploymentrate for this measure between December 1991 and October 1992. After initiallysharp monthly acceleration,we notice some decelerationin the rate of increase to this measure after May 1992. This is true for all three measures of unemployment, includng benefits recipients (Figure 6). It is possible that this can be related to the overt shift in the monetary stance of the Central Bank. Inflows to the jobseekingpool appear to stabilizebetween June and September(Figures 7-8). By October 1992 the Russianunemployment rate amounted to no more than 1.5%. For those formallyclassified as unemployed--the narrow measure--theunemployment rate amounted to only 0.7% in the same month.
49. Data on the regionaldistributior. of unemploymentis revealingin a number of respects (Table 7). First, while the major share of total unemployment(c22%) remains concentratedin the Central Region, which includes Noscow, there is relativelylittle apparent dispersion in unemploymentrates by region. Using the broad measure of job searchers,the NorthernRegion has consistentlythe highest unemploymentrate but this is less than a percentagepoint higher than the Russia
26f At rdadveto NorfthAmnerwcae aregae adtiviaydsoc ha" gmraf b foundto shift anad vacacy raw m mosX Slancade andDiamond nsso).
26 mean. We do observe a slight increase in the standarddeviation and coefficient of variation across regions in the later observationspost-June 1992 but in general we observe relatively little dispersion in the growth rates of unemploymentacross regions. This points to a fairly widespread and apparently common process in the generation of unemploymentacross regions, albeit at relativelylow frequencies27*
50. With respect to inflowsto unemploymentwe can pick out transitionsinduced by mass lay-offs in the firm sector. This provides a very crude proxy for measuring any apparent shake-out associated with some regime change and acceleratedemployment separations. Figure 8 gives gross inflows to the broad measure of unemploymentwith inflows originatingfrom mass layoffs or explicit actions of job reduction. It is revealingthat by the end of the period, gross inflowsare largely dominatedby mass layoffs,even if the aggregatelevel of the monthly inflowshas moved within reasonablynarrow bounds. In stock terms, just over 40X of both broad and narrow unemploymentmeasures in October 1992 were composed of people who had been separatedthrough mass lay-offs. Further--with the exception of the Central Region, comprising Moscow, where we find a disproportionatelyhigh level of layoffs--regional data show such separationsto be fairly uniformly distributed with surprisingly little dispersion in the changes. This again points to a common response function and path across regions.
51. Information regarding the composition of the unemployed and their respective durations is fragmentary. Nevertheless,Tables 8 and 9 provide partial evidence in terms of the sex and age of the unemployed,both broad and narrow measures, as well as one observationon durationsfor July 1992. We can see that in areas of relatively high unemployment--the Northern and Moscow regionsas also Kaliningrad--unemployment durations are alreadymore protracted. Around Moscow, nearly 20% of registeredunemployed reported durations of between 8-12 months already in July 1992. The second striking feature is the weight of females in total unemploymentand its continuous distributionover respective durationsof unemployment. At least 701 of the unemployed and over 751 of those receiving benefits were women on 1 July 1992. The table also indicates a significantshare of youth unemployment,suggesting that a non-trivialnumber of unemployed are new entrants to the labour force. Additional informationon the skill and other attributesof the unemployedalso indicatea strong bias toward white collar workers. In other words, unemploymenthas yet to hit severely the core of the male, blue collar workforce.
52. Outflows from unemployment show a somewhat surprisinglysmall downward slope with fairly small variance over the first ten months of 1992. For those leavingunemployment to jobs we observe little if any change in absolute numbers from February 1992 onwards and in the ratio of job finds to total outflows but an obvious fall in the ratio of job finds to the stock of unemployed (Fig 9). This appears to tally with the available economy-wide data on hires that indicates a continuinghigh volume of hiring in the economy through 1992. The fact that a consistent 401 and more of the outflows from unemployment are
Pi We an bobatepockt of relavely hih ueploymet - Yarsadwobla Inthe Centre regiom and pars of Norten Caucam, for eZnuple.But at pres we lak sufficiet Infatimon to pik up Ohedetermnas of lcal uemploymet 27 reported as finding jobs is itself reasonably striking in a context of large cumulativeoutput declines and widespreadreductions in capacity. Further, for September and October 1992 the data allows us to focus a little more sharply on the efficiencyof job finds. Over 30X of those who found a job did so within ten days of registeringas unemployed. It is unlikely that this 30% would have received benefits for their unemploymentspell.
53. Several points can be made with regard to the path of vacancies. In the first place, we observe a clear and sharp rise in posted vacancies until September1991. Thereafter,vacancies fall significantly. Posted labour demand by firms at the labour office (a more reliable measure than vacancies) fall by around 50% between January and October 1992 2B. As Figure 10 shows, unemployment and vacancies move in opposite directions, suggesting more the dominance of aggregate rather than reallocationshocks. This contrasts,say, with Poland in 1990 and 1991. There, vacanciesinitially increased and then deceleratedrather graduallyeven as the unemploymentrate shiftedup over eight percentagepoints, suggestingthe presence of mismatch and mobility constraints. But for Russia, there appears to be clear negative correlationbetween regional unemployment rates and the vacancy to unemployedratio as well as considerableconvergence in the changes for regional vacancies. These features suggest, at first approximation,the process to have been dominatedby aggregate-typeshocks and that reallocationeffects have as yet been weaker. Of course, we are unable presently to get a proper handle on durations and hence on separating out not only the weight of changes in average duration on unemploymentbut also in determiningthe effectivenessof job search behaviourby the unemployed. But an obvious assumptionwould be that a reductionin search effectivenesswould leave vacancies broadly unchanged even as unemployment rises. By contrast, we currently observe an inversemovement of unemploymentand vacancies.
54. The rapid expansion in the numbers eligible for benefits--fromunder 191 of the narrow unemploymentmeasure in December1991 to 601 in September1992--can primarilybe explainedby the lagged feed-throughof unemployedafter exhaustion of severancepay arrangementsand the decliningshare of new entrants and other non-eligiblebenefits categories. It also raises the issue of financingthese benefits. The replacement ratio has averaged 571 of the previous year's wage over the eligible year of benefits payment. At first inspection,this ratio seems high; most OECD countrieshave similar ratios for gross benefits to gross wages. But several caveats are in order. First, benefits are not indexed and with high, rising inflation the result has been that most benefits payments collapseto the minimum level. Second,given the importanceof non-cash elements in average wages, inclusion of such benefits would likely radically lower the effective replacementratio.
W Weshould note that most (>85%) of thes postedvacans arefor manal works, refectg thehitorial bins in the compotlonof labowdemand of Rusa Dlms.
28 am 1 _sesusumutI and Thettutiasa Issues
Russian statistics measure uneaployment in a variety of ways. The broad category of jobseeke*s includes people lacking full or part time work who are looking for work and have registered in a Labour Office. These would include, deodbilized military, retrenchad staff -- including those dismissed by mass lay-offs from firms -- new entrants, people returnlng to the labour force as well as those voluntarily quitting previous employment. Workers dismissed by firms have the ri8ht to a maximumsof three moaths severance end initially get classified in this pool, rather than among the unemployed and benefits receivers. A sub-category are those with the status of unemployed, the narrow measure. These include in principle all active Job searchers who cannot be matched with employment by the Labour Office. At the end of 1991 this category amounted to around 131 of total jobseekers but has risen through 1992 to nearly 401X This path is primarily governed by the reclassification of jobless two outhes after severance. Benefits are paid to only a fraction of those classifled as unemployed, using the narrow measure. At and 1991 this maounted to around 181 of the latter, rising by September 1992 to 60X. To receive benefits, an individual must have at least one year's work histoty and he actively searching for work. Those dismissed for disciplinary reasons oannot claim benefita and refusal of two appropriate job offers results in less of benefits. For the first tbree months of unemployment, dole amounts to 751 of an individual's average wage over the previous year, falling to 60S for mnnths 3-7 and 451 for months 7-12, After a year, benefits eligibility ceases, save for those individuals with work histories exceeding 25 years. In these cases, each year of aervice over 25 years adds an additional week of benefits eligibility. For those with under mue year's work experience or with very low prior wage history, a minimum benefit equal to the minimumnwae is paid. Benefits are paid out of thb mployment Fund financed by 1S employer contribution gnd budgetary transfers. Currently, discussiens for the new Bsployment Law are underway and these aim to traslate the present *ystem into a fiat-rated structure with paymnts set for six months at 125S of the minimum wage. falling to 752 after six months. Benefits will rise by 102 for esch dependent with mawxmum benetits capped at 902 of the last three mnthes' wages, Benefits duration in proposed to rise to 18 mDonths.' '- . " . - :'.-
4: Employment,Output and Relative Prices
55. To this point, we have concentrated exclusively on the institutional setting and path of labour market variables in the recent period. The exercise was necessary given problems in the data and the inherent difficulties of adequatelymapping recent changes. We now, of course, need to make an explicit link to the real side of the economy.
56. Data on output movementsare difficultto interpret. First,because of the traditional preference for using constant price indicators with unclear specification of the underlying price indices. Second, because reasonably significantshares of output likely escape the statisticalnet. What data that are available clearly indicate strong downward shifts in output across a broad range of sectors and goods in the early part of 1992. Contrastingphysical output in Jan/Feb 1992 with the same months of 1991 for 25 branches of industry, the unweighted average decline is around 14X. A sample of most firms across eight branches of industry indicates that output declined by around 13/15% comparing Jan/Mar 1992 with Jan/Mar 1991. Over the same period, employment contractedby only 3X. Seasonallyadjusted value data for industryalso indicate the same order of magnitude for the decline over the first half of 1992.
29 ComparingJan-September 1992 with the same period in 1991 for industryidentifies a 17.6% fall (not seasonallyadjusted) 29.
57. Branch and sectoral data for Jan/Aug 1992 over the same period in 1991 indicategross output falls of between 8-30%. The variance does increaseacross observationsbut removing constructionand light industry accounts for most of this increase. Survey data reporting changes in capacity utilizationbetween end-1991 and June 1992 show a 8.5% fall. Again, we observe little increase in the standarddeviation over branchesof industryand the impressionis reinforced of a largely aggregativeshock to output with low dispersionin the changes in capacity utilizationacross branches. Aggregate data on manhours for the major sectors over 1992--a crude proxy for capacity--showa generalizedupward drift, measured over January to April 1992, with a sharpish fall thereafter. In May and June 1992, industrialmanhours were down between 9-15X% over the beginningof the year, although this ignores any seasonal factors.
58. Table 10 reports the resultsfrom a large sample of firms undertakenby the Ministry of Economy in mid-1992. It groups responsesby firm employmentsize and with respect to a number of key variables. It is notable that output declinewas present in over 55% of cases, employment losses in a slightly lower number. Unambiguouslynegative demand shocks were reported for between 53-71% of cases with the largest firms hit hardest. The overall impressionis that output losses have been widely distributedbut have been stronger for larger firms. Similarly forecastsof output, employmentand demand changes for the second half of 1992 were consistentlymore pessimistic in the case of the larger firms.
59. Informationfrom the World Bank survey provides some further information on changes in the volume of output over 1992. By November 1992, 58% of firms had experienced a clear decline in output over 1992 (see Tables 11 and 12). The unweightedmean projection for the year was 20/25% with around half the firms with output decline reporting over that range. 15% of respondents reported increases in output with the remaining 27% projecting roughly constant output volume. While aggregate data show engineeringand light industry to have been hardesthit, the survey indicatesa somewhatmixed response,with just under half engineeringfirms reportingconstant or increasingoutput. Further, in the case of decliningfirms, the output loss was considerablybelow the full sample mean. Nevertheless, the clear impression is of a common shock across branches and sectors with, however, fair dispersion in the size of the negative changes.
5: Aggregate and StructuralShocks
5.1: A Simple Taxonomy of Effects
60. We can describe the process in simple terms. The Russian economyhas been subject to negative shocks combiningboth demand and supply side effects. We ignorewhich dominatesat this stage. But given selectiveprice liberalization, some trade liberalizationand the collapseof prior domesticand regional trading arrangements,we can assume that we are observinga combinationof aggregateand
221So Wod BRk (1M28)and o . 30 structuralshocks, the disentanglingof which is far from straightforward. Aggregateshocks could have been channelledthrough changes in macroeconomic policy,such as a deflationof householddemand for firmoutput through negative income and wealth effects. Similarly,with a financialsystem separating householdand firm accounts,a restrictivecredit policy could likewiseinduce a fall in money and ultimately,output 30. On the supplyside, we have two obvious,possible channels. The firstis that originatingwith the collapseof part of intra-CISand CMEA trade,leading, in certaincases, to quantitative shortfalls.Output in certainactivities appears to have been constrainedby lack of inputsavailability. Second, are the possibleeffects associated with both changesto domesticadministered prices and resultingfrom trades with other CIS entities. A clear candidatewould be relativeenergy prices. Such a relativeprice effect would likely imparta common upward shift in firms' productioncosts and have aggregateeffects if therewas low dispersionin the ex ante ratioof energyto total costs acrossfirms 31 61. Structuralshocks would be linkedto shiftsin the patternof demandand competitivenesscontingent on a new price level and set of relativeprices and hence would generatedifferentiated sectoral outcomes with respectto real variables.Unlike the smallopen economycase, that new set of relativeprices could not be largelyimported through trade opening. Further,given partial price decontrol,we would expectreallocation shocks to be drivenprimarily by the exogenouslygiven reductionin demandfor particulargoods; military goods are a relevantcase. And indeedwe observesome evidenceof this in the first half of 1992. 62. Let us startwith shocksemanating from macroeconomic policy. Two obvious candidateswould be a fall in real monetarybalances and real wages. An objectiveof the RussianGovernment's programme in the firstpart of 1992 was a policyof restrictivecredit and tight money,alongside price liberalization. The price jump--consumerprices increased245X, producerprices 382X between December1991 and January1992--was indeed large. The consequenceswere various, some unintended.Nevertheless, it is evidentthat measuredreal wages did fall and that this was also true for households'real monetarybalances. The fall in measured real wages was further exaggerated by the structure of, and inefficiencies, in the financial system provoking widespread cash shortages and accumulationof wage arrearsby firms. As wages could only be paid using cash (nalichnyi)rather than non-cash (besnalichnyL) rubles, constraints on theformer couldhave directimplications for currentability to pay wages. Thus,a certain shareof nominalwage claimsover the secondhalf of 1991and firsthalf of 1992 were not satisfieddue to currencyshortages. By July 1992,shortly prior to the printingof largerdenomination bills, wage arrears attributed to cash shortages amountedto 220 billionroubles or roughly121 of currentbroad money stock. In certainenterprises this led to forcedborrowing from workers of the orderof 3/4
301 For hX agment,In tX cXIM ofP_lmID 1990,se Cao ndCorkeD (s). vI Tilb netso unreala view e thecomm lac of NW plw hoeod to eomuube egy.
31 monthswages; a significantnegative shock to currenthousehold income streams given currentmonthly inflation (Figure 11) 32. 63. Negative shocks to firms' output coming from household demand and governmentspending could be expectedto showup in part in inventorybehaviour. Indeed,it is generallyheld that firmshave accumulatedinventory over 1992. Table10 indicatesthat raw materialstocks increased in roughly60% of casesand finishedgoods in 70%. Strikingis the fact that finishedgoods inventory rose more for large firms than other categories. This compoundsthe very sharp reportedincrease in inventorythat occurredthrough 1991 33. Preliminary informationsuggests that in 1991 inventoryaccumulation was primarilyof raw materials;in 1992 of finished goods. Further, assuming that Kornai's propositionregarding excess inventories in socialisteconomies held ex ante 34, this would implyvery high levelsof inventoryaccumulation--both of finished goods and raw materials--relative,say, to OECD levels. Given negativereal interestrates, uncertaintywith respectto supplies,prices and government policy, firms continuedto accumulateinventory in the expectationof a combinationof bail-outs,windfalls via inflationas well as inertia in objectives.The implicationsof this intertemporalsubstitution effect for a genuineregime break with a bindingcredit constraint on firmswill likelybe extra-largecurrent output losses given excessex ante inventory.
5.2: CreditShocks and InterenterpriseBorrowing 64. Anticipationsof credittightening and upwardmovement of interestrates motivatedsharp increasesin interenterpriseborrowing. Arrears shifted from around 39 billion rubles at end-1991to near 3.1 trillionby June before decliningto c.600/650billion at end-Septemberfollowing an increasein the money stock to cover a share of arrears. It seems likelythat arrearsare currentlymounting again, given the expectationby firmsof futurede factobail- outs via this route35.
65. Schematically,the firstpart of 1992could be summarizedas an attemptto imposefiscal and monetaryrestraint. Measures of real money,narrow and broad, show significantcuts, particularly in January1992. Creditto the economywas likewisecut sharplyto not much over a quarterof the December1991 level. By July and August,however, we clearlyobserve the effectsof the CentralBank's decisionto jump the moneysupply and, in particular,raise the supplyof credit to firms. Creditto firms (Figure12) in July was over a thirdhigher in real termsthan in January1992 and on a risingtrend.
L Yan (99i)_te tfi butwe haveno god nomatio reg the Xsofer fim andther distrbui rnng warge-.
I RumlnGkmna dt for 1l dww knvtory cssof %for branc.
V/ See Kn (98O) a/ Su discon In Ganvfe (92b). Butnote ty mayno oer tak th fom ofarrears giv acthde monetu ste d te Cent DXL 32 66. This process is complex, combining elements of coordinatedbehaviour 36 with institutional particularities and problems directly associated with interrepublicanfinancial and trade flows. But for our purposes, the result that is importantis that demand for firms' output appears to have fallen less than might have been initially implied by the announced monetary stance of government. The increasein both measures of money and credit post-Julyreflects the validation by the Central Bank of the claims by firms implicit in their arrears to each other. Indeed, credits to commercial banks, primarily for covering arrears,have increasedsignificantly in real terms throughout1992 so that by mid-1992 a simultaneousand substantialexpansion of credit to both firms and banks had occurred.
67. If the combined response of firms to the announcedpolicy changes was to accumulatearrears and inventory,the obvious result would be a higher level of current output. Further, the presence of interenterprisearrears may partly explain the differentpaths of producer and consumer prices through 1992. The negative demand shock to householdsdominated that to firms, given the latter's ability to accumulate arrears.
J.3: The Financial System and the Wage Constraint
68. If we hypothesizethat, given the institutionalcontrols in Russian firms, the primary objective has been to meet current wage claims holding employment broadly constant (see Appendix 2) this ability was potentiallyconstrained not only by demand for firms' output but also by several institutionalfeatures 37. Until 1991 an effectivewall existed between cash and non-cash or beznalicbnyi rubles. The former were used to satisfywage claims, the latter constitutedthe bulk of transactionsbetween firms, banks and wholesalers. Monetary balances of firms thus comprised cash and non-cash rubles. By 1992 it is clear that the distinctionbetwen the two types of money was effectivelybroken. However,until the second half of the year most transactionsremained non-cash. For example, receivableshave largelybeen classifiedas non-cash or beznalichnyirubles. On the assumption that most firms believed (or are forced to believe by a credit queue) that arrears will be covered by the central authorities,their short-run objectiveremained for the first part of 1992 maximizationof cash income. This in turn could be decomposed into two aspects. The first was to trade or barter with other firms in ways that realized cash (ratherthan non-cash)rubles. Cash transactionsthat did not pass through the banking system were particularly attractive. Cash rubles held in banks remained subject to the usual deductions when used to pay wages. These deductionsamounted to between 30-60% on each cash ruble 38. Non-cash rubles could be translated into cash rubles but would in addition incur a higher bank commissioncharge. Thus, gross revenues reflected
i6eowrdinuwaonaefom an epi polta ege to goverment prmy articuleatdby te CWk Unin as we as troug de ao codint arisn from hbih inXte indutrialdstructur.
3/ We assume away fncia reses as being targ* wiped out by Wina an d the Janar pie junnp tn patcular.
; Theyhicde sal nuae and pe_ion dednt, Ieom ta (basicrte 12%;maln- rafe 40%);bank commo charge (O.5*%)and a bigbe prof tax whbew exceeed thenom.
33 in firms'monetary holdings in the banking systemor in liquiditywere the primarydeterminant of wages.This was furthercomplicated by the importanceof the secondfactor. Thiswas to have a relationshipwith a financialagency that was willing to lend and had access to cash supplies. Lendingby banks has remainedconditioned on a net balance criterionfo- financialviability; receivablesand liquidityhave simplyto exceeddebt ?J. Further,any firm's positivebalance in transactionswith other firms has not been discountedby probabilityof repayment.This in itselfmotivated the accumulationof arrears prior to the summerof 1992 40. Even so, it seemsprobable that the dominant factordetermining credit flows in the firsthalf of 1992 were availabilityof cash,given the rubleshortage, and personalconnections between firms and banks. The first constraintdrops in the secondhalf of the year and the permissive stanceof the CentralBank afterJuly furtherpromoted easy creditlines. 69. Noting the presenceof a strongbargaining role for insiderworkers in Russianfirms and the explicitdistinction over cash and non-cashrubles giving rise to non-trivialtransaction costs, we can assumethat the firmmaximizes the welfareof currentmembers subject to a cash-in-advanceconstraint. Holding employmentconstant, we can write;
Pwtptqtqt ; whereht - real monetarybalances; Pt - price of primarynon- labourinput, qt - quantityof primaryinput and wt - wages. The problemfor the firm is to securesufficient cash incometo meet currentwage claimsand coverany cashcharges for non-labourinputs. We assumethat the firm has no financialreserves and hence dependsexclusively on liquidityto finance currentactivity. Note that if non-cashruble payments continue in effectas normal(through I insured' arrears) and covermost of non-labour production costs, then the constrainteffectively becomes; Owt-6t We can now summarizeseveral ways in which the abilityof firms to satisfy current wage claims could have been compromised. But first, we should distinguishover two categoriesof firms. The first comprisesproducers, primarilyconsumer goods producers, who havegreater possibilities for unmediated accessto cash income,depending on combinationsof governmentpurchases and householddemand. The secondincludes intermediate or capitalgoods producers who have primarilytransacted in non-cashrubles, save for explicitallocations for payingwages. 70. The simplestcase would arise where wages were the sole item coveredby cash rubles.For groupone producers,dependent largely on householddemand, the first half of 1992 containeda major negativedemand shock. Real monetary balancesand wages fell unambiguouslyand by large apparentmagnitudes. We observe a very sharp contractionin retail sales and may presume some accumulationof finishedgoods inventories.As governmentspending was held relativelyin check over this period,we may also observea contractionin
pi M Ipom obvbi oer dumwb - beak-fn Mm, p _eoritaduet _nis nn
See lkhesi Rytnan (9) fa a fulerwdhnil 34 governmentpurchases 41. For group two firms,the key issuewould have been the abilityto shift intocash sales,say, circuitously by barterdeals or by direct exportcontracts. Given the frictionsassociated with inter-republicantrade we can assumethat this was not invariablyan easy option,while domesticbarter dealswould ultimatelybe subjectto similarnegative household demand effects. The pictureis obviouslycomplicated once one irntroducesquantity constraints on production--asthrough the inavailabilityof inputs--orof restrictionson financingproduction through non-cash rubles. 71. The observedrelative restraint in wage growthover the firsthalf of 1992 can be traced to firm level difficultiesin realizingcash income,holding emplchmentconstant. These difficultiescan be traced to the technical constrainton ruble supplyand to downwardpressure on currentrevenue streams arisingfrom a combinationof demandand supplyshocks. This view is supported by the firm levelresponses in the World Bank survey. When askedwhat were the main constraintsto wage increasesin 1991 and 1992,tax constraintsand sales revenuesboth accountedfor 40X of responsesfor 1991. By contrast,for 1992the sales revcnue constraintaccounted for nearly 70X of responses 42, The financial systemevidently amplified the negative shocks to householddemand. The constant employmentrule results from the control structureof firms. Once the distinctionover cash and non-cashrubles was almostcompletely collapsed in mid- 1992 43 and the technicalconstraint on cash was broken in July/August,the firm'sdecision boiled down to choiceover respectiveallocations to non-labour charges,wages and other costs. It seemslikely that insiderbargaining power coulddrive wages more rapidlyin thiscontext and we do indeedobserve more wage drift in the secondhalf of the year. Likewise,there is some evidence--for examplein the WorldBank firm sample--thatnon-taxed allowances for increasing benefitspayments were widelyused as a supplementaryprocedure for increasing wages^4. The underlyingprocess--given the perceivedfailure to enforcea hard budgetconstraint on firms over 1992--thuscombines two potentiallydisastrous attributes;employment stability and high nominalwage claims.While the latter may in part be containedin the governmentor administrativesector, firm's autonomy and atrophied competitionmay prove sufficientconditions for generalizedwage push.
5.4: StructuralShocks 72. Structuralshocks can be measuredby dispersionin employmentgrowth rates. For the periodJanuary 1992/January 1991 we note a rathersmall dispersion using All-Russiadata. There is a sharp increasein the standarddeviation and coefficientof variationof changesby branchwith respectto earlierperiods but
1I Te flBrdefic wa ogh 3%ad 5%of GDP r firds ondqartrsreseiely.
JI Th matceseaty wihfi' respwusto a quesionprarg the of bemarb Instht wage.Nerly 70% ndica avaab reor or curn nome mr_h;27% mde oqrp ameatinto dangesincomuer prs. g! Fs be shied _waverpossibe fo cah truao er dit or t;ro thebaking systqn
441Ca rubsup to 50 rd pe wrkr cudd be sedfor matera sacs orbeeft withou deducim.
35 little with regard to changes across sectors. This is confirmedby the World Bank and ILt datasetswhich show that, with the exceptionof food processingand construction,negative employmentchanges have converged across branches.
73. Relating employment changes to a crude competitivenessmeasure yields no predictable association. Employment changes are uncorrelatedwith short-run shadow profit rates (wherecapital and labour are priced at zero), so that using internationalprices as a crude measure of competitivenesswe observeno apparent structuralchange consistentwith those implicitprices Is. Indeed,the sector-- food processing--whichregisters massively negative profits at shadow prices experiencedthe least decline in employment. These results are to be largely expected given closed economy conditions.
74. A more obvious associationwould be between output and employmentchanges and domestic relative prices. Assuming reasonably strict proportionalityin movements of quantitativevariables, a simplistic equilibriumframework would predict a positive association between the former and relative prices as indicativeof a shift in the demand curve; a negative associationa shift in the supply curve. But preliminaryregressions relating output and employmentchanges as also output and employment to relative prices at branch and regional level provide rather ambiguous results. The output to employment link is largely absent although we find weak evidence of correlationin the changes when using regional data. More promisingis the associationof branch level output changes to relativeprices. Relating the change in branch output relative to industrial sector output with the change in branch relativeprices, we observe a clear and reasonablyrobust associationin the changes over the majority of branches. The associationis weakest for the energy, building materials and food branches but particularlytight for light and machine-buildingindustry; those experiencing the strongestrelative decline in output and relativeprices. This providessome limited evidence in favour of some structuralcomponent to the distributionof output losses but, equally, provides little evidence that this has translated systematicallyinto employment changes. Once again, we find evidence of major inertia in the system and considerable rigidity with respect to employment changes.
6: Benefits
75. Thus far, we have had no serious discussion of an importantcomponent of householdincome- -caoh and non-monetarybenefits. The emphasisto this point has been on readilyidentifiable wage payments to workers,whether by means of a base wage payment or one with bonus and dividend components. Yet, a full measure of effectivepay arrangementsin the Russian economyneed take account of the large variety of benefits provided and financedby firms and, to a lesser extent, by local authorities46. Accordingly,this section attempts to list and quantify
41 Se Seulk-ygoae andH (1992)for shdw poft ratecalt. 1't maato yielda 0.4rati of woddvau- aMdeto wod prke for all R_n tb sects. Ol oflad gs Isclse to unitywfit widevarieon acrossIntia bm.
461Theny a_s prvie befit bu we _goe ths InXs paper.
36 the benefitsprovided through these respective channels, in part as a preludeto estimatingthe likely implicationsof firms divestingthemselves of these functions.The discussionis couchedinitially in termsof aggregatedata and thendraws explicitly on the resultsof the firm-levelsurvey that we carriedout in November1992. 76. The importanceof benefitsin totaleffective remuneration has historically been somewhat under-valuedgiven the unwillingnessand difficultiesin attributingshadow prices to any of the goodsimparted by thisprocess. Evenso, the provisionof benefitshas longbeen consideredan integralfunction of the firmrather than, in many cases,local authorities.This allocationof functions was, if anything,strengthened by the perceivedneed to reducelabour turnover. Attachingworkers to firms throughbenefits was an explicitobjective. Firm providedhousing was a commonlyused instrument,at least for the larger entities.
6.1: InstitutionalIssues
77. We shoulddistinguish over cash and non-monetarybenefits. Let us start with the former. In 1991 it was estimatedthat expenditureon cash benefits accountedfor broadly 10 of GDP 47. For 1992 the estimateis somewhere around..... It is clear that pensionpayments comprise by far the greatest share of cash benefits. Paymentsare made from the PensionFund since 1991 (previouslyfrom the budget)and revenuesfor that fund are derivedfrom an employerpayroll contribution of 31.6X plus a 1% worker contribution48. The PensionFund also covers a range of familybenefits, including child care allowances,and theseare financedinstead by a budgetarytransfer. The Fundhas been in largesurplus over 1991and 1992. Contributionsare seen to accountfor between 75-90 of total revenueswith budgetarytransfers and bank loans in principlebeing done away with in the secondquarter of 1992. However,just under 20X of expendituresin 1991 and 1992.1were coveredby the republican budget. Using thesedata, we can note that real averagepensions are projected to have declinedby ...X over 1991 levels by the second quarter of 1992. 78. In addition,there are a range of other social insurancebenefits, ine.ludingsick pay and maternitybenefits. The latterare coveredby the Social InsuranceFund, whose revenuesare derivedfrom a payrollcontribution of 5.4Z and which is managedby the Federationof IndependentTrade Unions. Such benefits comprise roughly 10 of total cash benefits. Firms are responsible for making bloc payments for their employees to the Fund and are given full discretion in allocatingpayments. The Fundhas remained in surplusthrough the firsthalf of 1992 with financingentirely via contributions.
47/ Ia dbrim of cashbeeits in 1991was; Od AgeP1adm 52*; FamnIAlbwance 16%; Unempklyi Beefit 0.2%; Sdal Am_snc 3%;Sick Pay 8b; Srvlvo Pnsea 3*; D1ail Pend= 5%;Otber 14*. SeeBar (1992).
ForF a maredialed dsan o thesystem, types od pendom and features,see Barr 1992).
37 79. Two separateoff-budget Funds exist to covertransfers to poorergroups and henceprovide some incipientform of socialassistance. The Fund for the Social Supportof the Populationhas providedassistance for over 300,000people in 1992 and, in principle,has securedaccess to a share of privatizationrevenue proceeds. However, for the periodJanuary -September 1992 once-offrevenue infusions--fromrevaluations of inventoryand transfersfrom the former Communist Party--accountedfor almostthe entiretyof the Fund'srevenues. This obviously raisesthe issueof sustainablefinancing for such transfers49. The secondFund remainsunder the controlof the SupremeSoviet with an estimatedbudget of 10 billionrubles, but littleinformation is available. 80. Finally,we shouldnote the specificinstrument--the Employment Fund--set up to provideunemployment and relatedbenefits. The Fund is financedby a 1% employerpayroll contributionand budgetarytransfers. The latter'sshare appearsto have declinedsignificantly in 1992as the overallsurplus increased. However,this reflectsthe low currentlevel of unemploymentand is unlikelyto be sustainedfor much longer,particularly as payrollcontributions will fall as separationsaccelerate. The financingarangement is furthercomplicated by a lack of transparencyin revenueretention rights at differentlevels of the administrativesystem. The shareof unemploymentbenefits has Jumpedfrom under 7% in secondhalf 1991 to 15.5% over the first eight monthsof 1992. Other activelabour market programmes accounted for nearly 25% of expendituresin 1992.
6.2: Benefitsand Vages:Aggregate and RegionalFeatures 81. Table 13 providesinformation on the respectiveweights of cash wages (includingbonuses) in total income,where total incomefurther comprises cash assistance,dividends, firm provided benefits as well as localauthority provided benefits.The data are cumulativeand coveronly the firstfour months of 1992. As we shall see later,the numbersonly cover the value of cash benefitsand hence understatethe cost of all benefitsprovided by firms. Severalfeatures standout. 82. First,firm benefits account for at least6.3% of totalincome with local authoritybenefits- -primarily pension and compensationpayments- -accounting for over 2.5% of totalincome. Benefitsamounted over this periodto nearly9% of total income for Russia. Second, looking at the data with regional disaggregation,we find fairlylow dispersionin the sharesof benefitsto income and,again, little heterogeneity in paymentsschemes across the economy.Third, computingper capitawages, benefits and incomesand controllingfor exogenously determinedregional differentials or coefficientsas well as regionalwage supplements,we find low regionalvariation in either per capita wages or benefits. In other words,regional variations in total per capitawages are largelyexplained by the wage coefficients.Including benefits--firm and local authorityprovided- - increases the standard deviation and coefficient of variation only very slightly.
491 Not ad do ama ewinle obast exsepdIurestalp are matHedat 4.5 Mb rublesover te m perid, Jon-SepW1992.
38 83. We are also able to compare the share of cash benefits in total per capita income, disaggregatedover sector and branches of industry. The information relates to the period January - August 1992 and is cumulative. Aside from yielding a comparablefigure (6.11) for benefits as a share in total income,we can observe two other developments. First, the share of benefits declines or remains constant for the majority of sectors. Second, the standard deviation increases slightly between 1991 and Jan-Aug 1992 indicating greater variance. There is, for example, no positive correlationbetween the wage level and that of benefits. Indeed, for industry,with markedly higher than average wages, the share of benefits is at the national average. If anythingwe observe a very weak negative correlationbetween wages and benefits. Disaggregatingover branches of industry shows a sharp jump in the standard deviation from 1.8 to 3 between 1991 and 1992. There is an almost universal increase in the share of benefits in total per capita income but again no evidentassociation between the relative wage level and the benefits share.
6.3: Firm Benefits:Survey Evidence
84. Both the World Bank and ILO surveysreveal extensivesets -f firm provided benefits. A significantshare of workers have entitlementsto child care, paid vacations,housing and holiday homes, largely irrespectiveof status within the firm. Table 14 provides a simple listing of the range of benefits and their distributionover firm size classes. Aside from the range, there is a clear positive associationbetween firm size (as measuredby employment)and provision of benefits. Moreover, with the exception of firms in const.uctionand trade sectors, the scope of benefits was largely common across branches. While the resultsreported in Table 14 show no housingprovision by the largestfirms, this may not be generallytrue. The ILO dataset indicatesthat the largest firms are more likely to have a housing programme.Box 2 (below)provides a case study of a very large firm--TsAGI--witha large housingbenefits programme. Nevertheless, Table 14 suggests that the perception that firms exclusivelyprovide housing, health and child care facilitiesis incorrect. While this is unlikely to be true in locationswhere employment is concentratedin few firms, for our sample it appears that firm expenditureat local level was comparableor in excess of local authority or non-firm expendituresin 10/30X of cases.
85. The generalizedprovision of benefits has ensured that industrial sector workershave continuedto be relativelyprivileged with respectto non-industrial sector employees. Further, there has been little distinctionin terms of access to facilitiesby category of employee. Second, there has been fair convergence in the range of benefits offeredby industrialfirms. There are few differences in terms of sector and property form. Third, firm size primarily matters in terms of the range of benefitsoffered with- -particularly with respectto housing --the larger firms systematicallyproviding more facilities. Fourth, temporary workers rarely have had any entitlement to benefits so. Finally, the surveys indicate that in both 1991 and 1992 the wage and social development funds increasedrelative to the productionfund--a result that holds across most firm- size classes.
II/ Se St (1992)for mere deas. 39 6.4: Structureof LabourIncome
86. We are now in a positionto providea more comprehensivemeasure of labour income,factoring in bonuspayments, social fund paymentsand socialinsurance outlaysto wages net of taxes. Figures13 - 22 providethis informationbroken down by quarterand by firm size classfor the period1991.1 to 1992.3. Nominal valuesare used throughoutand are measuredin per capitaterms. Severalresults requireemphasis. First, there is fairvariability in the distributionof labour incomeover the fourprincipal components over time. The net wage sharedisplays considerableone quartervariation over all firm size classes,though is more stablewhen measured over the year.Social fund expendituresare similarlymarked by quitestrong intra-quarter variation but remainstable over the year. It is notablethat socialfund paymentscomprise in effectover a quarterof labour incomeacross the full sampleand that share is generallypositively correlated with firm size. This is a considerablyhigher figure than that indicatedby the aggregatedata used above,which refer only to cash payments. However,the presentnumbers themselves understate the value of non-cashbenefits by using onlycurrent financial flows and hence neglecting capital and depreciationcosts. Further,it is strikingto observethe very sharp increasein social fund allocationsin 1992 by the largestfirms. At 1992.3the socialfund comprised over half labour income for this category. This appears to confirm the perceptionthat some firms have avoidedwage controls in part by writing additionalwages throughbenefits. Indeed,it is evidentthat in responseto high monthlyprice changesfirms have soughtto compensateworkers not only by explicitlyassociating wage to pricechanges but alsoby increasingbenefits 51. 87. The substantialweight of benefitsexpenses in firm outlaysand in labour incomeraises the obviousquestion of how such expensescan be reducedfrom the side of the firmsand the bestmechanisms for translatingbenefits into explicit- -primarilycash--components of labour income. For the former,we observe relativelylimited current adjustment to benefits. In the World Bank survey barelya quarterof the samplehad suspendedany benefits;in 50X of thosecases thesewere housingrelated programmes. Of those firmswith housingprogrammes 60% were either intendingto transfertheir housingto local authoritiesif acceptedby the latter. Responsesby firmsand employeesto questionsregarding benefitsthat would need to be sacrificedin the futurein order of priority yieldedmixed results. However,housing benefits figured prominently with an equalnumber of firmsprepared to shed such benefitsfirst or last. Employees were unambiguousin givingpriority to the retentionof housingbenefits 52, It is evidentthat housingbenefiti generally constitute the largestdirect and implicitcost to firms--givenrent controls--andthat inverselythey provide the largestcurrent and anticipatedincome component for households,given housing shortagesand constraintson mobility.
WasWI/ kd as to themeom ofprotect workers agah prde eses, 60%of resmes Inte Wold Dak surveyIn Nvanov 1992Idcte an pt atemptat wagehIdn and40% kndentIoA and ened socaldor benf prog Lf A moredetiled nb ofthe wey res_s nd benft Inparrula is provid n Comma_er, Iam andYeousor (IM4) 40 Bnaefit. the Lang. YIrM: Tle Cse of TIs
TsAGI or the Central Aero and Bydrdynemics Xnstitute 1.a a revealing example of a large Soviet-type firm a locally dominant employer with extensive benefits program.s and considerable reliance on budgetery i#come. Situated tn Zhukovsky -- e 40 kil.otres outside of Moscow -- the firm concentrates on research and deelopment in the field of aerodynamics and aircraft durability. All Russian aircraft are tested sdlot i part desiged Qt Tahr. The company's workcorc exceds 10,000 in a city with a total population of vnder 30,000 end U ttle alternative sources of anpla7mnt. The high degree of vertical and horizontal integtation nacessarily implies a fairly beterogeneous worktorce with, bhkever, a core of highly skilled scientific ataff end a history of high relative wage payments. The latter ia no longer true as problems with suppiBes of materials from other parts of the CIS, a severe energy prioe shock (given the high energy intensity of its activity) and acme initial doubt over the viability of the Rusaian asircraft indwutry have undermined the fir's abiUty to pay workers and maintain outstanding obligations. The response to negative shocks to current output in 1992 was to effect a small forced reduction in the workiorce -- some 51 of the workforce was sepakated -- alongside use of incentives to induce further voluntary separations. A further 25X of the workforce -- largely unskilledor semi- skilled staff -- have been plsced on mintsum wages with little effective requirement to attend work. De facto, the firm provides social security to around a quarter of the labour force. At the same time, clear wage differentiation has.ccurred as individual units within the firm attempt to approprIate current income streams, particularly with respect to unit-specific outside work contracts. While too early to conclude, it appears that managers of viable units are attempting to induce some form- of de faoto privatisation. Amono other. consequences, this results in an unwillingness to support enterprise-level- fixed bigatioans. particularly with regard to social benefits. Firmprovided benefits are Very substantial, acoprising over 8S of total costs in 1991. They include provision of dhild care factLtias s11 U ndorgextens), S apartment housea (end a further 2 under oonstruction), two 14 and 14 fLoor apartment blocks completed in 1992, land for dache construction, a cinema, holiday home, `mdicaL centire, cantons and cafeterias with subsidized food as eLl as other benefits (at end-1991 TWI also provided workers with direct food distribution). The firm als provides amajor part of local, public tunctions. .t should be noted that firm provided housing rote are tstriLy raqulated (in oewihe- i92 being still 16 kop:cs pr- square metre) end that occupancy ishts coan be effectively dissociated frm curent empleyet in the firm. Not surprisingly, the resources of the Housing Fund are deploted ad incur substantial cross- subsidisation.. As pressur monts to reduce benefits costs, we observe a clear chenge In behaviour. Subsidies hae -een reduced and som benefits -- such as pta-dimissal aLlownce '- suspended. But the firm hs greatly accelerated housing construction and gives explicit priority to housing. The progr_s -is lagely residential and Snvloves som meaure of worker participation. While finoae -- mes primarily rom thUe firm's aesial davelapmeit budget, a sJiificant past of the Construction is dOe by outside construction frs. fi w bndy TsAG ownvaiployes. The latter are motivated by the access to a_rtments that this provides. Outside invetors provide 50 up-frot financing with rights t part c4 f stu d orOr OOvt pae. The profits are used to provide XI eT ployeeswith ancaedatiomu nd to finance additnal construction projects. Currently, s of 'aea sigle apartm:ent comrthe constructio costs o$- en additional four new apatoents. s*g maret profits ed tents from coomerOii G lettift (ot coverin 10S of the total housing stok) iUcreasingly crOas-euidiSeo ether f-ilevel benefits.
7: Conclusion 88. 1992 was certainly a turbulentyear in Russianhistory. Regimechanges were announcedand selectiveactions taken to validatethose announcements. But the balancesheet a year laterremains quite ambiguous. In the labourmarket it is true that open unemploymenthas been allowedto emerge. By the end of the year, the total number of jobseekerslikely exceededone millionbut this amountedto no more than 2X of the labourforce. By the same token,wage and employmentdecisions were widelyliberalized, despite vestigial controls over maximumwage increases.Some restraintson labourmobility were also removed. Changesin ownershiptitle and theparallel expansion of a privatesector--as yet
41 largelyconcentrated in services-- had importantimplications for thedistribution of employmentacross public and privatebranches. But the dataon the latterare limitedand mostlyunreliable. In caseswhere titlechange has been initiated, preliminaryevidence suggests little real change in behaviourwhether with respectto wage, employmentor outputdecisions. 89. These changesare clearlysubstantive, particularly given the initial conditions.They are also importantfor futureexpectations with respectto entitlementsto employmentand income. But, as thispaper has demonstrated,the changesremain restricted and the sourcesof theserestrictions imply potentially very significantcosts for the economyat large. In particular,the inability to breakthe softbudget constraint of statefirms- -or more realisticallyimpose a systematicand understoodset of constraintson the financingdemand of firms-- and hence of claims on the budget and/or banking system, combinedwith a continuingability of firmsto exercisemarket power alongsideweak controlson wage claims,provides an obviousunder-pinning to the stagflationaryoutcome that we presentlyobserve. 90. The paper has demonstratedthe presenceof considerableinertia with respectto employment.Employment transitions have been dominatedby continuing high levelsof quitsat the base of the skillstructure. Involuntary separations have been limitedeven in contextswhere capacityutilization has collapsed. Those involuntarilyseparated have largelybeen women and/or white collar workers. Firms have commonlyprovided de facto unemploymentcompensation to workersin the form of minimumwage paymentsand littleor no work requirement. There is evidenceof some increasein the rate and shareof laid-offworkers in inflowsto unemploymentin the laterpart of 1992but the overallimpression is that firmshave preferredto hoard labourin the lightof the uncertaintyover policyand firm or product-specificmarket prospects. 91. Wages have been more volatile. The price shock of January1992 clipped real statisticalwages back to mid-1991levels but comparisonsare of course extremelyproblematic given shortages.What is more open to interpretationis the evidentrebound through the laterparts of 1992. Thisarises through several channels.First, the institutional-cum-mechanicalconstraints on liquiditywere resolvedin mid-year. Largerdenomination bills and an explicitrelaxation of any tightmoney policyresulted in a major injectionof creditto firmsand the economyas a whole. Second,the cap on wage claims-- the minimumwage times four rule - - provedweak as firmseither elected to pay additionalprofit tax or wrotewage claimsinto side-paymentsand/or benefits deals. We can trace this behaviourto a rangeof factorsthat include worker control over decision-making, a perceivedhigh probabilityof continuingbailouts and the apparentneutrality of currentwage claimswith respectto privatisationpossibilities. At the same time,the very sharpacceleration in monthlychanges to producerprices for large producerspoints to, at best, a stablepricing rule facilitatingnominal claims, at worstan increasein themark-up which consequent validation of increasedwage claims. Third,we begin to observesome increaseddifferentiation in wages acrossskills and acrossregion. But again we find evidenceof considerable inertiain the systemconstraining the sizeof relativedepartures from the prior tariffwage structure.
42 92. The overallconclusion is that whilewages initiallybore almostall the adjustmentcosts, we observefar strongersigns of wagepush overthe secondhalf of 1992. Employmentadjustments begin to increasein the latterpart of theyear but froma stilllow base. But it is also truethat job lossesare significantly offsetby hiresand thatmuch of the churningoccurring through the labourmarket appearsto be throughvoluntary separations and transitionsover jobs. This may in part be linkedto the processof wage differentiationthat has begun and to the relativelybuoyant demand for labourposted by firms. The latterphenomenon canbe tracednot simplyto institutionalinertia (posted vacancies differ widely from nominalvacancies) but to semi-bindingshort run constraintson production exercisedby technologyand the associatedlevel and structureof labourdemand. As we write, the combinationof the above factorshas activelypromoted the emergenceof a price-wagespiral. The effectivereversal of earlierannounced reforms -- particularlywith regard to the monetary stance -- and by workers' evidentintention of linkingwage claimsto price changeshas been the primary fuel. The spiralis not a functionof trade union power in the conventional sense -- most unions remain weak and fragmented -- but it does reflect the controlstructure and decision-makingrules characterizingthe bulk of Russian firms. Lax monetarypolicy and decentralizedinsider power, giving rise to relativeemployment stability and real wage rigidity,are powerfulingredients for a hyper-inflation. Appendix1 The RussianFirm Post-1988:A Framework 93. We firstprovide a short discussionof the practicalderivation of wages adoptedby the great majorityof Russianfirms with the EnterpriseLaw of 1988 and then associateit with a model of bargainingbetween managers and workersin a firm where the incentivestructure is given from outside. 94. Two sourcesof financingfor wages existed;the wage fund and the bonus fund. At this stage,we excludenon-monetary benefits channelled through the socialdevelopment fund. Considerthe wage fund first. Thiswas givenby a norm relatedmechanically to the firm'sgross revenues(R), so that; W= {R. The firm'sgross profitwas derivednet of non-labourcosts (NC),the wage fund (W) and depreciation(8K); Ps - Rs - NC - W - AK Gross profitwas adjusteddownwards by a normativecapital fee (OK), a unit 'abourtax (oN) and interestpayments (r) to the bankingsystem; this yielded accountingprofit; pa _P - aN - pK - r Fromaccounting profit, transfers were made to localand statebudgets and to the originatingministry (T). Residualprofit was definedas; pI - pa -T The bonus fund -- as also the social development fund (benefits) and the productiondevelopment fund -- was then centredon residualprofits, again accordingto pre-givennorms. 95. The formulafor both wage and bonus funds evidentlyintroduces a direct link to firm performanceand providesa strong profit-sharingcomponent to aggregate wage determination. This is reminiscent of the labour managed firm
43 where average earnings,y, comprise a notional wage per worker, w, and a share of profit (residualprofit, in this instance); y - w +OPr / L While superficiallythis suggests that the basic maximand of the labour managed firm might apply to the Russian firm pre-1992, given exogenouslyset employment it would not be appropriate to view average per caput earnings as a choice variable.
96. An alternative way of couching the problem is as follows. The firm comprises two sets of agents, workers and managers. It operates with an exogenously given incentive structure imposed from the centre. Similarly employmentis exogenouslygiven (n). Prices are normalizedto one. The workers' utility function is additive and is a negative function of effort (E); U, - u(E) + v(W), where u'(E) 97. The Manager's utility is a function of the pay he receives (PI)with that pay being a fraction (a2) of the firm's profit (PEf(n) - Wn) and a fraction (aO) of the value of output (PEf(n)). PI - a 2 (PEf(n)-Wn) + a 3PEf(n) Simplifying; PI - a,PEf(n) - a2Wn, where al -02 + a3. The Manager's utility can be written as; U. - a 1PEf(n) - a2 Wn so the manager'spay is positivelyrelated to the value of output and negatively to the total wage bill. This latter feature reflects the fact that the central authoritygives priority to output and eliminationof excess demand and uses the parametersa, and a2 to achieve those objectives. The central agency's utility function reads; 2 2 U, - -_p[ED]- p2[y_y*1 , where Y=output, Y*=plannedoutput and ED (excess demand)- PI - (l-a1)PEf(n) + (l+a2)Wn, (PI-investment). Departuresfrom optimal values of output decrease utility quadratically. The instrumentsused to target zero excess demand and convergence to planned output are the incentive parameters (a, and a2) conditionedon the manager'spay. 98. Wages and effort are the outcomeof a bargainbetween workers and managers. The Nash solution is; 1 Naxwz ((a1PEf(n) - a2Wn - UH]O [u(E)+v(W)- Uw] -O) where O is the bargainingpower parameter. In a cooperativesetting, it can be shownnot only that the centralagency has a high degree of autonomy in achieving its objectivesbut that increasingthe output incentive (a,)will imply higher wages paid to workers to motivate ; that an increase in a2 - - the wage bill tax or penalty the central agency can impose if too-high wages are granted -- will lower wages 53. Note that this holds for given employment. However, allowing A,Mm _W s for a changeIn the Nash b _rgmfgwage(w) asa fmudnof changes In he exogeto varlabs are; w f-(wa,ar, P, a, U,, U.) 44 somemeasure of naturalwastage, the obviousintuition would be that a wage bill tax would motivatelabour shedding; a processwhich is clearlyidentifiable in the secondhalf of the 1980s (see Section2). Further,an increasein the Worker's threatpoint will raise wages and vice versa in the case of the Manager'sthreat point increasing. 99. The settingabove assumes a closedeconomy and fixedprices. The framework is cooperative and allows the external agent -- the central authority -- to achieveits goalsby use of the two linearlyindependent instruments a1 and a2. It capturesthe broad featuresof a systemin which the incentivestructure is determinedeffectively outside the firm and in broad line with centrallyset objectives.As such it representsmore an idealizedmodel for the firm under centralplanning. But it readilyallows for extensionto a less cooperative settingin which,for example,Workers and Managerscooperate with each other againstthe centralauthority and where the latter'soutput and/or excess demand goals can be violatedby the formers'behaviour. 100. Finally,the maximandabove has been written in terms of wages and/or effort with employment exogenouslygiven. While this remains -- as we show in Section2 -- a reasonablyapt characterisationof the Russianenvironment until the present,there are at leastsigns that employmentshould now be modelledas an endogenousvariable and hence figuredirectly in the utilityfunction. Appendix2 A SimpleModel of EmploymentStability and Wage Flexibility 101. We focuson stylizinga firm characterizedby a high degreeof bargaining power on the part of incumbentworkers and where job lossescan be tolerated. Moreover,we assumethat wages are de factoset at a firm level,though this need not be inconsistentwith associationto an externallygenerated wage structure, such as tariffwages. Workersare representedin the firmby a work collective. That collectiveeffectively determines wages with employmentthen set to be consistentwith thatwage demand. We considerwhat happens when the firm is hit by a negativeproduct market shock; in this case to demandfor its output. 102. The work collectivemaximizes the expectedutility of its representative workerover employmentat the goingwage (w) or outsideincome (r), given either by benefitsor a minimumwage. Eu, - L/Mu(w) + (1-L/M)u(r);if L 45 dominanceof collectivesin Russianfirms. This is a zero profitconstraint where; qF(L) - wM 0 ; i is a technologicalshock. We note that the zero profitpoint will be at the intersectionof the average productof labourand the marginalproduct of labourcurves. Any wage demand above this point would inducethe closureof the firm 54. The firm being in effectworker controlled, there is full informationregarding the zero profit level. As Figure2.2 shows,the intersectionof themarginal and averagerevenue productcurves is also the pointof tangencyfor the union'sindifference curve. Now we introducea negativedemand shock on the product side and see its implicationsfor the zero profitcondition. We relatethe averageproduct of labourcurve, a(l), to; a(l)- p(f(l)/l)-g(f(l))f(l)/l where; p- productprice; q-output; p=g(q)- the demandfunction and q-f(l)-production function. The zero profitpoint on the labourdemand curve satisfies; w - a(l) 0 a'(l) The elasticityof productdemand curve (4qp)can be writtenas; t -1 _ 1 - f(l)/(f' ()/1) If the elasticityof productdemand is un;hangedat the zero profitpoint then employmentwill alsobe unchangedand the Ldjustmentto the negativedemand shock occursentirely on the wage side. Empl pment is held constantat m*. ff We are obviodyfIng thecnu Iu ofthe'soft bmgetcosrin'. See ,CComdCeI and Stair (1991). 46 Bibliography Adam, Jan. 1980. Wage Control and Inflationin the Soviet Bloc Countries. New York, Praeger Aslund,Anders. 1992. "Prospectsfor a SuccessfulChange of EconomicSystem in Russia". Stockholm,mimeo Barr, Nicholas. 1992. "The Russian Cash Benefits System", World Bank, mimeo Blanchard, Olivier and Peter Diamond. 1989. "The Beveridge Curve". Brookings Papers on Economic Activity, 1 Calvo, Guillermo and Fabrizio Coricelli. 1992. "StagflationaryEffects of StabilizationPrograms in Reforming Socialist Economies: Enterprise-Sidevs. Household-SideFactors", in, World Bank Economic Review, 6,1 Commander,Simon, and Ruslan Yemtsov. 1992. "Prices,Wages and Employment in Russia", World Bank and Moscow State University,mimeo Commander, Simon, Leonid Liberman and Ruslan Yemtsov. 1993a forthcoming. "The Behaviourof Russian Firms in 1991 and 1992: Evidencefrom a Survey". World Bank, mimeo Commander,Simon, Fabrizio Coricelliand Karsten Staehr. 1992. "Wages and Employment in the Transition to a Market Economy", in, Central and Eastern EuroRe: Roads to Growth, edited by G. Winckler. InternationalMonetary Fund and Austrian National Bank, WashingtonDC Granville,Brigitte. 1992a. "Priceand CurrencyReform in Russia and CIS". Royal Institute of International Affairs Special Paper, June Granville, Brigitte. 1992b. "Russian Economic Reform in 1992: The Threat to Stabilization".Moscow, mimeo Ickes, Barry and Randi Ryterman. 1992. "Inter-enterpriseArrears in Russia', InternationalMonetary Fund and World Bank, mimeo Oxenstierna,Suzanne. 1990. From Labour Shortafe to Unemploynent ? The Soviet Labour Market in the 1980s. Stockholm Standing, Guy. 1992. "EmploymentDynamics of Russian Industry". Paper presented to ILO Conference on Employment Restructuring in Russian Industry. mimeo Standing, Guy. 1992. "IndustrialWages, Payment Systems and Benefits". Paper presented to ILO Conference on Employment Restructuring in Russian Industry. mimeo Standing,Guy. 1992. "The Russian Labour FlexibilitySurvey: Content and Structure". Paper presented to ILO Conference on Employment Restructuringin Russian Industry. mimeo Standing, Guy. 1992. "Changes in the OccupationalStructure of Industrial Employment". Paper presented to ILO Conference on EmploymentRestructuring in Russian Industry. mimeo World Bank. 1992. Russian Economic Reform: Crossing the Threshold of Structural Change. Washington DC Yasin, Evgeny. 1992. "Market Reform and the Future of the Russian Economy". Paper prepared for Rand-HooverSymposium, Washington DC, November. mimeo 47 Table 2 : Regional Data (January - July/August1992: January 92-100) Region Nominal Total Industrial Unemploy. Unemploy. Wages Employ. Employment Broad Narrow Vacaucies North 355.4 98.8 99 160.8 215.4 86.2 NW 325.7 93.3 95.9 237.8 318.8 43.9 Centre 352.1 96.6 99.1 206.6 330.8 65.1 V-Viatsky 407,8 98.7 99.4 224.5 942.6 60.3 C.Chernozem464 102.6 99 200.2 573.8 51.1 Povolzhsk 431.9 100.7 99.3 153.8 597.5 58.2 N.Caucasus 325.9 100.9 98.4 186.1 472.9 53.4 Ural 396 97.7 100 155.3 823.3 54.6 W.Siberia 385.6 99 100.9 203.4 802.9 59.8 E.Siberia 302.4 100.4 102.1 163.5 431.7 71.3 Far East 392 97.5 100 174.6 473.4 83.6 Kaliningrad408.8 96.1 94.7 212.8 213.7 70.8 RUSSIA 373.8 98.5 99.5 186.7 426.4 62.0 48 Table 10: Responsesby Russian Firms to Changes in tey Variables;January - June 1992 (X of responsesby size class and response) Firm Employment Size <200 201-500 501-1000 >1001 Output + 31 22 22 15 18 22 16 21 51 56 62 64 Raw Material Stocks + 55 55 64 61 18 17 11 6 27 28 25 33 Finished Goods Stocks + 60 69 70 78 27 15 13 8 13 16 17 14 Employment + 16 19 21 29 40 25 20 14 44 56 59 57 Demand + 14 13 20 11 - 33 22 24 18 53 65 56 71 Imports + 20 20 20 18 30 60 27 21 50 20 53 61 Exports + 0 20 6 25 67 53 50 30 33 27 44 45 Source:Russian Goskomstat 49 Table 3: Wage Levels, 1991.3Q- 1992.3Q: Moscow Region By Firm Size and Type of Employee: Monthly Wages (roubles)1991 and 1992 Third Quarters Firm Size (employment) 1 2 3 4 5 91.3 92.3 91.3 92.3 91.3 92.3 91.3 92.3 91.3 92.3 Vice- Director 826 8192 1175 10583 1209 13581 1186 13766 1058 16896 ITR 803 6773 904 5559 791 7952 796 8001 546 6533 Professional Skilled 903 8070 808 6927 877 9410 738 8566 681 9151 Workers Unskilled 539 5897 524 4600 400 3591 275 3354 299 4207 Workers Firm Size Categories:1- 80-350; 2- 351-700; 3- 701-900; 4- 901-1500; 53 >1501 employees Source: World Bank Survey Table 4: Real StatisticalWage Index;by Firm Size and Type of Work; (1991.3-100) Firm Size 1 2 3 4 5 Vice- Director 64 58 72 75 103 ITR 54 40 65 65 77 Professional Skilled 58 55 69 75 87 Workers Unskilled 70 57 58 79 91 Workers Source: World Bank Survey 50 Table 5: EmploymentChanges over 1992, 3rd Quarter Separation,Hiring and Vacancy Rates (X of labour force) Firm Size 1 2 3 4 5 Separations 10.5 10.0 9.5 5.7 7.8 Hires 7.2 3.7 4.8 2.5 9.9 Net Separations 3.7 7.0 5.2 3.3 -2.2 Expected Separ- ations in 92.4 2.4 2.4 2.3 0.5 0.5 Vacancies 1.5 3.1 1.0 2.2 1.9 Posted Vacancy 0.1 1.0 0.7 0.9 1.1 Source: World Bank Survey Table 6: Job Separationsby Type (X of total separations) Firm Size 1 2 3 4 5 Quits 62.2 52.3 52.9 43.4 52.7 Disciplinary 8.5 3.2 3.4 7.7 4.7 Employment Reduction 10.4 31.3 10.7 37.1 3.1 Other 19.9 13.2 33.0 11.8 39.5 Source: World Bank Survey 51 Table 11 Physical Output in 1992: Direction of Change Decline Constant Increase No reply TOTAL BY EMPL. SIZE * 1 2 6 2 0 10 2 6 1 3 1 11 3 7 3 0 0 10 4 6 0 1 0 7 4 2 1 0 0 3 TOTAL 23 11 6 1 41 Table 12 Physical Output in 1992: Directionof Change by Branch Decline Constant Increase No reply TOTAL BY BRANCH Metall. 4 0 0 0 4 Chemic. 1 0 1 0 2 Machin. 3 2 2 1 8 Bld.Natr. 3 1 0 0 4 ______Light 4 2 1 0 7 Food 2 0 0 0 2 L______Agro 2 0 0 0 2 Constr. 1 4 0 0 5 Trade 1 1 1 0 3 Science 2 1 1 0 4 TOTAL 23 11 6 1 41 Source: World Bank Survey _ 52 Table 13: Regional Data on Wage and Cash Benefits Shares; January - April 1992 (sharesof total income) Region Wage Bill Firm Benefits Additional Local Authority Benefits Benefits Total RUSSIA 91.1 6.3 2.6 8.9 North 93.2 4.2 2.6 6.8 NW 86.4 7.8 7.8 15.6 Centre 88.7 7.8 3.5 11.3 V-Viatsky 91.5 6.5 2.0 8.5 C. Chernozem 91.3 6.6 2.1 8.7 Povol 90.8 6.9 2.3 9.2 N.Caucasus 89.7 6.5 3.8 10.3 Urals 92.8 6.1 1.1 7.2 W.Siberia 92.5 6.1 1.4 7.5 E.Siberia 93.8 5.0 1.2 6.2 Far East 90.3 5.3 4.4 9.7 Kaliningrad 89.7 7.6 2.7 10.3 Std Dev. 2.01 1.07 1.77 2.42 53 Table 14: Denefits -- Type and Availability by Fr SUse, November 1992 --irm Bis --- 1 2 3 4 5 SAMPLE SIZE 10 11 10 7 3 Housing (permanent) 2 5 8 5 0 Housing (temp) 1 3 4 3 0 Kindergarten 1 5 8 6 2 Land for dachas 3 7 7 6 3 Canteen (subsid) 4 6 8 7 2 Polyclinicsaccess 2 2 5 5 2 Community House 0 1 3 3 0 Fitness facilities 0 0 1 2 0 Sanatorium 0 6 4 4 1 Food Store with 8 9 7 6 2 subsidiz. prices Sick Pay 0 0 3 2 1 Housing rents 0 0 0 1 0 assistance Other forus of 0 6 4 4 0 housing help Transport allowance 3 3 1 3 2 Maternity allowance 10 11 10 7 2 Child Care allowance 10 11 9 7 3 Paid Vacation 4 8 7 3 0 Pre-dismissalallow. 8 10 8 4 3 Sanatoriumvouchers 8 10 9 6 3 Source: World Bank survey 54 The Behaviour of Russian Firms in 1992 Evidence from a Survey Simon Commander, Leonid Liberman, Cecilia Ugaz and Ruslan Yemtsov 55 The World Bank, Institute for Economic Forecasting, Russian Academy of Sciences and Moscow State University SIl Mm thumk lSmIt Mkgam hJi Kh_m fr 1u tdu L Mmlw k do_ brhd to a cpunn tut - 'Wag ad baji.dusdd wdi Reashl? - by l.sm m wM*is mUWbsl 'mud5 55 Introduction 104. At the outset of 1992 much was made of the cbange in regime that was to be associatedwith price liberalization,reform of property rights and a new-found intoleranceby the monetary and fiscal systems to financial indiscipline. The heart of these changeshad necessarilyto be the enterprisesector - - the bedrock of the plannedeconomy. By early 1993, however, aggregatedata indicatethat the regimebreak was less evidentthan might have expected,that price liberalization had translatedinto persistentand high increasesin monthly inflationand that structuralchanges remained restricted. Moreover,we have shown elsewhere that despite very significant negative shocks to output over 1992, changes to employment and hence to unemployment have been less than might have been predicted5s. Further, the shift in the stance of the centralmonetary authority in mid-1992validated the accumulationof large inter-enterprisearrears that had been accumulatedthrough the first half of 1992 and, at the same time, sent a qualitativelydifferent signal to firms regardingthe viabilityof their claims - - implicit and explicit -- on the budget and/or banking system. 105. The response of Russian firms to the price shocks of 1992 and to the large and, in some cases, random disturbancestransmitted through the combinationof trade and politicalchanges is clearlyof key importance. In particular,we need to know how those shocks have distributedthemselves with respectto branches and the subsequent actions taken by firms in response to those shocks. This, however, is easier said than done. One cost of disintegrationhas been considerabledisruption of the statisticalsystem and of the reportingprotocols that characterisedearlier practice. One consequencehas been the need to rely on new data collectionprimarily centred on the firm. 106. This paper providesan extendeddiscussion of firm behaviourwith particular emphasis on the associationsbetween output, financialperformance and wage and employmentdecisions. In addition,we provide a first attemptat systematically quantifying the values and costs of non-monetarywage components. The main objective of the paper is thus to get some empirical handle on a fluid and diverse set of changes in the environment facing firms and structuring their decision rules. 1: The Survey 107. The paper is largely organizedaround the results from a small survey of 41 firms that was carried out in and around Moscow in the last two weeks of November 1992. The firms were randomlyselected and covered ten branches,including trade and services. Appendix Tables 1 and 2 give the breakdownof the sample by size - - in terms of employmer.~and assets, as well as by branch and property type. As regards location, just over 50X of the sample were situated within Moscow, a further 16 firms in Moscow oblast and 3 in other oblasts. All were however in fairly close proximity to Moscow. The bulk of the sample were industrialfirms with an averagecurrent labour force of over 803. The legal status of the sample was reasonably diverse. If we include state property currently rented by Si C.mm.dw, Ubman ad Yants OM) 56 collectivesalongside collectives and joint stock entitieswe can see that 11 or over 25X of the sample were, loosely defined, private firms. 108. While the sample size is small and localized, the survey results at the least provide some cross-checkon the informationgiven by more aggregatedata. Comparing the salient 1991 informationfor the industrial firms in our sample with a Goskomstat survey of over 26,000 Russian industrialenterprises, we find that our sample is, however, stronglybiassed toward larger firms. While we find fair correspondencewith respect to nominal wages and employment levels, for sales revenues and profits, the World Bank averages are significantlydifferent from the Goskomstatfirms. Revenues were over 80X higher for the smallestfirms with less than 200 employeesbut were 30% lower for the other two categories. For gross profits, the World Bank survey reported consistentlyhigher average levels across all size classes. This obviously suggests the dangers of over- generalizingfrom the sample. Simply put, the universewe have surveyed appears likely to be characterizedby larger firms with higher averagerevenues and gross profits. 109. Nevertheless, the survey allors us to get a richer handle on emerging changes to important decision rules with respect to wages, employment and benefits that the aggregatedata does not capture. Finally,we should note that from aggregatedata it is clear that the Moscow regionhas been subjectto higher than average employmentcontraction over 1992; the sample may then reflect some of the upward bias in separationsthat appears characteristicof the region as a whole. 2: Output Changes 110. Aggregatedata for Russia indicatethat industrialoutput declinedby around 201 in 1992. The distributionof those losses by branch and region is far from uniformbut the evidencebroadly points to a significantand generalizednegative shock to output dominated primarily by an aggregate rather than a sectoral process. Nevertheless,there are some signs that sectoralor reallocationshocks have been present. Relating relative producer price changes to relativeoutput changes we observe a reasonably robust and positive correlationover 1992. 111. The heterogeneityof the firms covered in the survey and difficultiesin securingaccurate estimatesof either value or volume indicatorsresulted in the output questionsbeing couched in terms of directionof change and broad physical magnitude. As Tables 1 and 2 indicate the picture is fairly mixed across firm size classes and branch. For the industrialfirms, the weight is clearlyon the negative side with nearly 601 reportingdeclining output. For firms with falling output the unweightedmean projectionfor the year was 20/25X with roughlyhalf the firms reportingover that range. Even so, the picture is not quite as bleak as one might have initially imagined. 151 of respondents reported output increases and the remaining 251 projected constant output over 1992. While aggregatedata show etngineeringand light industryto have been hardest hit, the survey shows just under half the engineering firms reporting constant or increasingoutput. Moreover for those firms with output losses, the decline was significantlyunder the sample mean. 57 112. The sourceof the shocksto outputcan be variouslytraced. In 351 of cases where the outputchange was negativefirms reportedthe primarysource of the shock as irregularityof input supplies.This source does not seem to be systematicallyrelated to disruptionsin intra-CISor ex-CMEAtrade. Firmswith significantoutput declines were primarily served by localsubcontractors. In the sameproportion, firms reported product demand shocks to be the principalfactor -- this dominated,for example,the responsesof engineeringfirms. But in the majorityof cases,firms reported simultaneous input supply and productdemand shocks. Suspensionof subsidieswas evidentlya lesserfactor accounting for only 13% of responses.Not surprisingly,we find both demandsupply shocks to be present,even if attributionof componentsremains problematic. 3: FinAncialPerformance 113. The performanceof Russianfirms over 1992 is difficultto gauge at all accurately;in part becauseof accountingprocedures. Even so, the obvious impressiongiven by the path of interenterprisearrears and the sets of claims on the budget for preferentialtreatment, suggest that a significantshare of firmshave encounteredfinancial difficulties over 1992. Aggregatedata show, for example,that while over 55 of Russianfirms experienced a fall in output over the first half of 1992, between 60/70X increasedinput and output inventoriesover the sameperiod and roughlycomparable shares suffered negative demandshocks. The coincidenceof deflationin householddemand for firm output and by dislocationto inter-firmand inter-CIStransactions could, at first approximation,be expectedto resultin adversebalance sheet developments for many firms. However,we also know of course that the transitionfrom a suppliers'to a buyers' market -- to use Kornai's term -- requires more than a relaxationof shortages;it presumablyrequires some basic levelof competition in the provisionof goods and services. This assumptionis ratherproblematic in the Russiancontext where we observerelatively high levelsof concentration and marketpower. Indeed,in the surveyit is instructiveto note that 601 of firms were eithermonopolists or oligopolists,here definedas between2-5 producers.Competitive conditions only dominated in lightindustry and in other expectedareas, such as tradeand services. 114. Giventhe largedisturbances to the price leveland turbulencein relative prices,we wouldexpect considerable volatility in profitsof firmsand a higher measureof randomnessin their distributionover branches. That, for example, was the evidentoutcome in Polandin the firstyear of price liberalizationover 1990 and we might expectsuch randomeffects to be amplifiedin the presenceof differentialconstraints on price setting and the insignificanttrade liberalizationthat has occurredin Russia57. And it is indeedthe outcomewe appearto observeover 1992. This resultobviously cautions against making any firm predictionsregarding the futurepath of profitsor theirdistribution. 115. Figures1 & 2 point to fair persistencein both sales and gross profits. At branchlevel, we find that revenuesand gross profitsare generallylittle shiftedfrom early 1991 levels,even if thereis greaterintra-quarter variation f5& soPno atdau( 58 in 1992. For firmsclassified by marketpower, it is strikingto observethe divergentmovements in realrevenues and profitsfor competitiveas againstfirms with marketpower. Competitivefirms sufferan unambiguousnegative shock to grossprofits and salesover 1992 (seeFigure 3). 116. We find some incressein the samplevariance over time for monopolists' gross profitsbut lookingat variancein branch level gross profitsalthough there are erraticmovements we find no evidenceof widespreadand increasing variance,as measuredby the coefficientof variation. Even so there is considerabledispersion in the level of profitsat the firm level. Thus, at first inspectionwe find no evidenceof a generalizedsales and profitsslump among the sample. There is one exception-- the largelybudget-financed 'scientific'firms whose revenuesindeed turn stronglynegative in real terms, particularlyin the firsthalf of 1992when the explicitstance of the government was to reducebudgetary flows to firms. But the bulk of the discussionbelow centreson the industrialand trade firms in the survey. 117. In principle,the net profit positionof firms ought to provide some indicationof retainedprofits and hence of the implicittrade-off between currentallocations and the longerterm viabilityof the firm. This is more complicatedin the Russian context as the allocationrule governing the distributionof grossprofits has been qualitativelydifferent than in a market- based system. 118. The net profitposition of firmsreflects the distributionof grossprofits over the respectivefunds, profit tax and interestpayments. In general,firms are expectedto assignall gross profitsbut can hold back a certainshare. Tables3 suggeststhat in 1992 the dispersionin net profitswas considerably greaterthan for grossprofits. Indeed,over a quarterof the sampleregistered negativenet profitsin at least two of the three reportedquarters of 1992. However,almost all these firms reportednegative profits through 1991 which obviouslyweakens the argumentthat negative profit shocks were loadedinto 1992. Further,given uncertaintyover rulesregarding investment allocations, profit tax rates and self-financingrequirements as well as stronglynegative real interestrates, it is not surprisingto find firmsassigning more than current gross profits. This can reflecta drawingdown of financialreserves or commitmentswhich firms seek to coverultimately through financing by thebanking system. 119. We can also note the generalstability of the sharesaccounted for by the respectivefunds in the allocationof grossprofits (Figure 4). In particular, it is strikingto note the resilienceof investmentand technicaldevelopment fund allocations.While we cannotsatisfactorily capture the end-useof fund expenditures,we do not observeany notableshifting off resourcestowards bonus paymentsor the socialfund, where the translationinto currentwages would be easier. 3.1: MarketPower 59 120.Market power can obviously trace itself into both output and price decisions.High concentration-n Russian industry and the maintenanceof cost- plus pricingrules are occasionallycited as explainingthe inflationin producer prices over 1992. Figure 5 plots the change in aggregateproducer prices relativeto retail prices. The sharperacceleration in the former is very evident. How can this be explained? First,we shouldnote that the sample generatingthe data plottedin Figure5 is both small and restrictedto larger firmsin each of the sampledbranches. We are thereforeobserving the behaviour of producerprices for largefirms in the Russianeconomy; a possibleindication of the pricingrule pursuedby large enterprises. 121. As revealing,perhaps, is the light that the surveysheds on the implicit differentialpricing behaviour of firmswhen classifiedin termsof marketpower. For 32 firms where we have informationon both changesin outputvolume and changesin real profitswe are able to break this down in terms of market attributes,classifying in termsof monopolists,few producersand competitive firms58. The most strikingresult is that in nearlyhalf the caseswhere firms were eithermonopolists or one amongfew producers,negative shocks to outputin 1992 were systematicallyand inverselyassociated with positivechanges to profitsover the same referenceperiod. The relationholds most stronglyfor firmsin the machine-buildingand metallurgybranches. By contrast,competitive firms -- particularlyin light industry -- display a more conventionalpositive co-movementin outputand profits. For almostall competitivefirms, we observe negativechanges in outputassociated with negativechanges to profits. The obviousconclusion to be drawn is that firms with marketpower have adjusted outputprices with the intentionof maintainingor increasingtheir mark-up. Figures6 & 7 providescatters relating output and grossprofit changes. For firmswith marketpower it is clear that negativeshocks to outputhave mostly been associatedwith positivechanges in grossprofits. This does not hold for competitivefirms. 122. The firm level informationthus seemsconsistent with the path of the more aggregatedproducer price series available for branchesat a Russianlevel. The implicationis thatwe are continuingto observethe behaviourof de factoprice settersable to controldirectly gross value added. 3.2: Inter-enterpriseArrears 123. A well noted featureof 1992 and, it now appears,also of early 1993 has been the accumulationof large inter-firmarrears. The processwas motivatedby a combinationof factors,including institutional factors -- such as the neutralityof payablesand receivableswith respectto currentborrowing from the bankingsystem -- but is generallytraced to the initialnegative shocks to balancesheets arising from selectiveliberalization S9. We can also add that the attributionof arrears financing has had clear political economy Weexw e the adwstie ides, suchas thos dasseed In%Sce frm t sub-smpe. p/ See Coummadeatal (1993a)for more dssn an thes sses. 60 implications,being in effect a clear challengeto the credibilityof the government'sannounced monetary and fiscalstance. 124. The surveyresults are summarizedin Figure8. This givesthe path of net payablesover 1991 and 1992broken down by size of firm. It is clearthat firms have generallyshifted their net payablesposition upwards in real terms over 1992 even alongsiderelatively buoyant profits' profiles. Thishas partlycome aboutthrough increasing outstanding payments to suppliers;a featurethat seems furtherto be positivelyassociated with the marketpower parameter. The ratio of net payablesto sales rises quite significantlyfor monopolists,remaining broadlystable for other entities. But it is particularlystriking that, in general, the increasein net payablesis largelyindependent of the path of profitsat the firm level. Thereis no remotelyrobust inverse association, for example,between profits and net payables;an associationthat one mightpresume to hold if arrearsare a reasonablystrict function of currentprofitability. This pointsto a commonprocess and one where it has been perceivedthat the gainsfrom forcedborrowing are non-trivial,either via interestrate effects (ie the negativereal interestrates) or via probabilitiesof having outstanding obligationscovered by the CentralBank. 125. Observingthe path of interestcosts over 1991/92,Figure 9 provides informationon the ratio of total interestto sales for firms classedby asset size. There is littleevidence of any increasein interestcharges pointing to a strategyof financialdistress borrowing or relianceby firmson borrowingto maintaincurrent output in the face of fallingcapacity utilization and sales. Takingthe same ratioover the branches,we do observea sharp increasein trade financingcosts but the generalconclusion holds. 3.3: Decapitalization 126. The issueof decapitalizationof firmsis obviouslyrelevant given the loose controlstructure that now obtains,the uncertaintyover future viability and the presenceof very significantinsider bargaining power. Decapitalizationis hard to capturesatisfactorily but at first approximationcan be thoughtto proceed by threepossible channels. First, by runningdown currentcapital stock through little or no maintenance;second, by letting depreciationexceed current investmentsand third,by excessivecurrent wage claimsthat likelyimperil the futurefinancial well-being of the firm. The firstis impossibleto measurebut some summaryratios are quite instructivein gettinga handleon the other two possiblechannels 60. 127. On wages and benefitscosts, we find considerablestability in the share relativeto revenues. The ratioof wage tax paymentsto revenuesalso provides a simpleproxy. But the data indicateno upwarddrift across branches, save in the budget sectorwhere the scale of deteriorationin revenuesswamps the adjustmentto wages. We also find no evidencein the evolutionof the wage tax of predatorywage settingand short run behaviour. 0I AsaW d in t =aseof Pol flrm by Pt, Be andKilewei (a2). 61 128. Data on the investment-depreciation ratio provide no general evidence of a slowdown in investments. At branch level there are signsthat by 1992.3 the upward shift in the ratio over early 1992 was being reversed and moving back towards 1991 ratios. Further, we do see a sharper decline for the budget sector entities -- the scientific firms -- that we know to have been in finus-ial difficulties over 1992. However, where we observe a fall in the investment /depreciation ratio little of this can be traced to excess wage tax payments. The finding is hardly surprising given the weak bite of the wage tax, which we discuss further below. 4: Employment Changes 129. The employment picture is most notable for the relatively slow adjustment of employment given the size of changes to output alongside a substantial volume of labour turnover and churning. 130. Table 4 provides some information on the structure of employment in the firms that were sampled. Several features stand out. In the first instance, the classical feature of the Soviet-type firm - - the dominance of production workers -- stands out. Across the full sample, nearly 7O0 of the workforce was of this category. Moreover, the share of unskilled labour remains fairly low and primarily characteristic of the smaller firms. Second, we note the high proportion of female workers in the labour force. Third, part time work remains a fairly limited phenomenon across all firm size classes. 131. At an aggregate level, the main conclusions that emerge from Russian data regarding the path of employment in 1992 can be summarized as follows. Employment losses have been relatively small across the state sector as whole and for industry in particular. Indeed, over 1992 industrial employment declined by under 1X relative to 1991 levels. The losses in the state sector as a whole -- under 2% -- have been larger and more regionally concentrated. Preliminary information suggests that a sizable share of job losses in the state sector, primarily in the non-material sector -- have been concentrated in the Central region and most particularly in the area around Moscow. Therefore, a starting assumption would be that our survey might impart a upward bias to estimates of job losses, given the overall characteristics of the region. 132. This is not fully supported by the firm evidence. There has been an undoubted acceleration in the rate of job destruction but the process has not been as one-sided as one might intuite from a casual understanding of the size of the shocks to output. Reallocation shocks resulting from the change in relative prices would hypothetically result in differential paths of job destruction and creation. But we observe little that accords with this view. Rather, we continue to observe the coincidence of relatively high rates of job destruction and creation that do not apparently match to relative price shifts. Of course, one may be failing to capture intra-branch shifts but the dominant impression is of persistence in job hires with low net inflows to unemployment as a consequence. Indeed, aggregate unemployment fell below 2% of the labour force at the end of 1992 in both the Moscow region and in Russia as a whole. 62 133. Figure10 providesthe basic informationat the Russianlevel on inflowsto and outflowsfrom unemployment. Of course,on the inflowsside it includesnew entrantsbut the fact of relativelyconstant monthly inflow numbers alongside a significantflows out of unemployment,including to jobs, providesa first approximationat the underlyingprocess we appearto be observing.That process seemscharacterized by a high degreeof churningin the labourmarket that does not simply accord with the prognosisthat only job destructionshould be occurring.While job destructionobviously dominates new starts,net destruction rates are fairlylow. This gives some insightinto the type of churningwe shouldexpect to see. 134. The responseof firms to a perceivedpermanent negative shock might be expectedto show up in reductionsin labourcapacity, through short time and involuntaryholidays or an increasein part time working.It would also be expectedto show up in increasednet separations.With regardto the first,we find littleevidence of an increasein part timework being the preferredroute. Nor do we find evidencethat short time workingand involuntaryholidays have been that widelyused. By 1992.3under 35X of firmsin the samplereported use of short time work and 17X use of involuntaryleaves. Under 5% of the total samplelabour force was on involuntaryleave and nearly90X were concentratedin machinebuilding and light industry. This estimateappears on the low side comparingwith informationavailable from more aggregatedata. A far larger Goskomstatsurvey in August 1992 coveringover 1500 firms acrossall regions reportednearly a thirdof employeeson involuntaryleave or shorttime 61. 135. For explicitseparations, the surveydata indicatethat while nearly three- quartersof the samplereported net employmentlosses for the thirdquarter of 1992, over 251 postednet employmentgains. At the same time, in one quarter alonenearly 31 of the labourforce experiencedsome labourmarket transition. Table 5 containssome interestinginformation. In the first place, total separationsamounted to between8-10 across the firm size classesand the separationrate was ratherevenly distributed. Net job losseswere much smalller amountingto no more than 5X over the whole sample. This is higherthan the nationallevel but reasonablyconsistent with what we know about the path of employmentin the Moscowregion. For net job losers,the dispersionis fairly low but in generalbiassed upwards for smallerfirms. Indeed,the largestfirms experiencednet increasesto their labour force over the referenceperiod. Expectedjob lossesover the fourthquarter of 1992 were similarlyreported at low frequenciesand were inverselyassociated with firm size. 136. Table 6 also pins down the principalcharacteristics of the separations process.The dominanceof quitsis strikingand over 50% of all separationscan be classedas voluntary.Explicit job reductiondecisions display considerable varianceand amountedto around171 of grossjob lossesfor the full sample. Total involuntaryseparations comprised less than a quarterof reportedtotal separations.The weightof quits in totalseparations reinforces the view that theRussian labour market remains characterized by ratherhigh turnoverat local level,if not acrossregions where institutional,housing and otherconstraints tend to be more binding. 61/For Mosww th fiu was25 fora mof finns. 63 137. The persistencein hiresraises some interesting questions. Relating output changesto employmentchanges in the sampleis instructive.Perhaps most striking is the absenceof a clear and predictablerelationship between output and employmentmovements. Indeed,for the 25% of the samplethat reportedpositive net hires in 1992.3,nearly 70% projectedoutput losses over 1992 with an unweightedmean declineof 15%. There is significantdispersion over branches and firm size classeswith respectto employmentchanges but there is clear asymmetrywith regard to the size of shocks to output. For the outermost observationswhere outputlosses ranged between 35-50, employmentcontraction averagedno more than 15%. 138. Table7 and Figures11-14 put togetherthe directionof output,gross profit and employmentchanges for the surveyfirms. It is clear that the gap between outputand employmentchanges was quite large. The scattersagain classifyin terms of market power and are mainly remarkablefor showingno predictable relationshipbetween output or profitsand employmentchanges for eithertypes of firm. 139. The clearconclusion that can be drawn,bearing in mind the limitationsof the one quarterrecall period 62, is that employmentadjustments have been sluggish,uneven and restrictedgiven the size of changesto output. At first approximation,we may assumethat labourproductivity has declined. 140. The surveyresults reinforce the conclusiongathered from more aggregate data sourcesregarding the continuinghigh ratesof turnover,very low levelsof involuntaryseparations, significant hiring and a generallylow levelof net job lossesin Russiathrough 1992. However,several factors repay more attention. First, the high level of quits and hires for workers -- in both cases the proportionsare significantlyabove the share of workersin the firms'labour force. Second, there is the dominanceof productionworkers, rather than unskilledworkers, in thesequits. It seemslikely that this processhas been promotedby emergingcompetition for workersand by the persistenceof apparent shortagesfor skilledor productionworkers. The recentliberalization of the wage settingand wage structure-- while quiteevidently highly incomplete (see Section5) -- appears likely to have promoted local job turnover as production workerschase relative wage adjustments.This obviously begs the questionof why labourdemand for suchworkers remains so relativelybuoyant. The answerseems mainly to found in fixed factorsor technology. What we know about work organizationin Sovietindustrial plants also emphasizesthe strongand somewhat mechanicalassociation of plant to labour. 141. Involuntarylabour shedding has consequentlybeen concentratedon non- productionworkers and, in particular,women. We know fromthe unemploymentdata thatwomen compriseover 70% of the unemployedin the secondhalf of 1992. We also know that this sharehas not been vastlyshifted by the growingweight of layoffsin total inflowsto unemployment.While inflowsto unemploymenthave apparentlydominated by releasesfrom the administrativesector, it also seems to be the case that productivesector firms have shed administrative,unskilled and femalelabour first. The clear implicationis thatproduction workers have 621 rbes mim InW posbe disturbe andOutof-ped ebage 64 remained largely untouched by unemploymentand by the process of involuntary separation. Firms have, wherever possible, dispensedwith ancillaryworkers, largely concentrated in administrativework and in many cases female labour. However, even here the job losses in industrialenterprises remained very limited by the end of 1992. The bulk of job losses have been concentratedin the state budget or non-materialsector not in industry. This also explains the high weight of female in total unemployment. 4.1: Labour Boarding 142. The relatively gentle decline in employmentrelative to output in industry is striking particularlygiven the widespread acknowledgementof extensive and continuinglabour hoarding. Nearly two-thirdsof sampled firms reported excess employmentlevels in 1992.3.This was fairlyequally distributed across firm size class and branch and, with the exceptionof the largestfirms where the estimate was below 1X, was put at between 8-14X of current employment. 143. At first glance,one might expect institutionalfactors governing dismissals and/or union presence to impede involuntaryseparations 63. But this appears generally not to be true. Unions are present in most workforces but carry negligiblebargaining power so that in only 10 of cases where excess employment was present were dismissal rules and worker protest cited as factors of any significance in governing employment decisions. By contrast, in nearly two- thirds of those cases the motive for labour hoarding was the belief that output would shortly expand,warranting current retention of excess workers. In 25X of cases, the argumentgiven was that such workerswere not a significantfinancial burden to the firm. 144. The latter response can also be related to the prevalence of minimum wage workers within firms. Average industrial wages exceeded minimum wages by a factor of between 5-12 times over 1992. Evidence from the survey suggests that some firms -- particularlyin engineeringand light branches -- have begun to place parts of their labour force on or around minimum wages with minimal work requirements. Minimum wages were reported for nearly 4.5% of the sample workforce 64. In one instance,the aerodynamicsdesign firm -- TsAGI -- we found that around a quarterof the workforceof c.10,000 -- primarily the unskilled -- had been placed on minimum wages. This amounts to de facto provision of unemploymentbenefit within the firm, with, of course, the difference that workers still have access to some firm-providedbenefits. Assuming the rough distributionof wages in total labour costs from the firm-side (as indicated below in Section 6) and constant access to non-wage benefits,resort to minimum wages would have allowed firms to make per capita cost savings of at least 451 over 1992. At the margin, a reductionin the nominal wage would likely have had a more powerful effect than the cut in benefits costs associatedwith a marginal employmentchange. 63/ Fir dedom were k by th aloneIn 60% of cases,by t adminsratio In asodatin wt the itrde uni In 15% of cases and by the facy coun n te r 15%. Opposo to dbsl arose frm the tde unlinn haf the s=al*e, but dftan* no opposion was repoed in a tid of cases. Wi 13% for engeeig fnns; 9% for ligt Iutry. 65 145. Finally,in time with aggregatedata we observelow vacancylevels with posted labour demand -- a better indicatorthan notional vacancies -- amounting to under 1X of the currentsample workforce. This again is consistentwith the ideathat hiring behaviour is largelyconditioned by replacementof turnoversand by an apparentrigidity with respectto employmentlevels in industrialfirms. Labour hoarding appears motivatedby a combinationof factors,including technologyand an apparentwillingness to providefall-back wages -- the minimum wage -- within the firm. 5: Wage Setting 146. The appropriatetreatment of wagesis problematicgiven significant variance in levelsof shortagein goodsmarkets over time and region. Further,there is wide dispersionin pricelevels across region alongside significant variation in regionalinflation rates, as well as in the changesto nominalwages, over 1992. Figures15 & 16 providesinformation on wage levelsover the periodFebruary to October1992 for all-Russiaas for Moscowand Moscowoblast. Thereis a notable gap betweenthe lattertwo areas;a gap that widensover the courseof 1992, largelyvia divergencesin local inflationrates than by changesto nominal wages. 147. Despitethese significant variations, a summaryof recentwage developments need highlightthe climb in statisticalreal wages over the secondhalf of 1991, followedby a substantialcut inducedby the price shockof January1992. That shocktook averageindustrial wages back to mid-1991levels. FollowingJanuary 1992we observea consistentincrease in realwages over the courseof the rest of theyear. By October1992, real wages were notionally13X higherthan in July 1991 and over 851 higher than in January1992. The regionalcoefficient of variationwas around25X. 148. The accelerationin nominalclaims has to be temperedby the knowledgethat cash shortagesand other constraintsin the firsthalf of 1992 drove a wedge betweennotional and actualclaims, one symptomof whichwas the accumulationof substantialwage arrearsby firms. Nevertheless,the dominantimpression is of an initialshock to cash wages subsequentlycancelled out by increasingclaims and weak constraintsexercised through the currentexcess wage tax rule 65. 149. The surveyresults are broadlyconsistent with the story toldby aggregate data. In the firstplace, comparing the thirdquarters of 1991and 1992we find that real statisticalwages (seeTables 8 & 9) fellon averageby around30X; a fall consistentwith realwages broadlyequating early 1991 levelsby the third quarterof 1992. Figure17 presentsInformation on the evolutionof the real wage bill acrossfirm size classesusing the retailprice deflator. It can be seen that for the full samplethe aggregatereal wage declinedslightly over the period1991.1/3 - 1992.1/3. There is a cleardip in the first quarterof 1992 followedby a robust,across-the-board recovery. By the third quarterof 1992 wageshad largelyrecovered the levelsof early 1991.There is some evidenceof 6/ A w i dithebmm wsv tbes oewt te n_uber oepyee addedto pv andtad at 32%. 66 &rowingvariance within three of the ten branches,but in generalwe observe littlemovement in the coefficientof variation. 150. The wage path is strikingfor demonstratingthe apparentrigidity of real statisticalwages. Over the sameperiod, we know that for the samplethere were employmentlosses, even if not of high magnitudes.The clear resultis that averageper capitawages increased unambiguously over the same referenceperiod. 151. Relatingwage changes to the measure of market power is again quite interesting.The stabilityor growthof realstatistical wages of the periodfor monopolistsor thosewith few competitorscontrasts with the non-trivialdecline in wages that can be seen for competitivefirms. Further,relating output and wage changesby categoriesof firm,we can see from the scatters(Figures 18-19) that for firms with marketpower, output and real wage changesare largely inverselyrelated. However, as we alsoknow thatoutput and grossprofit changes were inverselyrelated for many of thesefirms, the associationbetween profits and wage changesis more conventional.By contrast,the majorityof competitive firms demonstrateclear co-movement of outputand wages. Again,the reference periodsare the firstthree quartersof 1992 over the same quartersof 1991. 5.1:Relative Wages 152. The path of relativewages is revealing.Table 8 driveshome the perverse wage structureof the Russianfirm and the strongbias towardskiled workers in the earningsprofile. But theyalso bring home the pointthat relativewages had by 1992.3shifted surprisingly little. Over the period1991.3 - 1992.3we find rather close convergence in the rates of increase across the main grade categories. The only relative loser was professioralor ITR staff, such as engineers,but the shift in relativitieswas not that large. It is also evident that wage changes at the top of the grade structure -- for highest level management -- have been consistently higher and that this has been true particularlyamong the larger firms. 153. The data presented above suggests that the compressionin the returns to skills given by the previoustariff wage system has only just begun to come apart and the process as yet remains rathermuted. Indeed,while 40X of sampled firms reportedan increasein wage differentials,the remaining60X reported eitherno change or a decline in differentials.Where differentialsincreased, the primary reason given was developmentsin the labour market rather than any explicit associationto private sector wages or prices. Indeed, in 75X of cases private sector wages were viewed to be consistentlyhigher across all comparablegrades and skills. The shift in relativitiesis likely to be part of the process geneating the r.Jbstantialchurning among skilled workers that we have already referred to in Section 4. 5.2: Bargainingand Wage Targets 154. The survey also allows us to get some idea of the process by which wage claims are generatedand subsequentlyvalidated. Several features -- largelyof 67 an inertial quality -- can be isolated. First, few firms resort to any systematicbargaining with labourover wages. When explicitlyasked whether wages were set by managementor resultedfrom an explicitbargain between the administrationand workers,only 7 (17%)firms reportedthe latterprocedure. Of interestis the somewhathigher predominance of bargainingamong cooperative, private and collective firms -- over a quarter of these firms had active bargaining. 155. This is not to say that currentmembers do not have very significant influenceover the wage setting. The path of nominalclaims and the stability of employmentis reasonableenough evidence of that fact. But it may be more appropriateto couch the problemin termsof a cooperativeassociation between managementand workerswith currentmembership claims on employmentand wages given preference. However,this can also explain,through the continuing dominanceof generalor administrativelyset wages,the relativelyrestrained rearrangementof relativewages thatappears to have occurredand whichwe have noted above. 156. Clear evidence of the increasingassociation of wage changes to consumer prices also emerges -- over 60X of firms sought to link wages to prices explicitlyand the remaindercomplemented this with increasedprovision of social benefits. However,while the benchmarkfor wage changeswas indeedconsumer pricesfor over a quarterof firms,we can observethe presenceof constraints on this linkage. Nearly701 of the samplenoted that the wage benchmarkwas largelyoverdetermined by currentwithin-firm resources. This is confirmedby the responsesto an explicitquestion on constraintsto wage increasesover 1991 and 1992. For the former,we find that taxationand currentrevenues have equal weight(both yielding 401 of responses)in determiningthe wage path. Explicit outsideregulation only was a factorin 7 firms,declining to 4 in 1992. Most significantly, taxation constraints were cited by only a quarter of firms as a strong constraint in 1992, with over 601 citingcurrent revenues as the primary factor. This is consistent,of course,with what we know about the excesswage tax rule and its generalineffectiveness over 1992. And as expected,we find that real wage tax paymentsby firmsdecline slightly across most size classes for the period1992.Ql-3 over 1991.Ql-3. 6: Firm-ProvidedBenefits 157. It has long been realizedthat benefitsprovided through the firm were an importantcomponent of labourincome. Nevertheless,it has been far from clear what the value of such benefitswere, particularly given the largenon-monetary component.The matteracquires yet more significancein the lightof demandsfor local authoritiesand other institutionsto take over the benefitsprogrammes hithertorun by firms. This sectionprovides both an overviewof the type of benefitsprovided by firmsand thenattaches costs and/or income flows to those benefits. In thisway, we hope to providesome measure of the shareof benefits costs in total labourcharges from the cost perspectiveof the firm while also pickingup the effectivedistribution of labourincome. In addition,we provide a more extended discussionof one crucial component of benefits -- the housing programmesrun by a significantminority of firms in the survey. 68 158. But first a simple listing of the types of benefits provided by firms is given in Table 10. It can be seen that a significantproportion of the total labour force continues to have entitlements to child care, paid vacations, housing and holiday homes. We can make a distinctionover mandatorybenefits -- such as maternityor child care allowances-- and discretionarybenefits. It is clear that the latt,,rare both varied and pervasiveacross all firm size classes. Further, there is a positive association between firm size, as measured by employment, and range of benefits. The absence of housing programmes among severalof the largestfirms may be unrepresentative.Bigger samples -- such as the ILO survey of 500 firms -- point to housing programmesas an almost defining feature of larger firms 66, This is more likely to be true for firms that act as locally dominant employers. Here, the functionsof local authoritiesappear to be commonly arrogated. 159. Among smaller firms with less local labour market dominance, the evidence suggeststhat firm providedbenefits may not necessarilyexceed those coveredby local authorities. Indeed, in our sample for housing, child care and health facilities,firm expenditureat local level was comparableor in excess of local authority or non-firm expendituresin only 10-30X of cases, depending on the function (see AppendixTable 3). As these items constitutethe major expenditure charges on the benefits side, this cautions against a simplisticview of the scale of firm-levelfunctions. 6.1: Costs of Benefits 160. Considerableuncertainty currently exists with regard to the respective shares of benefits costs in firms' labour payments. The survey allows us to get a reasonablydetailed picture on this score. Several points stand out. First, wages as reflected in the firms' wage bills (inclusiveof the wage tax) account for roughly 50X of total labour costs. Includingbonuses raises this share to just over 60% for the entire sample. The remaining costs are distributedover Pensions, Social Insurance taxes, Employment Fund payments and, most significantly,Social Fund allocations. The latter amount to over 20% of total labour-relatedcosts and around 40% of benefits charges (ie; excluding the wage bill). This informationis given in terms of firm size for 1991.1 - 1992.3 (Figures 20 - 22). While we observe considerablevariance over firm size classes, as well as for branches, for the respective shares, we do in general find a surprisingdegree of stability. This is also true for the levels. There is some evidence that social fund shares have been boosted over 1992, possibly as a mechanismfor raisingde facto wage paymentswhile circumventingthe excess wage tax, but the trend is by no means universal across or within firm size classes. Overall, the inertia in shares is the more striking feature. 161. Comparing the first three quartersof 1991 with 1992 real aggregatelabour costs fell slightly. Small declines were registered in 70X of branches with, significant increases in the remaining 30X. Figure 23 shows the path of aggregate labour-relatedcosts for the period 1991.1 - 1992.3. The main story is the fair constancy of labour-relatedcosts when ironing out the climb in statisticalclaims over the second half of 1991. As such, we find considerable corroborativesupport for the conclusionsderived from more aggregatedwage data. if See&a_ng (La) 69 Further,we can pin down reasonablestability in the cost structureallowing us to conclude that, at least for our sample,benefits do not appear to have been a widespread mechanism either for significantlyraising or lowering aggregate labour costs. The path of both the levels and the shares indicates that including benefits costs in total labour costs has no marked effect on the distribution. This holds whether classifying over branch or firm size, as measured by employment or value of fixed assets. 162. Taken from the income side, we likewise find considerablestability in the shares -- wages accounting for roughly 50% of total labour income, rising to around 65% when factoringin bonus payments -- and for the levels. In summary, it seems that benefits, dissociatedfrom more conventionalcash wage or effort- related incentives, comprise at current prices approximately 35% of labour income. The dispersion is dampened by the dominant, across-the-boardweight (0.6) of Social Fund expenditures in total benefits. Clearly, a more satisfactorymeasure might be achievedby attributingshadow prices. Given the volatilityof prices and the uncertaintywith respect to the levels at which key prices are likely to settle, we do not attempt this task. 6.2: Housing 163. Housing programmes provide the single largest component of benefits programmes. Though by no means universallyprovided, we found that a significant minorityof firms -- over 50% of the sample -- had some form of direct housing programme. There seems to be a clear positive associationwith firm size but, save among the smallest firms, housing programmeswere offered by a majority of enterprises. In all, over 28% of the total labour force was housed in firm property and this share rose to over 75% in the case of the second largest firm size class (see Table 11). 164. While housing has normallybeen financed throughthe SocialFund, the survey indicates some recent departuresfrom this practice. Firms with large housing programmes have tended to shift to financing directly from profits or by borrowing. This is likely to reflectin part some of the risk sharing that firms are creating for new constructionprojects. 165. Figure 24 is instructivefor showinga significantdecline in the real value of housing outgoings for firms. Constructionby firms across most firm size classes fell by around 60% when comparing1991.1-3 with the same period of 1992. We also observe a fall in maintenance charges which, consideringthe limited scale of the interveningprivatisation of housing -- barely 2% of tenants had privatized their apartmentsby November 1992 -- largely relates to the same housing stock. Over the same referenceperiod, the decline is less than 30% and is not uniformly distributedover size classes. Putting the two expenditure items together, the result is a halving of housing sector outlays by firms comparingthe first three quarters of 1991 with 1992. The fall is considerably steeper among the firm size classes with higher frequencies for housing programmes. Relating housing outlays to total benefits expenditurescaptured by the firms' Social Fund, we again see a reasonably significantreduction in the share. For all firms housing expendituresdeclinad from around 45% ir.1991.1 to 70 under 20X in 1992.3. A similar decline in the share of gross profits -- from 92 to 5X -- can also be observed. 166. The motivation behind the fall in housing expenditureis not difficult to fathom; indeed one might perhapshave expected a sharper decline. Rents remain regulatedand yield derisorycurrent incomes. Moreover,while housingprogrammes were commonlybuilt up in the Soviet period to reduce labour mobility, this is certainlynot an objectivethey attain at the present. We can see, in fact, that nearly 402 of currenttenants in the housing stock of the surveywere not current firm employees. This share was moreover rather stable across all firm size classes with significanthousing stock. 167. It is interestingto estimate the likely effect of reducing rent controls. Recent figures suggest large negative shocks to current income given the extremelylow base from which adjustmentswill be made. Fortunately,the survey allows a rough estimateof the likely impact of rent adjustmentsin terms of wage income. As a base, we assume that the objectiveof the firm is simply to close the financinggap generatedby maintenanceexpenditures. Bearing in mind that such outlays were 50% lower in 1992.3 than in 1991.3, we can calculate that it would require an additionalrental payment by each current tenant of around 320 roubles per month in order to cover maintenance costs for 1992.3. The figure doubles if we assume that 1991.3 expenditureswere a more appropriate target. This impliesthat between 15-30% of averagewages (excludingbenefits) would need to be directed at housing rents simply to cover maintenance. 168. We also get some idea of the likely direction of change for housing variables. In this regard, we can highlight two factors. First, housing benefits were unambiguouslythe last benefit that workerswere prepared to lose, but inverselya benefit that some firms were ready to shed first. The picture on the firm side is ambiguousbecause housing construction programmes potentially offer high rates of return and current revenuestreams -- either by direct sales of new housing stock or increasedcommercial lettings 67, This ambiguityfurther shows up in the responses to questionsabout future plans for housing. Nearly 50% of responses indicated that housing programmes would be sustained at comparable levels to the current. Only 3 firms had already suspended their housing programmewith a further 2 reporting it as an intention. A further 30X (7 firms) intended to scale back. Finally, in just over 50% of cases housing stock had already been or was in the process of being transferred to local authorities. The decision appears unrelated to current firm profitabilitybut is clearly associated at the level of the firm with the decision over new programmes. Those firms with continuing or new housing programmes tended to retain previoushousing stock, possiblycross-subsidising it throughnew starts. 169. In short, the survey resultsindicate a scalingback of housing construction and maintenance. There is a clear and sharp fall in the share of housing in total Social Fund outlays. But the picture is by no means uniform. Housing starts remain reasonablyhigh as sales and more commercial lettings offer the prospect of reasonablecurrent income streams. There is also some evidence that firms are using new programmesto subsidizethe substantialoutgoings on existing 671See the ca of TsAGI(Boa 2) repowtedin f> , Libeman ndYemnisov (1993a). 71 programmes arising primarily via rent controls. Such programmes tend to be primarily financed outside the Social Fund, commonly through borrowing. 7: Conclusion 170. Drawing on a small survey-generateddatabase but checking those findings against informationavailable from more aggregated series,we have attemptedto chart the behaviour of some Russian firms over 1991 and 1992. The findings are revealing. Large negative shocks to output for a significantnumber of firms and branches can be observed in 1992. These shocks came from both demand and supply sides and were fairly common. Aggregate rather than sectoral shocks appear to have dominated. This was not generally associated with a collapse in gross profits. Indeed, the most striking result is that industrialand trade sector firms' profits stayed remarkablybuoyant in real terms. There is clear evidence that firms with market power have exercized that muscle by rapid adjustment of producerprices. The inverseassociation of the changes to output and profits for firms with market power suggests that such firms have tried to maintain or increase their mark-up. Certainly,we find no evidence of a strategicchange in the underlyingpricing rule. 171. Reasonably robust financial performancedid not characterizethe budget- financed entities in our sample. Their implicit call on public financingwas probably significantthrough 1.992.But for the bulk of firms in the sample, the main impressionis of relative stability in earnings and in the distributionof revenues over the various assigned funds and expendituretitles. We do not find any substantialevidence of decapitalization,at least through greatly enhanced borrowing or predatory wage settlements. Likewise, the shift upwards in interfirmarrears is less large than we might have expected from the aggregate numbers. 172. Despite the downward pressure on output and the absence of major growth in any of the surveyed firms, employment adjustmentswere limited. That is not to say that employment transitionswere infrequent,but that net separatiorswere relativelyrestricted given what we know about the size of shocks to output and the continuing presence of labour hoarding. Revealing is the fact that firms continued to hire at significant rates over 1992. This can most likely be explained in terms of fixed factors. It is also obviously related to the continuinghigh rates of local turnover in Russian firms. In short, firms have discarded little labour and mostly ancillaryand female staff. 173. There is evidence that some firms have chosen to place workers on minimum wages, reducing labour costs quite significantlybut with the result that fall- back income is provided within the firm rather than through the labour offices. Increasedper capita contributionsfor the EmploymentFund would obviouslybe one mechanism for breaking this practice. But the larger question relates to the efficiency of fall-back payments through the firm, the implicationsfor job search behaviour and any significancedifference in the likely discount rate to be applied to the human capital -- and hence ultimately to the efficiencyof job search -- from paying de facto unemploymentbenefits inside rather than outside the firm. In the absence of adequate mobility, for example, and other labour 72 market rigidities,the inside-firmoption may have merits that in other settings would not be obvious. In summary, the core of the Russian industrialfirm -- the so-calledproduction worker -- remains untouched. The clear implicationis that a large 'employmentoverhang' existed at the end of 1992. The next phase of transitionwill be suitably difficult. 174. The wage path revealed in the survey responses matches well with the aggregate information. Cut sharply back by the large price shock of January 1992, real statisticalwages then consistentlyclimbed through the remainderof 1992 back toward early 1991 levels. Relative wages began to move somewhat but to a smaller extent than might have been expected. The inertia in the system should not be ignored. 175. Benefits provided by firms are shown to account for large shares of labour income and firm costs; to the order of 40/45X in the latter instance. There are signs that firms have tried to squeezebenefits - - particularlyin housing -- but that Social Fund allocationshave generally stayed constant in the levels and shares. Housing programmes are already being divested and annual maintenance outlays curtailed. Yet simply to cover annual maintenancecharges would require raising current rents to levels equivalentto between 15/30% of 1992.3 wages. 176. The overall conclusion that we derive from this small survey exercise is that matters on the ground are both more diverseand perhaps rathermore original than conventionaleconomic intuitionmight have led us to believe. Firms did suffer for the most part negative shocks to productionin 1992 but this was not generallytranslated into comparabledeclines in profitability. Of course, the survey is localized and does not really cover the large uni-firm towns or military-industrialcomplexes that are elsewhere reported to be in widespread financialdistress. Further,the 1991 comparatorssuggest that average sales and gross profits in our sample were high and this likely results in a more positive picture of firm financial results. But the results drive home the sad observation that what is true in some sense for the firm may clearly be deleteriousfor the economy at large. Rapid adjustmentsto product prices and a stablepricing rule, combinedwith a strong accelerationin nominalwage claims and an accomodatingmonetary policy, are key ingredientsfor high and sustained inflation. 73 Bibliography Commander, Simon, Leonid Liberman and Ruslan Yemtsov. 1993a. "Wage and Employment Decisions in the Russian Economy: An Analysis of Developmentsin 1992". World Bank, mimeo Pinto, Brian, Marek Belka and Stefan Krajewski. 1992. "TransformingState Enterprisesin Poland: MicroeconomicEvidence on Adjustment".World Bank, mimeo Standing, Guy. 1992. "IndustrialWages, Payments Systems and Benefits". Paper presented to ILO Conference on Employment Restructuring in Russian Industry.ILO, mimeo 74 Annex 3 RUSSIA: THE ROLE OF WOMEN IN REBUILDING THE ECONOMY Monica S. Fong March 1992 This was prepared as part of sector work in EC3HR, as backgroundfor the report entitled Social Protectionin the Russian Federation. 75 1. INTRODUCTION 1. Successfulrehabilitation of the economyof Russia will depend more heavily on women than is commonly acknowledged.Women constitute the majority of the populationas well as of the labor force in Russia, and, in addition,carry most of the responsibilityfor immediatehousehold welfare through their domestic work. Their traditionalcaretaker responsibility for the young, the old and the disabled plays a key role in the social welfare of these groups. Women's active involvement and support will therefore greatly influence the progress of the reform process and the level of living during the transformationprocess. 2. At the same time, women are traditionallyfound in disproportionatenumbers among poor households, and among households whose standards of living have declined the most during in the presentcrisis. They thereforeface greater risk of poverty and more precarious survival in the transformationprocess. A. A Review of Past and Present 3. The present report reviews the major elements affectingwomen's role in the economic transition that need to be considered by the World Bank in its assistance to the Government of Russia. It does not aim to provide a comprehensiveview of the currentcondition and status of women in Russia at the present time. Instead,present conditionsare summarizedbriefly in the light of past experiencesand patterns,with a focus on key issues. 4. The report begins with a review of the demographicsituation of women. A brief examinationof women's role in the family with specialattention to single parent householdsfollows; then the system of leaves and allowancesthat support both single and two parent householdsin combiningfull-time work and child-care is reviewed.Next, women's decliningreproductive and non-reproductivehealth is addressed in the context of excess male mortality. 5. In the followingsection, women's high levels of educationare examined, noting briefly the fields of trainingclosed to women. Women's participationin the labor force, their concentrationin certain fields,their levels of skill and income and career structure are then assessed. Women's roles in economic production are closely related to their reproductive roles in Russia and necessitatesan examinationof the ideology of work, the use of time and the system of family allowances as they affect women's employment.The particular characteristicsof women pensioners and their contributionsto the labor force are outlined next. Women's unemployment,placement and re-trainingconclude the review of women's labor force participation. 6. The reformprocess has broughtgreat changes in women'spolitical positions and organizationalpatterns, and these are outlined in the next two sections. Lastly, there is a brief overviewof researchon women's issues and the function of such analysis in the transitionand 76 B. The Fears and Realities of the Future 7. The review of present conditions and the influence of the past sets the stage for an examination of the prospects for the future. The return to patriarchy strongly colors the public debate on economic changes generallyand the place of women specifically.The increasedfeminization of poverty and the role of women as caretakers and protectors of the young, the elderly and the disabled mderscore the importanceof specificattention to women's issuesin the economic rehabilitationprocess. C. Equal Social Protection for Men and Women 8. Social protection measures currently under discussion are assessed with respect to their effect on women in four major areas: - employmentand unemployment, - pensions, - social protection and family policy, and - maternal and child health. Measures and modificationsto ensure equal protectionfor women, within existing budget constraints,are proposedfor discussion.Supplementary support mechanisms through women's non-governmentalorganizations are also suggested. 9. In conclusion,areas for action and discussionare outlined and discussed. A summary Policy/ActionMatrix for action by the government,the World Bank and women's organizationscompletes the report. II. PAST AND PRESENT A. Women in the Population Sex Distribution 10. The populationof Russia has a larger number of women than men, as would be expected from a country with low fertilityand mortality;68 in 1990 the number of women per 100 men was 111 - a sex ratio of 90 - a gradual decline over the past decadesfrom the very low proportionsof men followingthe SecondWorld War. (Table 1.) The very large losses in the male population at that time have had profoundrepercussions on the fabric of Russian societythat are diminishingonly now, as the last cohorts decimated by war deaths are now reaching old age and die. The simple fact that more than half of the working age populationhas been female has reinforced the economic contributionsrequired from women under a communist system. Women's full-timeeconomic activity has now been the way of life for several generations. gMitM -'un1 (abo 70 pern) hae m womethn men,some 50 countisn LoiAnmercaOhe Mid Eas ndSouth and Had_A _w bw mnlmersof memM womn, dueboth to a youngage slncwe amdpoor hath cae for fales. 77 Table1: ProRortionFemale of the ooulatlonof Russia.1939-1990. PercentWomen Womenper 100Men 1939 53 112 1950 56 128 1959 55 124 1970 54 120 1979 54 117 1989 53 114 1990 53 111 Source:GOSKOMSTAT, 1992 11. The overall sex structure is the composite result of regional differences in distributionby sex. Regional differencesin the number of women per 100 men range from 120 in the North West (122 in St. Petersburg, 118 in Novgorod and Pskov) to 99 in the Far East (1989 census), a combined reflection of the age structure,differential birth rates by ethnicityand the economic activitiesof the population. Overall, the urban-rural distributionby sex is similar: 114 women per 100 men in urban areas and 113 in rural areas according the 1989 census of population, but there is a wide variation around these ratios in different areas; some rural areas show ratios of women per 100 men as low as 86 in the Koryak Autonomous Region in Kamchatka and as high as 128 in Belgorod Oblast near the Ukrainianborder (GOSKOMSTAT,1991 b). In some age groups there are significanturban-rural differentials by sex: there is an overall deficitof women 20-45 in rural areas and a surplus in urban areas, compared to men in similar age groups. Age Structure 12. The age structureof Russia reflects the characteristicsof a slow or zero growth population and women outnumber men among the elderly. However, the differencesby sex are larger than in other countries, due both to the heavy losses of men during the Second World War and to excess male mortality in the post-war period.Women outnumbermen more than two to one in the populationover 60. This is also reflectedin the number of retiredpersons and pensioners,more than two thirds of whom are women (Table 2). 78 Table2: Populatfonby AgeGroup and Sex,1989 Census of Populton AGE MEN WOMEN Number Proporton Number Proporgon 0-2 3698697 0.51 3556437 0.49 3-5 3682295 0.51 3558428 0.49 6-9 4516421 0.51 4379624 0.49 10-15 6391220 0.51 6211985 0.49 16-19 4099593 0.52 3857052 0.48 20-24 4955983 0.51 4798637 0.49 25-29 6373601 0.51 6183633 0.49 30-34 6472859 0.50 6389950 0.50 35-39 5821314 0.50 5862787 0.50 40-44 3775687 0.49 3886934 0.51 45-49 3767156 0.47 4187744 0.53 50-54 4453975 0.46 5139558 0.54 55-59 3719890 0.44 4679269 0.56 60464+ 6945932 0.31 15570350 0.69 *TOTAL-' 71'6' 0.47 0.5' Source: ANeCmposrton of the PoEulation.Census gf Russia.1989. Moscow,GOSKOMSTAT, 1990. B. women in the Family Age at Marriage 13. The averageage at firstmarriage is 24.7for men and 22.5 for women,which is at the youngerend of the Europeanmarriage pattern. Age at marriagehas decreasedby one year for men and a year and a half for womenover the past 20 years.Thus, the age differencebetween spouses increased by half a year and womennow marryolder men thanthey did 20 yearsago. (Table 3).Young women now have less professionalexperience, lower wages, and less maturityrelative to 79 their husbands than in the past. Further research and analysis is required to determinewhether this might indicatea move towardsa more patriarchalmarriage relationshipor shows a traditionaldemographic "marriage squeeze", resulting from the age structureof the population. Table 3: Age at ManiaEe.by Sex.1970-1991 MALE/FEMALE YEAR MEN WOMEN DIFFERENCE 1970 25.7 24.2 1.5 1975 24.8 23.2 1.6 1980 24.6 23.1 1.5 1985 24.7 23.2 1.5 1986 24.9 23.3 1.6 1987 25.0 23.3 1.7 1988 25.1 23.2 1.9 1989 24.9 22.9 2.0 1990 24.7 22.6 2.1 1991 24.7 22.5 2.2 guroe: DemographicDMsion, State Commffteeon Satiatics Narriage and Divorce 14. Although the vast majority (86.8X)of women age 16 and above are married or have been married, a very large proportion - over a quarter - of all women in this age group are widowed or divorced (Table 4). Morriage rates have declined over the past 20 years, in part the result of the changing age structureof the population; nevertheless, divorce rates have increased as well (Table 5). Although crude divorce rates are notoriouslydifficult to interpret, it should be noted that they are unusually high in Russia, compared to European countries, and have increasedin the 1990-91period. Crude divorce rates for 1987 were 4.8 in th;cUnited States, 2.9 in the United Kingdom, 2.8 in Hungary , 2.2 in Sweden and 1.3 in Poland. In certainurban areas of Russia, rates as high as 5.6 for St. Petersburgand 5.2 for Moscow were registeredthe same year (Stevenson).Most divorces are initiatedby women, the major reasonsbeing given were alcoholism, poor housing and the burden of housework. Again, an in depth investigationis necessary to determinewhether the recent increase is directly attributableto increasedsocial and economic stress. 80 Table4: Mail Stats by Sex AM 16_+.Russia. 1969 Men Women POO-ent ~~percent Single 19.6 13.2 Married 71.8 59.8 Widowed 2.5 18.2 Divorced 5.7 8.5 AMl 100.0 100.0 Source: SocigD*=IgMphc Charactetsdsof the usin Poplalion Vo. I, Moscow,GOSKOMSTAT 1991. Table5: M&arriaeand DivorceRates. 1970-1991 Year MDIigetV"r (Per1000) (per1000) 1970 10.1 3.0 1975 10.0 3.6 1.90 8.9 3.8 1991 8.6 4.0 Soure: GOSKOMSTAT HouseholdSize 15. Averagehousehold size in Russiais smallby world standards,but somewhat higherthan in most of WesternEurope: 3.2 in 1989,sliEhtly higher in ruralthan in urbanareas, with someregional variation - - from3.0 in Ivanovo,Novgorod and Tver oblaststo 4.5 in Chichen-Ingush(GOSKONSTAT 1991 c). Other thingsbeing equal, small households mean that a large number of persons do housework, and women in Russiaspend a largeamount of time --about 30 hours per week--inhousework and child-care(see Section5 below). 81 IncompleteFamilies 16. A large proportionof familieswith childrenunder 18 are "incomplete",i.e. without both parents. The majority of these householdsare headed by women: 2.2 million families,or 11 percentof all householdsconsist of mother and children only; households with father and children constitute about one percent of all households. Despite special government allowances and adjustments to these allowances,these families are among the poorest in Russia and have fared badly in the current rapid inflation.Households relying on a single bread-winnerwith low earningsare a priori at high risk during the economiccrisis; togetherwith gradual erosion of family allowances and wide-spreadfemale unemployment this can spell disaster for this vulnerable group. Family Allowances and Child-Care te,s-es 17. The issue of bearing and rearing future generations in a society of near universallabor force participationhas been conceivedand addressedas a system of leaves,concessions and allowancesin an effort to combinefull time work with part-timechild-rearing for the femalelabor force. The responsibilityfor child- rearing has fallen largely on women, rather than on the government, the male labor force, or differentcombinations of these three parties. Family policy and employmentpolicy have become inextr2.cablylinked, and changes in one necessarily entails change in the other. These concessionsand allowanceshave become part and parcel of the way of life for women in Russia, and still have a profound influenceon women's approachboth to the politics of work and the organization of their time. 18. Nevertheless,the large number of allowances to ensure all children a more equal start in life constituted some of the proudest achievements of the Communistsociety and an impressiveinvestment in human capital for a developing market economy. In addition,the governmenthas instituteda varietyof policies of leave for the mother, or in some cases the care-taker of young children. Both form part of an elaborate system of social support for children, working mothers, the disabled, the wives of the military, students,pensioners and the unemployedet al.. These allowancesare adjusted from time to time to keep up with inflation following approximatelyincreases in the minimum wage. It is widely felt that they are not adequate to meeting increasedcost of living for families with children, in particular those headed by women. A summary of allowancesis given in Annex 1, Table 2. 19. The leaves and benefits provided in Russia are more extensivethan in most countries in Western Europe (Table 6). Since they are tied to the minimum wage rather than previous wage, they provide, at the same time, relativelymuch less compensationfor the parent using the leave. In practice, this has meant that well over 90 percent of child-careleaves are taken by women, since women are, on the whole, less well paid than men. 82 Table6: ParentalLeave and Benefts on hihldBiMh for SelectedEuroRean Countries and Russia Time (Peren of Conditions Eiigibfllty Before : >Af WaepLevi of Paricpaton Belgium 6 8 80-75% 6 mth contr. insured Denmark 4 24 90% min. Income father/mother France 6 10 90% 10lmth insured Germany 6 8 100% 12 wk mother + cash grant ibid. parent GreatBritain 11 7 90% 26 wk contr. employees Italy 9 13 80% none insured, incl. father Netherlands 4 12 100% none women employees Portugal 4.5 9 100% 6 mth ins employees Spain 6 8 75% 9 mth Ins. empl.ind.& services Sweden 7 64 90% insured child-caring parent Russia 10 10 100%of 12 mth work mother + cash grant 300% " 78 30% of min. wage Note: These data summarizemajor trends In coveragebut do not give completeinformation on exceptionsand special circumstances. 20. In Russia,the systemof leavesand allowancesare targeted,on the one hand, to the parent (or in some case the caretaker)of the child, in compensationfor earningsforegone, and, on the other to children,to meet the costof theirupbringing. There are, in additionto thesebasic allowances paid for all children,special allowances for childrenof the military,children of singlemothers, children with aids and disabledchildren. Allowances begin with paidmaternity leave 70 days beforeand 70 days aftergiving birth for womenwho have a contractof employment,and the maternitygrant, set at threetimes the minimumwage. (For motherswho have worked less than one year, a maternity allowanceof 45 percentof minimumwage is paid.)This is followedby a monthly child allowanceof 80 percentof the minimumwage for childrenup to age 1.5 years of age. This may be supplementedby a child-careallowance, set at 35 percentof minimumwage to compensatefor lost earningsduring the care for childrenin thisage group,paid to mothers,age 18 and abovewho have workedfor at leastone year.An additionalcompensatory child-care allowance, equal to 35 691of mln_um wa 83 percent of the minimum wage, is availableto mothers or other care-takerto care for a child under three years of age. 21. The child-careallowance is followedby an extended child allowance at 45 percent of the minimum wage for children between the ages of 1.5 and 6 years of age. (Childrenof the military,children living with a guardian and children in orphanagesand children with AIDS receive 60 percent of the minimum wage under this allowance.)An allowancefor children of single mothers and childrenwho do not receive child support from their fathers, an additional45 percent of the minimum wage is paid up to age six, then raised to 50 percentand continueduntil age 16. 22. In May 1992 specialcost-of-living compensations were introducedto cover the increasedcost of children'sneeds, ranging from 30 percent of the minimum wage for children less than six to 40 percent for children age 13 to 16. 23. There are also specialshops for subsidizedmilk for familieswith children under two years of age, whose income per person does not reach twice the minimum wage - excludingallowances and compensations.This amounts to of 4.8 Rbls. per personper day ( USS 0.01 as of October 1992). 24. Lastly, a one time schooluniform allowance is paid to childrenwhen they begin school and at the age of 13. 25. Other regulations have been designed to protect families with small children and allowing the working mother to spend time on child-care. Such laws generally limit the right of employers,but theoreticallyleave options open to women; they include a broad range of protective legislationprohibiting the dismissalof pregnantwomen, work-loadconcessions for pregnantwomen or mothers of young children,prohibition against night work, prohibitionsagainst over-time for mothers of small children, flex-time, part-time work, home-based work, nursing intervals, and additional paid and non-paid leave to care for sick children, etc. To this various informal leave arrangements to permit food shoppingunder increasingscarcity have been added in many places of work. Most recently (10 October, 1992) legislationprohibiting the dismissalof women with children under three has been re-enacted. 26. Administrationand Finance.Family allowances and benefitsare administered and/or financed by a number of different institutions.This system requires simplificationto be able to respond to changing realities.Maternity benefits (leave and grant), child-careallowances up to age 1.5, as well as leave to care for a sick child, are financed out of enterprisecontributions to the Social InsuranceFund (5.4 percent out of total payroll). The SIF is managed by the Federation of IndependentTrade Unions of Russia (FITUR), while benefits are usually - though not always - administeredby the enterprise.Child allowances (basicand extended),and allowancesfor single mothers are administeredby the Pension Fund, and funded from the budget as needed, and administeredeither by the enterpriseor the local social securityoffices. The cost of livingallowance is administeredand funded out of local budgets. Work load concessions for 84 pregnant women or young mothers and nursing breaks are determined,funded and administeredat enterpriselevel. 27. Different kinds of benefits from different sources were concentratedat enterpriselevel for easier administration.Although this may have worked well under central planning, there is evidence that the system is losing its effectiveness.Establishing eligibility and administrationis a complexand time- consuming task for the enterprisesand the government,and no longer works as well. Both informationand enforcementregarding existing laws is lacking;Social Fund payments to some enterpriseshave at times been in arrears, and women have not received the payments on which they were more dependentthan ever. Many women have sought assistance from women's organizations to obtain information on allowances to which they may be legally entitled but have not received. Streamlining the system to permit greater transparency, simplicity and administrativeease will be necessary to safe-guard the achievementsof the family benefit system in Russia during the economic rehabilitationand beyond. (See paragraph 97, 117.) C. Women's Health Fertility and ReproductiveHealth 28. The reproductivehealth of women in Russia has improved over the past 20 years, but remainspoor by West European standards.Available data on fertility, maternal and infant mortality and abortions of the past two years suggest a perceptibleworsening of women's reproductivehealth. This situationis in need of close monitoringand urgent intervention.(Figure 1 and Annex 1, Table 2). 29. Russia has experienceda gradual decline in the birth rate over the past 20 years Since 1990 this decline has accelerated,and estimates for the first six months of 1992 puts the annual birth rate at 11.2 - a 12 percent decline compared to the same period the previousyear. Regional rates by oblast range as low as 8.2 for the Moscow area, 8.6 for Tula and 9.2 in St. Petersburg. Demographic decompositionof this trend attributes about ten percent of the decline to the shrinkingnumber of women of child-bearingage and 90 percent to fewer children per woman; particularlynoteworthy is the decline in second and higher order births. A major factor in the decliningbirthrate is the worsening economic situation, which makes women reluctant to bear children. Further evidence of the decisions to postpone or forego childbearingunder the current situation is discerniblein the increasingrates of abortion (see Figure 1). 30. Maternal and infant mortality have remained high in Russia despite impressiveimprovements over the past 20 years (Figure 2). Maternal mortality, which stood at 105 per 100 000 deliveriesin 1970 declined to below 50 in 1989- 90, but crept up to an 52 in the first ten months of 1991. These figurescompare to 47 for Cuba, 50 for Chile and Honduras, 5 for Finland, 3 for Sweden, 13 for Poland and 15 for Hungary. (Figure 2 and Annex 1, Table 2) 85 Ill: Is I I~~~~~~~~~~~~~ I II I I, a I , 5 3I I Figure 2: Mand (PA M1da 1*tlty (1^ Rem InRoolmS Iam M3 0 - a.a - Uu I5 6 INo' . . UUa 7 4l a a S9 a Wo8 a a 87 31. Infant mortality similarlyshows a decline from 23 per 1000 twenty years ago to 17.4 in 1991, when it began to increaseagain. it was estimatedat 18 per 1000, in the first quarter of 1992, a three percent increase over the same periodthe previous year. Also here there are large regional differenceswith pocketsof higher infant mortalityamong some indigenouspopulations." 0 Figures on infant mortality in Russia do not bear strict comparisons with other countries, due to different definitions of a live birth.71It is difficult to assess the effect of these differences until the internationaldefinition is adopted in Russia, as planned. An increase of 15-30 percent is to be expected, although some scholars put the figure much higher (Kingkade,1989). The infant mortality rate in Russia would rise to the 20-25 per 1000 range, and be on a par with that of Chile, Hungary, Malaysia or Korea. Most countriesin Western Europe are in the 5-10 per 1000 range. 32. The decline in women's reproductivehealth is corroboratedby the increase in the number of childrenborn with genetic disorders,which is reported to have increased22-fold over the past 15 years (InterlegalResearch Center). This is furtner supported by an analysis of infant mortality by cause of death, where factors related to the mother's health, such as peri-natal mortality and congenitalmalformations, have shown an increase from 43 to 64 percent of all infant deaths in the 1981 to 1991 period. (GOSKONSTAT) Contraception 33. The high rates of abortion are indirect evidence of the lack of contraceptives.Data from the Ministry of Health for 1989 indicate that the availabilityof contraceptivesfall short of estimated need by some 70 to 90 percent (Mezentseva1922 b). 1990 survey data indicate that over three fourths of Russianwomen are not using contraceptiveson a regularbasis; six percent are unaware of contraceptives;in rural areas this figure increases to 12 percent (GOSKONSTAT1992 p. 166). Oral contraceptiveswere not manufacturedin the former Soviet Union; imported contraceptivesare in limited supply and their cost has become a problem; they account for about two percentof contraceptiveusers. IUDs (chiefly copper Ts), which account for 15 to 20 percent of contraceptive protection, are manufactured, but not available everywhere (Thomsen 1992). Condoms, also manufactured, account for 15 to 25 percent of the limited contraceptiveuse; coitus interruptusand rhythmaccount for similarpercentages, dependingon the region (Fetisova,1992). The limited availabilityof supplies is exacerbatedby the wide-spreadlack of informationabout contraceptionand the lack of sex education.Even in maternityhospitals, more than two thirds of women report being given little or no informationabout family planning. 34. The continuedlow levels of contraceptiveavailability in Russia has lead to relianceon abortionas a first, rather than a last resort,method of limiting family size. Abortion rates per 100 births have reversed their steady decline from 253 in 1970 to 170 in 1987, and were exceeding 200 in 1990, then fell 7011e4j Cbdih_m md Twa X111TA Rol dentd m Ismoe resritve thaethal signs defiti adoptedby WHO.Itexude blht of lesstha2 weeb geatin, kw than35 cn n hght or we*hn kw thn 10_ gms, and=es breathiga the*o dils 88 slightlyto 196 in 1991. The number of inducednon-hospital abortions is unknown (Nezentseva1992 b). There are believed to be considerableregional differences in abortion rates across Russia, with rates per 100 births twice the national rate reported in some rayons within the Central Economic Region and in the far east (Mezentseva,1992 b, Thomsen, 1992). OccupationalHealth 35. The growing gap between the sexes in the expectationof life has led to a strong emphasison excess male mortalityin health assessmentsand less attention to analyses of morbidity. The limited statistics on morbidity, and health, by sex, in Russia,make an assessmentof those aspects of women'shealth not related to reproductiondifficult. However, a number of indicatorssuggest that women's health may be no better than that of men in Russia. Death rates in the working-agepopularion (16-59for men, 16-54 for women) were reported to be nearly four times higher for men than for women (7.9 vs. 2.0 per 1000). The chief cause of death for the male population are accidents, poisoning and traumas,with a death rate of 236 per 100 000 compared to 61 per 100 000 for women. Suicide rates, though a small part of overall death rates (Mezentseva,1992 b) are reported four times higher for men than for women. Thus, a large portion of the death rate, and by extension the expectationof life, stems from external factors unrelated to health. 36. Survey data from the Taganrog survey,(ibid.) using a combinedclinical and self-assessmentsof health found women in poorer health than men. Women were reported to fall ill more frequently than men, to suffer more from chronic diseases and to have more psychologicaland nervous disorders.Women also spent 1.5 times as much money on medicines as men. Length of Life 37. The expectationof life for women was 74.3 years in 1991, that of men 63.5. For women this representsa half year increase since 1986-7, for men a year and a half decline. The difference in expectationof life is 10.8 years in favor of women. This is a large differenceeven at this stage of development:it is 113 to 100 in women's favor, the same as the overall average for Eastern Europe and the former USSR; for industrial countries it is 110, for OECD 109 (United Nations, 1991) As discussedabove, a substantialportion of the gap between men and women in Russia is due to accidentsand traumas, not conditions of health, however. High alcohol and tobacco consumption among men are also likely to contribute to these mortality differentials. D. Vomen's Educationand Training 38. The female labor force is highly educated, more so than the male labor force: 47 percent of women and 34 percent of men have completed higher and secondaryspecialized or technicaleducation (Table 7). Women outnumbermen in both higher educationand secondaryspecialized education, while men outnumber women in general secondary,incomplete secondary and primary education.Women's dominance is of special interest in certain fields, such as economics, law, 89 education,and medicine:in 1989 women with universitytraining dominated the medical profession - 71 percent of all physicians are women - economicswith 77 percentof all employeeswith universitytraining are women,and cultureand the arts,with 68 percentof all workersfemale. 39. Women's higher educationis generallybelieved to be relatedto two factors.On the one hand,higher education is necessaryfor women to reachhigher levelsof pay:women work in lowerpaid positions,branches and sectorsand need higherqualifications than men for the samepay, despiteequal pay for equalwork legislation.On the other,non-wage benefits such as workinghours and job locationthat are compatiblewith familylife and a pleasantworking environment are citedby women as importantreasons for choosinga job. Both factorslead women into white collirrather than blue collarjobs. Specializedsecondary education,in particular,also facilitatedmigration for youngwomen to larger urbanareas in a societywith limitedopportunities for migration; young men, who did militaryservice, faced fewerconstraints (Romanenkova). 40. Educationand trainingis open to all. However,training programs leading to professionsthat are legallyprohibited to women on groundsof healthdo not admit women.A large number (600) of the 5000 officiallyrecognized worker's occupationsare affectedby this (GOSKOMSTAT)It is importantto note,however, that while womenmaybe barredfrom trainingthe prohibitionagainst employment is not rigidlyenforced: many women are in fact employedin such professions, e.g.certain types of tractordrivers (those applying pesticides), though without the requisitetraining and skill levels,and at lower levelsof pay. 41. On-the-jobtraining generally forms an importantpart of skilldevelopment and professionaladvancement in Russia. Here women are much less likelyto receiveprofessional training than men. Women'shousehold responsibilities are frequentlycited as an obstacleto further trainingoutside the area of residence,given the divisionof laborwithin the home. In 1990/91six percent of workingwomen undertook such courses to upgradetheir skills, while 20 percent of male workersdid so. However,survey data from 1989 showedmore than half of the women interviewedwanting to increasetheir skills throughon the job training.Managers took a negativeview of women'sskill upgrading: three fourths of thoseinterviewed did not supportsuch trainingfor women (Mezentseva,1992 42. It shouldalso be mentionedthat, women who did receiveon-the-job training noted littledifference in theirsubsequent careers: nine out of ten continued in the same job and grade,and fewerthan two out of ten receiveda pay increase, puttinginto questionthe returnto the investmentof time for women in such training. E. Women's Labor Force Participation 43. A uniquecharacteristic of theRussian labor force is that the majorityof workersare women.Women outnumberedmen 52 to 48 in the laborforce in 1991,a declinefrom previouslyeven higherproportions. The inclusionof nearlyall adults, irrespectiveof gender, in the labor force, has given Russia an exceptionallyhigh rate of femalelabor force participation:84 percent.Women 90 work in a relatively narrow range of sectors: 30 percent of are engaged in industry,13 percent each in commerce and education. 44. Women are drawn into certainsectors, which have become heavily feminized. Especiallyheavy concentrationsof women are evident in bankingand insurance(90 percent women), medicine and social protection (83 percent), informationand computing(82 percent)and education(79 percent).Together these sectors employ 37 percent of all women (Table 8). Certain sectors of industryare also heavily feminized includingtextiles 70 percent, sewing 89 percent, baking and pastry- making 72 percent and shoe manufacture69 percent (Mezentsevs1992 a). Skill levels 45. Despitetheir higher education,women occupy positionsof lower skill than men: overall, the number of low skilled female workers outnumber male low- skilled labor two to one (Mezentseva,1992 a). The mismatch between women's lower skill levels and their higher educationalqualifications is far greater than for men: 62 percentof all workerswith higher or specializededucation are women, and 38 percent are men. This mismatch between educationand job levels is echoed in the entire occupationalstructure. In industry 4.5 percent of all women were in leadershippositions, compared to 9 percent of all men (1985). Two major effects of this under-utilizationof human capital are immediately obvious: (i) a considerableloss of productivityand (ii) a very low return to women's education. 46. Workers are classified according to skill levels from 1 to 6, with the exception of certain female dominated occupationswhich, in practice, stop at level 4. Women's lower skill classificationsare especiallyevident in certain female dominated. However, the concentrationof women at lower levels of skill holds for female as well as for male dominated industries for the female dominatedfood industrywomen's skill levels average 3.1, while the industryas a whole averages 3.4; in machine-buildingand metal processing,which is male dominated, 60 percent of workers in the two lowest categories are women, 40 percent are men; in the highest category only six percent are women. 47. In addition to the apparent inequitiesof the job classificationsystem, women are reported to accept jobs at lower levels of skill and remunerationin exchange for non-monetarybenefits, such as shorter travel to work, less over- time or access to shopping or child-care facilities in the place of work. In other words,women's full responsibilityfor domesticwork and child-careassumes clear priority over economic work and career considerations,because of the inadequacy of other support mechanisms available. Income 48. The differences in occupational and skill levels are reflected in differencesin salary and wages. Women's salariesaverage about two thirds those of men. Lower salaries are especiallyevident in the salary levels of feminized occupationsand industries:overall, the higher the proportionwomen, the lower the average wage. Certain feminizedbranches of the economy have also lagged behind average wage increasesin the past five years (Table 9). 91 Table 7: Levelof Educaffonby SCD.for the EmployedPopulation. itm Cnu of Population Men Warn Higherand Secondary, 91 93 of which Higher 14 16 IncompleteHigher 1 1 Secondary Specialized 19 30 Geral Secondary 37 30 IncompleteSecndary 20 16 Primary 8 6 So: %SocoDemoggRahTcCbaractsrs of the Runhn Poswulton 1989, Moscow,GOSKOMSTAT, 1991 92 Table 8: Labor Force Participationby Sex and Industry, 1990 Sectors Percent Female of all Percent of Total Women Workers Workers Industry 48 30.0 Agriculture 40 6.0 Forestry 18 0.1 Construction 26 6.1 Transport 25 4.0 Communications 71 2.0 Commerce 80 13.0 Information and 82 0.4 Computing Other Material 47 1.0 Production Public Utilities 52 5.0 Health and Social 83 10.0 Protection Education 79 13.0 Arts 55 0.4 Culture 75 2.0 Science 53 4.0 Banking and Insurance 90 1.0 Administration 67 2.0 Total '2 ' 100-0 Sour,ce:Economy of the Russian Reiublic. 1990, Moscow, GOSKOMSTAT,1991. 93 Table9: MeaM2eWae IncrgaseIn Seleted Sectors. 198.1991 Pecnt Wage Proporion Increase Women Education 13 79 Cufture 15 75 Arts 12 55 Source:GOSKOMSTAT. 49. Part of the wage differentialsbetween men and women can be explainedby the Soviet government'semphasis on heavy industry,where men predominate. However,the differentialspersist with somevariation across sectors: in heavy industrywomen's wage eqtsal63 percentof men's,in light industry70 percent, in construction71 percent, in educationand science 64 percent,in healthand medicine67 percent,based on Taganrogsurvey data (Rimachevskaya,1992). Work Ideology 50. The responsibilityfor housework and child-carein the householdhas been assignedto women.This segregationof houseworkand child-carealong gender linesis carriedover into the concessionsin the labormarket. Child-care leave for childrenbelow age one and a half, leaveto care for older children,le.nve to care for sick children,and leaveto care for invalidsmay be takenby either parent,but in practiceare takenoverwhelmingly by women.Women's lower salary levelsmake this an economicallyrational choice at the householdlevel, since the level of benefitsare low and not relatedto previouswages. The lower pensionage for women in general,and for mothersof many children,similarly facilitatetheir responsibilities for houseworkand child-care.72 Althoughthese policieswere designedto allow familiesto combinechild-bearing and rearing with economicactivity, they have in practicebecome targeted to women wjp tale well over 90 percentof child care leaves. 51. The burdensto enterprisesimplicit in thesepolicies were shoulderedin the interestof socialequity and socialresponsibility, as was the provisionof day-care,health care, summer camps, work load concessions and the administration of maternityand other benefits.The remainderwas providedby the federalor local budgets.Over the years,however, the government'sshare of the cost of theseconcessions has been passedon to women themselvesnot only in the form of their longerwork days (seebelow) but also in the form of lowerpay. WfMb w pud= ag - as 3w as 46-dm it pro-tewomais v*rodve& heth, blmw, asit c wt On d of 94 52. Underenterprise restructuring the leaves,benefits and concessionsclaimed by womenare graduallybecoming another handicap to the fulluse of femalelabor, along with the concentrationof women in sectorsand levelsof low pay. In the longerterm, the traditional leaves and concessionsfor womenwith smallchildren in the labormarket will no longerbe born by the enterprisein the interestof socialresponsibility, and women'semployment prospects will worsen.Profit- makingenterprises may tend go one step furtherand preferhiring only men, who are felt to be able to contributemore fully to work than women with young children. Housework 53. Over timewomen's domestic labor has moved in to fill the gap betweenthe expectedlevels of livingand the scarcityof consumergoods and services,and now commandsa substantialshare of women'stime. Women spend,on average,35 hours per week on houseworkand child-care,in additionto 38 hours in paid employment.The costs -or indeedthe rationale- of using such a largeportion of the time of a highlyeducated section of the laborforce in low productivity domesticlabor is rarelyquestioned. 54. Thus, women'slooser attachment to the labor force,their lower skill levelsand pay, and the smallnumber of women in managementpositions, is partly explainedby their responsibilitiesfor home and family. The divisionof householdresponsibilities in Russia does in large measurefollow sex lines. Women spend about as much time as men on child-careand nearlythree times as much time on houseworkevery day (Table10). Althoughwomen spendabout half an hour less on economicactivity than men every day, theirwork in the household and child-careduring the week adds the equivalentof one workingday; during weekends,women spendmore than fifteenhours on houseworkand child-care,twice thatof men. Addingweekdays and weekends,women spendnearly two daysmore than men on houseworkand child-careeach week. Hence,women have considerablyless leisuretime as well as somewhatless time for eatingand sleeping.They also have lesstime and energynot onlyfor personalpursuits, but also for economic activities. 95 Table 10: Time lJse of Men and WomenWorkers OutsideAgriculture, 1990, Hoursand Minutesper Day. Weekdays Weekends Men Women Men Women Work 8 12 7 58 Work Related 1 30 1 20 Housework,mncl. 1 12 3 27 2 51 6 40 shopping Work on Land 19 7 55 23 Child-care 28 33 50 52 Sub-Total 11 41 13 25 - 436 7 5-M Free Time 2 51 1 21 713 4 37 Eating 9 07 9 02 10 44 10 42 Sleeping PersonalCare Otherand 21 12 1 27 46 unaccounted Sub-Total 12 19 10 35 19 24 16 5 :,' 4''00.'' '2'2400 24 _oS .' -, "2. -V '0 24 ,', ','' - A '"'. ' ': - IN D Total Source The NationalEconomy of Russia.1990 Moscow: Goskomstat,1991 Pensions 55. With slightly more women than men in the active work force, the large losses in male populationduring the SecondWorld War, women's earlierretirement and greater longevity,women greatly outnumbermen among pensioners.Estimates for 1991 give the proportionof women among pensioners at 72 percent. ( Economy of Russia 1990, cited in Khotkina, 1992). 56. Retirement is permitted at age 55 for women and 60 for men, lower than in most countries in Western Europe (Table 11). It is not presentlyrequired that 96 pensionerscease to work,and largenumbers continue to participatein the labor force. Table 11: Age of Eligibilityto Old Age Pensionfor Men and Women in E, ected EuropeanCountries and Russia COUNTRY MEN BOTH WOMEN Belgium 65 60 Denmark 67 France 60 Germany 63-67 GreatBritain 65 60 italy 60 5573 Netherlands 65 Portugal 65 60 Spain 65 Sweden 66 Russia 60 55 Note: Thesedata summarizemajor trends in coveragebut do not give complete informationon exceptionsand special circumstances. 57. There are a numberof additionalretirement privileges for women.Women with five childrenor more are entitledto receiveold age pensionat age 50 and "MotherHeroines" with ten or more children,receive an allowanceequal to the pension.In addition,time spent on child-careleave is countedtowards the minimum20 years of work requiredfor labourpensions. As a resultmany women retirebefore age 55, while most men wait until age 60 (Zavadskaya). 58. Workersin dangerousand hazardousoccupations are eligiblefor earlier retirement,and many women are drawnto theseoccupations, not onlyby the wage supplementsbut also the possibilityof early pensions - with or without continuedemployment. For many women continuedemployment after retirement has becomea means of compensatingfor lower pensionsand lower wages duringthe workingyears and equalizinglife-time income. 73/ swdWflv*e. pe.uo abs 35 yam rs ofdwg 97 V Unemployment 59. Unemployment was traditionally near absent during the period of the centrallyplanned economy. As of January 1, 1992 those out of work numbered472 040, by September1992 this number had reached904 259; of these 33 percent were registered unemployed. Seventy-one percent of these were women. This is an average that masks regional and local concentrationsas high as 89 percent women among the unemployed in the Nenets regicn. It is expected to increase further with mass lay-offs in many industries. 60. Women looking for work have had greater difficulty in obtaining new employment than men. While women were 71 percent of the unemployed, they were only 61 percent of those who found new jobs. The overall placementrates of the registered unemployedwere 36 percent for men, for women it reached 23 percent (Table 12). 61. Unemploymenthas disproportionatilvaffected skilled labor, and more than half of the registeredunemployed have secondaryspecialized or higher education. About 40 percent of unemployed women have higher and secondary specialized education, comrared to 25 percent of unemployedmen (GOSKOMSTAT).White collar workers such as economists, educators, engineers and scientists figure prominentlyamong the unemployed.Vacancies for new jobs, on the other hand, tend to be concentratedin areas of blue collar work, where males have predominated (machinefitters, adjusters, builders) or where preferenceis now given to males. Table 12: EstimatedUnemployment and Re-Employmentby Sex, First Six Months 1992. Non-Work0-gPopulatio Seeking Employment(000) e Obtainig p Male Fmale 'PePnantM- taePercent 440.2 673.9 61 36 23 50 Source: GOSKOMSTAT 62. In addition to and often preceding unemployment, a large number of industrialenterprises have instituted froced part time work. This practice, also known as 'administrativeleaves" requiresworkers to take one or more days a week or the summer off, sometimeswith pay, often without. Certainbranches of industry,such as textilesand defense industriesare now working reducedshifts. In August 1992, over one million employeeswere given administrativeleave and 800 000 worked reduced shifts. Of these nearly half were unpaid, the remainder received reduced pay. Women's heavy concentration in the textile industry suggests that they may also be more vulnerable to administrativeleave, over and above their higher unemploymentlevels. Workers on administrativeleave are also those most likely to become unemployed. 98 F. Women in Political Life 63. Women's influenceat politicallevels of decision making have declined in recent years. Since women obtained the vote in 1917, the participation in political life was a central tenet of Communist ideology, and a certain proportion of seats in the legislaturewere ear-marked for women.74 The change in ideologyhas eroded this practice and the number of women representativesin the Russian Congress of Deputies has declined to five percent. The prepresentationof women in the Russian Congressof Deputies is now five percent. 64. There is no indicationthat women are less active politicallythan men; in the currentpolitical climate,however, the emerging partieshave not yet found space for women's issues or female candidates.Only five of the 25 political parties include women's issues in their current platforms. As a result the attention given to women's issues, which are traditionallya concern of women representatives,has declined.As in the transitioneconomies of Eastern Europe (Fong and Paul, 1992) these levelsare considerablybelow WesternEuropean levels (Table 13). 65. Because of the close links between family and labor policy in Russia, and the centrality of labor market reforms in economic rehabilitation,the lack of clearly voiced views of women in the political process is a serious handicap. Women's needs in the transformationprocess are not likely to be addressed if their views are not articulatedand taken into account in policy making. The legislativemechanisms to do so have been weakened and need strengthening. Non- partisan legislativeadvisory committeeson women's affairs could fill this gap in the interim, until women's issues become more fully articulated in party programs; setting quotas for women's participationin politicaland legislative committees for the interim period have also been proposed. G. Women's Organizations 66. Women's organizationshave been part and parcel of the social,professional and humanitariannetworks in Russia. Restructuringhas seen the beginnings of various independentwomen's organizations.These women's organizationsare still few in number,and with limitedregional coverage and financialsupport. Although their level of activities is still modest, the rise of these organizations represent a significantstep in channeling the active support of the women of Russia to the future course of economic restructuring. They range from professional and humanitarian organizations to business and entrepreneurial organizations, organizations for political development, and self-help organizations. Of the 300 non-governmentalorganizations registered with the Ministry of Justice, 17 are national and about 70 regional or local women's organizations.A list of selected organizationsis given in Annex 2. The most prominent is the Women's Union of Rtssia, with a program of activities of re- 741 In ONlS,h oft dep_tin fterrto, nal, munIc ad via soviet and 33 percet o te de of ftheSuprem Sovi f te US werewome (Vornon). 99 training and entrepreneurshipto address the different nef is of women in an emergingmarket economy and to work for equal opportunity.A wide geographical coverageand concentrationon the trainingof trainerspermits a large multiplier effect of these activities. Table 13: Women's Representationin the Lagislature,Wastem EuropeanCountries. 1987 Austria 11.5 Belgium 7.5 Denmark 29.1 Finland 31.5 France 6.4 Iceland 20.6 Ireland 8.4 Italy 12.9 Netherlands 20.0 Norway 34.4 Portugal 7.6 Spain 6A Sweden 28.5 Switzerland 14.0 United Kingdom 6.3 Souro: The World's Women, United Nations,New York, 1991. 67. Research on women in national developmenthas emerged in the past ten years in Russia. A number of institutionsare active in research on women's issues in the rehabilitationprocess (Annex3). Most prominentamong these is the Center for Gender Studies,which includes 10 researchersworking on a variety of issues relatedto the changing conditionsof women in Russia. Limitedfunding, the lack of appropriatedata and the difficulty of obtaining even the limited existing informationhas limited the range and scope of research on women in Russia and given it a slightlyacademic tenor. Researchersattempt to overcome this by efforts to link research and action, through outreach activities and seminars for women. Its limitedscope notwithstanding, research on women provides the essentialfirst base upon which to gauge the effect of changingpolicies and practices on women and explore needed policy adjustments. In order to draw 100 greater benefit from these efforts, serious considerationshould be given to strengtheningresearch on women during economic rehabilitation.This will need to includea widening of the researchagenda towardsbroader social action issues during the transition,enhanced contact with internationalresearch in the field, and modest financialsupport. III. THE FUTURE: FEARS AND REALITIES A. The Return to Patriarchy 68. The social tensions inherent in the economic re-structuringhave also engendereda stricterdifferentiation of the social and economicroles of men and women. Already at the early stages of perestroikacalls were heard for "women to return to their natural predestination"(Gorbachev, 1987 p.117). It has been argued widely and on a variety of grounds that the proper sphere of activity for all women is the home rather than the labor market (Vornonina,1988). This has been argued on traditionalistgrounds, as the natural order of life and to cure a wide variety of social ills; on demographic grounds, in order to raise the decliningbirth rate; or in the interestof greater choice i.e. women should be allowed the choice of staying home and taking care of their husbands and children. 69. The public debate cn the proper role of women under the new social contract is an integral part of an uncertaintyabout the future that includes iot only economic relations,but also basic human relationships. In the re-examination of values and beliefs, the tendency to return the traditions existing before communism is explicit.The rapidly escalatingcost of living and deteriorating conditions of daily life, fears of mass unemploymentand women's continuing dissatisfactionwith their long working days are all elements in the advocacy of a return to patriarchy. 70. The partial return to patriarchy- for the current debate addresses only the relationshipbetween the sexes, not between generations- is advocated by some to mitigatemale fearsof mass unemployment.Woman's legitimaterole is seen to be in the home, as care-takerof husband and children.This limited role has raised the issue of women's education, and some have argued that women will require no more than eight years of schooling to be competenthome-makers. 71. "Returningto the kitchen" sometimesstrikes a responsivechord among women who have struggled over the years to take care of house, husband and children under increasingscarcity of basic goods and food-stuffs,and dream of ceasing this struggle and leaving unfulfilling jobs for domestic life under the capitalist system. Home production is believed to play an increasing role in household survival.As real wages decline and the need to devote more time to home productionof basic food-stuffsincreases, giving up employmentmay also be seen as a practical economic choice. 72. The need for women to stay home has also been argued on demographic grounds.The decline in the birth rate, and in particularthe resultingnegative rate of population growth has fed alarmist and nationalist tendencies.Women 101 stayinghome and raisingchildren is advocatedas the only defense for an endangerednation, whose very survivalis at stake. The argumentsare specious, sincesimilar fluctuations around both the actualand the intrinsicgrowth rates do occur in populations,only to readjustin a relativelyshort period of time; moreover,the evidenceof actual damagecaused by a decliningpopulation is ambiguous. 73. The patriarchaland the demographicrationales conspire with a democratic ideal to returnwomen to the home, on the groundsthat women shouldbe allowed the choiceof stayinghome and takingcare of their children.This is still widelybelieved to be the norm in Westerndemocracies and alsoa desirableoption for Russia.(Reality in WesternEurope does not supportthis perception: even in Irelandand Spain,which have the lowestfemale labor force participation rates in Europe,nearly 40 percentof all womenwork.) This optionis put forth as a democraticchoice for women,although the same choiceis not foreseenfor men. 74. Contemporaryeconomic realities are far removedfrom the realizationof any of these ideals,however. When workersare lookingfor secondand -hirdjobs to make ends meet, few householdscan affordforegoing the salaryof one of its members,regardless of its convictionswith respectto women'sproper role. Elevenpercent of all householdswould be withouta singlebreadwinner if women stayedhome. 75. Under thesecircumstances women expressgreat fears for the future,much more so thanmen. In a publicopinion survey in 1991 (Rhotkina,1992) more women (53 percent)expressed a high levelof anxietyat the prospectof losingtheir jobs than men (42 percent).These fears are not unjustified,for, in fact,far more women have lost their jobs than men, and women have also had greater difficultyin findingnew positions(see unemployment above). As discussedbelow, women are also over-representedamong vulnerable groups at risk of poverty. B. IncreasedFeminization of Poverty 76. Povertyin Russiahas been stronglyskewed towards women; the economic crisishas alreadyintensified this tendencyand an examinationof households most vulnerableto povertysuggests that in the futurethe poor may be femalein even greaterproportions than before. 77. In the Sovietperiod, the householdsmost vulnerableto povertycould be divided into four main categories(Rimachevskaya, 1992): pensioners, single parenthouseholds, households with many children,and studenthouseholds. To these the unemployedhave now been added.These groupsremain those primarily eligiblefor socialassistance. However, despite some indexation, this assistance is now dwindling,due to veryhigh inflation.Those who were oncevulnerable have becomeincreasingly subject to economicstress during the crisismaking the need for adequatesocial assistance an even greaterurgency. 78. Women are heavilyrepresented among the above mentionedgroups. Among pensioners,women outnumbermen about two to one. This is the resultof the largernumber of women in the labor force, the greaterlongevity of women and 102 the remaininggat in the male populationage 60 and above from the SecondWorld War mortality. 79. Among singleparent households with childrenunder 18, 94 percentare headedby women.Households with many childrenare dividedfairly evenly among malesand females,although 81 percentof singleparent households with threeor more childrenare withoutthe father.These one earnerfamilies are especially vulnerableto povertywith decliningreal wages and allowancesduring rapid inflation. 80. The fourthcategory, students include slightly more (54percent) women than men. 81. Finally,among the unemployed,women againoutnumber men two to one. 82. An additionaland growingcategory at high risk in the presentcrisis are households with insufficientincome, who qualify for additionalsocial assistance.These come from sectorsand occupationswhere wages were alreadylow to beginwith and have sincefallen further behind with rapid inflation.In many of these,the proportionof women is higherthan in the populationas a whole, althoughprecise estimates are difficultto constructwith existingdata. Lower skill classificationsand lower overallsalaries for women than for men - - predisposewomen for this category.At particularrisk are certainfeminized sectorsof the economy,in particulareducation, where lowwages have also failed to keep up with wage increasesrelaoive to othersectors (Table 8). 83. Administrativeleave in certainsectors, defense, textiles, with high proportionsof femalesmake another,difficult to estimate,group at high risk of poverty. Rules and practicesregarding administrative leave varies;some administrativeleave is with reducedpay, but no pay also occurs (See para. 63). C. Care of the Young,the Elderlyand the Disabled 84. After some early experimentationwith communalmeals and child-care CommunistRussia addressed the reproductionof the labor force and the performanceof domesticwork by a reductionin the laborperformed by women.A seriesof labor concessions,allowances and leavesresulted in the removalof responsibilityfrom the governmentto the household,an increasedwomen's work day and freeingthe male labor force from many domesticresponsibilities. The domestictasks performed by womenhelped to assurethe household's material well- being and comfort,and providedchild-care. Though rarely mentioned in policy discussion,women's domestic labor also playeda key role in the care of the disabledand the elderlyin the contextof the family. A significantshare of the social protectionof the young, the old and the infirm was de f.cto transferredfrom the state so the household and performedby women at considerabledirect savings to the statebudget. 103 85. In principle,women were compensatedfor this work throughallowances and benefits but the long-termconsequences have been an erosionof women's position in the labor market and their concentrationin sectors and occupationsof lower pay and responsibility.The deteriorationof the system of socialprotection with rapid inflation and rising unemploymenthas further eroded the low level of compensationreceived by women for these services.In the re-negotiationof the social contract inherent in the transfromationperiod, responsibilityand/or compensation for these services, performed by the female labor force are thereforean integralpart of the agenda. D. Social ProtectionMeasures During Economic Transformation 86. Reshapingthe system of social protection in the economic transformtionis based on, the commitment to equity given fiscal constraints. Within the limits of existing resources, adequate compensationand protection of all in need, irrespectiveof age or gender, is the paramount concern. Because of women's differentlabor market roles, and their aiditionalresponsibilities outside the formal labor market for family well-being and protection social protection measures must be carefully designed to eliminate differentialimpact on the female half of the population. 87. The most essential achievementsmade in social equity and human capital must be safe-guarded during the transition. It is necessary to establish priorities and trade-offs in a period of economic uncertainty.Strategic areas of action have therefore been identified by different government agencies together with the World Bank under four main headings: 1. Employment and Unemployment,2. Pensions,3. Social Protectionand Family Policy and 4. Maternal and Child Health. 88. Cutting across these four headings is a fifth: the need for additional informationon women's conditions,both in terms of the collection,reporting and analysis of data and in terms of public informationcampaigns. The Ministry of Labor, the Federal EmploymentService, the Ministry of Social Protectionand the Parliamentaryand the PresidentialCommittees on Women's Affairs, Protectionof the Family, Motherhood and Childhood, as well as women themselves, through different non-governmentalorganizations, will need to institute a system of ongoing review of proposedpolicies and regulationsin these areas specifically for gender equity. Despite women's formal equality, a pro-active stance is now necessary to ensure equal protectionand participationof women during economic rehabilitation. Employment/Unemployment 89. Employment. The exceptionally high rates of labor force participation of women in Russia and the fact that they make up more than half of the labor force make employmentthe major issues of concern for women in the present crisis. The present situationof considerablyhigher female than male unemploymentand with the mass lay-offsexpected in the near future,mean that women's ability to find new jobs will be a decisive element in the progress of reform. 90. In the economicrehabilitation, promoting an effectivelyfunctioning labor market, irrespectiveof gender, is thereforeof the first importance.Sex-typing 104 of jobs, by law and by practice, prevents a free exchange of labor market information for both employer and employee. As a first step job vacancy announcementsand job classificationsby sex must terefore be prohibitedin the Lnterest of the free mobilitv of lsbor. 91. On the same grounds, all occupationsneed to be opened up to qualified persons regardlass of sex. At present some 60 of 5000 officially listed blue collar occupationsare formally closed to women. The large number of labor laws and regulationsprohibiting women's employmentin certain occupationsshould be re-examined in the light of international standards, and in many cases eliminated. In practice, women frequentlyhold positions in these prohibited occupations,so that their effect has been shifted from ore of protectingwomen to one of increasingwomen's low levels of pay. In a fully democratic society women should be allowed the same choice of employmentas men, including,as for men, professions that carry the risk of damaging their reproductivecapacity. 92. Similarly, vocational training for occupations that are prohibited for women is formally closed to girls. Such entry barriers will also need to be examined and restrictionsremoved to permit training for women and girls. As a second step, the admission practices of vocational institutions with exceptionally low proportions of men or women will need to be reviewed to determine de facto exclusion on the basis of gender. 93. Unemployment. The increasinglevels of unemploymentamong women require the full integrationof women throughoutunemployment policies, regulations and practices. In the short and medium term, a pro-active stance to facilitate the re-absorptionof the female unemployed is required in view of women's high rates of unemployment,their particular labor force characteristicsincluding high education qualificationsand thfir looser attachment to the labor force. 94. In the short and medium term employment services,including job search facilities and career counselling thus require special attention to the particular needs of women. This could include job clubs for women to teach job search skills and provide support and assistance in finding employment; occupational testing to overcome gender-based perceptions on appropriate employment;re-training to meet emerging labor demands including flexible re- training programs for women with small children, as well as out-reachprograms for women in self-employmentand small scale entrepreneurship.Many women have expressedan interestin becomingself-employed, and have sought trainingthrough non-governmentalorganizations for differentprofessions. Special attentionmay also be directed to home-basedwork and agriculturalprocessing, which women fall back on to augmentearnings. Increasing the productivityof such small-scaleand home-basedwork is of particularrelevance, and need to form part of re-training activities for women. 95. Social protectionmeasures for groups such as these with a non-traditional attachment to the labor force and often no employer will become an important issue as the labor market opens up and allows expansionof their numbers. Thus, social protection policies, including unemploymentinsurance, sick leave and medical care as well as child-care leave will also need to safe-guard the interestsof these groups. 105 96. Unemploymentcompensation will directly affect women more than men, if presentpatterns continue.Streamlining the system of unemploymentbenefits, and the indexation of basic benefits to the cost of living thus have special relevance to women. In the longer term, as unemploymentdeclines, a system of unemploymentcompensation adjusted to wage differentialsmay be appropriate.In the short and medium term, such a system has little relevanceto the female labor force, which does not command the higher wages that qualify for higher compensationlevels. The proposed flat rate benefits,guaranteed at levels above the subsistenceminimum, will not adversely affect women. 97. Child-care. To increaselabor mobility,the state provisionof child-care will be necessary, or many mothers of young children are in effect barred from employment.The limited data availableindicate that some aspe.;tsof child-care have begun to erode; data on summer camps suggest a 20 percent reduction in the number of children going to summer camp between 1991 and 1992; anctthe number of child-careplaces declinedslightly to 64 percentof children in the relevantage group. An essentialfirst step in the process of eliminatingbarriers to female employmentis the transferof responsibilityfor child-carefrom the enterprise. Local governmenthas an importantrole to play in providing such services, and initial discussionshave already been held in some areas; national government will need to continue to play a role in the transitionperiod. If profit-oriented enterprisesare forced to underwrite the cost of child-carefor its employees, they could respond by preferring workers who do not or will not in the future require this, i.e. men, since the responsibilityfor the welfare of the child is seen as the mother's R(etainingchild-care as an enterprise responsibility without subsidy will t- refore quicklybecome a deterrentto female employment. The gradual eliminat-a of child-care at the place of work must be accompanied by providing a stimulus for the provision of quality private child-care by private enterpriseand, especiallyin the short and medium term, also by national and local governments,as needed. Subsidiesfor private child-care in the form of grants or tax-creditsare a necessary complement to reform of this sector; such subsidies can be directed to the provider of child-care or to parents needing child-care. 98. Information.The differentlabor market behavior of men and women requires continuingmonitoring of labor market changesby sex. Labor market and management informationsystems which fo'llowtrends in the labor market need to disaggregate informationby sex, as planned, to determinethe differentialimpact of policies and programs on men and women. 99. In a wider sense, the collection,reporting and analysis of data by sex, with respect to the labor force as well as other social statisticsand indicators (housing,income, health etc.) are importantelements in monitoring the socto- economic development. Gender differencesoften overshadow regional as well as occupationaldifferences, and are necessaryto a full analysis and understanding of trends. 100. In order to increaseawareness of the key role of female labor in economic growth,public informationcampaigns could complementto the above measures. If more women move into positions of decision making, public awarenesswill also grow. Mass media campaigns, by government ministries and through non- 106 governmentalorganizations, as well as stimulatingresearch on femaleemployment issuesthrough the releaseoi data by sex need to be institutedat an early date and where possible complementedby an informedpublic positionon female employmentissues by governmentleaders. Publicationand distributionof statisticalcompendia on the conditionof womenhave servedto draw attentionto genderaspects of policiesand practicesin many Europeascountries and could serve a similarpurpose in Russia. Supportto non-governmentalorganizations workingon women's issuesbecomes a low costmeans of increasingpublic awareness of the importanceof women'seconomic roles. Pensions 101. For the elderlyand retiredadequate income is a seriousconcern. The priorityissues for the 70 percentof pensionerswho are women are to ensure adequateindexation of pensionsto the cost of livingand a financiallysecule pensionfund. Otherissues, such as the relationshipof pensionsto priorwages, pale in significancenext to thisover-riding concern. A pensionsystem tied to previousearnings and contributionsis of principalinterest to those in the higherwage brackets;women's lower wages and lowerpensions make such a system of littlerelevance to the majorityof pensionersat present. 102. The age if pensioneligibility for women is earlierthan for men, and many women continueto work in order to compensatefor lowerpay duringtheir working life and lowerpensions. Women thus overcome some of the inequitiesboth in life- time earningsand in retirementincome. Surveydata indicatethat 50 to 60 percentof femalepensioners work becauseof materialnecessity, compared to 30 to 40 percentof males givingthis reason,depending on the branchof industry. In the early 1980s,over half of workingpensioners received very low pensions, with women receivinglower pensions than men (Sternheimet,1983). Proposals to increasereduce pension benefits for workingpensioners would affectwomen more adverselythan men. Eitherproposal would result in significantlylower earnings for women;both togetherwould create serious gender inequities that the existing systemhas in fact adjustedand respondedto. The fall in the real value of pensionsduring the economiccrisis, for the largemajority of pensionerswho are women must be consideredin light of the gender inequityit implies.Basic pensionsremain adequate to meetingthe increasingcost of livingat a minimum subsistencelevel. SocialProtection and FamilyPolicy 103. The presenteconomic turmoil has broughtinto clear focus the inherent conflictsbetween an effectivelabor market policy and the family policies developedunder the philosophyof concessionsto women and the familyto ensure care for those not in the labor force (the next generationand the older generationof retiredworkers). A policyof family-relatedleaves and allowances administeredand financedby several differentagencies at all levels of administration,including the enterprise,not alwayswith a clear accountingof costs- was viableonly in a centrallyplanned economy where socialcos s were spreadout among differentorganizations. During the transition,and beyond, theseconcessions for womenare transformedinto obstacles to women'semployment. As discussedabove, such concessions and allowancesincreases the cost of female labor and affectsprofits. In seekingto reducecosts, including the cost of 107 labor,management may either (a) dismissand (b) not hire personsfor whom concessionsapply. Since women in practicehave been theusers of thesedifferent formsof leavesand concessionsthey will be discriminatedagainst as a class, and men will be hired beforewomen. This is becauseemployers tend to see all women as potentialcaretak.rs of children,the sick or the elderly,given the presentdivision of labor in the household,and thereforeentail the risk of higherlabor costs.Women may also be offeredlower salariesfor the same work to compensate for real or hypothetical increases in the cost of female labor. 104. Because of its major implications for the female labor force, family policy must therefore be added to employment and social protection policies as a key elementon reformagenda. A coherentfamily policy in a mixedmarket economy can servethe two-foldpurpose of protectingthe economicallyweakest and of freeing female worker from the economicand the psychologicalimpediments of past policies.At the same time, it will need to simplifythe administrationof benefitsand remrinwithin severe fiscal constraints. 105. In addition to coordinationof the many differenttegulations and allowancesin familypolicy, support and adviceto familiesunable to cope with the strainsof the crisishave becomeurgent. An analyticalwork to determine differentlevels and typesof non-financialsupport needed by familiesand how it can best be providedshould therefore be undertakenas a matterof priority. It will need to address,on the one hand, the administrationand coordinationof familypolicies, and, on the other,the means requiredto providesupport and counsellingto families,through social work services. The need to establisha high-levelbody at ministeriallevel for the implementationand coordinationof family policy an the grovisionof servicesof social suort should be consideredexplicitly. 106. The currentsystem of assigningboth administrationand responsibilityfor someelements of familypolicy to the placeof work throughleaves and allowances to mothersof smallchildren entails higher relative cost for femalelabor (and in particularwomen with smallriildren) and will need reviewand adjustmentin lightof economicchanges. Additional concessions, of a shortenedwork week and prohibitionof dismissalof women with small childrenproposed in the Draft FamilyLaw of 1992currently under discussion, will need carefulexamination for its mediumand long term implications.If the cost of the shortenedwork week is to be borne by the place of work, this would createobstacles to female employment,as discussed. If the cost is borne by the government,then this regulationcould facilitatewomen's employment. Broadening the rule to include fatherswill not solve the problem, merelyshift the employmentbarrier from womenonly, to parentsof youngchildren. Since the divisionof laborwithin the householdassign most of the child-careresponsibilities to women, even a broadenedversion quickly becomes a de factoemployment barrier to women. The prohibitionagainst dismissal is a two-edgedsword: on the one hand it protects women and children;on the other,it severelydiscourages recruitment of women: oncehired, a woman cannotbe fired.It would also have the effectof freezing labor mobilityfor a substantialportion of the labor force at a time when increasedmobility is critical. 108 Maternal and Child Health 107. The visiblydeteriorating conditions of maternaland child health in recent years make action to arrest this decline from already poor conditions.Recent increases in maternal and infant mortality, together with the decline in live births and the increase in abortionsmay be indicatorsof the limits of women's abilityto cope with the crisis and must be monitoredcarefully. Urgent steps are required simultaneouslyto improve health status and to monitor progress. Drawing up an emergency action plan in the field of maternal and child health requires immediateattention; special assistancewill need to be consideredas part of the agerda for World Bank assistance. E. Additional Support Mechanisms:NGOs 108. As the key role of the large and highly educated female labor force cannot be ignored in labor market reform so the resourcefulnessand ability of Russian women outside the labor force will also be vital. By drawing upon the emerging initiativesboth at householdlevel and in the private sector by women, economic growth can be facilitatedand its pace increased. 109. A number of independentwomen's groups are emerging, in addition to the officiallysponsored women's organization,chiefly the SovietUnion of Women, of the past. A First IndependentWomen's Forum of such groups was held in 1991, a second is planned. These organizationshave a key role to play, not only in the changing social and political life of Russian women, but are also assisting in the economic transformation. 110. Women's NGOs, e.g. the Women's Union of Russia, have begun channelling wsomens creative initiatives into commercial activity through training and advice. They also provide the moral and psychologicalsupport required to start a small business. Their out-reachcapability to women provides easy access for women as well as needed feed-backon trainingfor the organization.Tnus, women's NGOs are especiallywell-placed to mount pilot trainingin fields in which women have expressed special interest,both technical training and business skills. These can subsequently be translated into larger scale programs under the auspices of the re-training of the Federal Employment Service. Special assistanceear-marked for women's NGOs to expandpilot trainingmay be desirable under the Social Protection and Employment Services Project, Phase I and II. 111. Several stages of budding entrepreneurshiphave developed among women in the emerging private sector. First, there is home production of essentialsfor household survival. The dependence on non-wage income in kind is becoming a significantfactor in householdsurvival. This may includevegetable plots, small scale trade and barter, and home production,including canning and preservation of food for home consumption.These activitiesfocus on the satisfactionof the basic needs of the household,as food suppliesbecome increasinglyuncertain and prices increaserapidly; essentially, they aim to reduce expenditure,when income fails to keep pace with rapid inflation. 112. Second women, collectively and individually initiated a number of activities to generate income. Many of these originate in traditionalfemale 109 craftsand skillsthat may also have servedto reduceexpenditure at household level:sewing, knitting, embroidery, lace making,picking berries, making jams and pickles,etc. As a rule, these are self-employmentor second income activities,drawing upon women's management and technicalskills and with a large investmentof women'stime, both in manufactureand sales,but with low capital, limitedturn-over and very limitedmarkets. 113. Third, some women's groups have transcendedsmall scale personal production,and are moving into small scale entrepreneurship,e.g. in the manufactureof fashionaccessories on a piece work basis. These are modest beginnings,but the essentialshift into commercialproduction has been taken, and marketinghas been expandedbeyond personal contacts and encounters.There is a great intereston the part of women in startingsuch small businesses, particularlyin traditionalfemale domains, but businessknow-how, marketing skills and capitalare lacking.In order to channelthese initiativesinto commerciallyviable activities, training in smallscale entrepreneurship as well as in technicalskills and in marketing,small business consultancies, easier accessto credit will becomenecessary. Such courseshave been offeredby the Women'sUnion of Russia on a pilot basis in Moscow over the past year with considerablesuccess. There is considerableunmet demand:applications far outstripthe numberof availableplaces in Moscowand provincialchapters of the Union that have initiatedsimil ar programs. IV. SUIENARY A. Setting 114. Despitethe strongremaining ideology of concessionsfor women as the weaker half of the population,women in Russia have the capacityto play a positiverole in the economicreform process rather than becomingits victims. Women constitutethe majorityof the labor force, as well as of the voting population.The femalelabor force is more highlyeducated than the male labor force;retraining for women can thereforebe shorterand more cost-effective. Women are under-representedin the decliningheavy industries,and are concentratedin sectorsof potentialgrowth: commerce and trade,banking, and socialservices. Although it is not usuallyperceived this way, women have also acquiredconsiderable and managementskills from the day-to-dayrunning of a householdunder increasingeconomic scarcity that can now be put to wider use. In many ways, womenhave a clearpotential of becomingleading elements in the reformprocess and a pro-activestance on women in socialpolicies during this processis calledfor. 115. At the same time, the psychologicalclimate - both a philosophyof vulnerabilitycm concessionsand the multi-facetedresurgence of patriarchyin the relationsbetween men and women - poses formidablebarriers to the most efficientuse of femalelabor and the full and equalparticipation of women in theeconomic rehabilitation. Women have traditionallybeen over-represented among poor and vulnerablegroups and this trend has intensifiedboth for households dependenton socialassistance and the workingpoor duringthe presentrapid inflation.Women also constitutethe largemajority of the unemployed,and are believedto be largenumbers among thoseforced on to short-timework. 110 116. The near-exclusivedependence on women's domesticlabor for maintainingthe material well-beingand comfort of the household, providingchild-care and care for the disabled and the elderly, has left a major share of the cost of social protection of these young, the old disabledwomen in the context of the family, througha system of labor market concessions. The transformationof the command economy has made these labor market concessionsdysfunctional to the efficient operationof the enterprise,and necessitatesa re-examinationof family policy in the interest of the free movement of the female half of the labor force. B. Areas for Action 117. Areas for action cover a wide span of activitiessince women's productive and reproductive roles are firmly entwined in Russia. A number of strategic choiceshave been identifiedin discussionwith the government,in particularthe Ministry of Labor, the Ministry of Social Protection and the Committee on the Family, Motherhood and Childhood as well as by women themselves, through different non-governmentalorganizations. A Policy/ Action Matrix summarizing these priority action points on A. Employment,B. Pensions,C. Social Protection and Family Policy is given below: 111 C. POLICY ACTION MATRIX OBJETIVE EMPLOYMT MEANS ACTION 1. Promotn an effectively Providi relevant labor market Eliminating job vacancy functioning labor market information to seekers and announcementsby sex irespective of gender: providers of employment, without reference to gender Collection, reporting and analysis of employmentand unemployment statistics by sex Ensuring due attention to Development of reliable gender differencesin labor market managementinformation systems behavior in action programs. to determine the impact of different programs by sex Opening all occupationsto Re-examinationof labor legislation qualified persons, irrespective prohibiting women's work in of gender certain fields Eliminating vocational and technical school entry barriers for girls 2. Faciliating the absorption Pro-active employment and Out-reach programs for women in of the fhmale labor force, entrepreneurshipprograms for re-raining and in small-scale which is generally well-educated women entrepreneurship, business and well-trained,in incubators and credit programs ite emerging narket economy. Support to women'sNGO's active in training and employment Developing high productivity creation hone-based work,piece work and par-tine work Developing women's employment in agriculture and agricultural processing Pilot NGO training programs for women in Social Protection and EmploymentServicesProject Phase I and n Assuringthe labor rights and social insuranceprotecdon of part-time, home-based and piece rate workers 112 II |bUl ji llt | fs} g UteM{ tnlE i 4 lgl} y | t|g t lt1 03~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~00 , §tit .4XII- I I. , It body for coordination and implemnatn of family policy fundedfrom the cenral budget 2. Coordn of famiy and Ensuing a sound financialbasis Indexadonof familyallowances employmentpolicy for familyallowances Elimination of policy conflict Removingpartal responsibilityfor between familyand employment familypolicy implemeation frm policies enterprises Broadeing all fmily leavesand allowancesto be used by mothers r fthers, with supportngpublic MATERNAL AND CHILD informationcamaigns HEALTH 1. Arrest declinein matenal and Reductionof maternal monality, Maternal, chid health and childhealth iant mortal conracepon componentin abordonsper livebirth emergencyhealth assistance 114 ANNEXES 115 ANNEX1 -TABLE1: BirthRates, Matenma and Infan Mortaty Ratesand AbortionsIn Russia,1970 - 1992. BirthRate MMR IMR*Abtrons Per 100000 Per1000 Per 100EIrths 1970 14.6 105 23.0 253 1975 15.7 85 23.7 221 1980 68 22.1 201 1985 16.6 54 20.7 192 1986 17.2 55 19.3 179 1987 17.2 49 19.4 170 1988 16.0 50 18.9 192 1989 14.6 49 17.8 200 1990 13.4 47 17.4 201 1991 12.1 52 17.8 196 1992** 11.4 18.0* * calculaedfor thefirst ten monthsto permitcompensation with 1991net of seasonalvarato **basedon first quarter Surce: WomenIn the USSR.1991, Finance and Staftftcs, Moscow, 1991, S t- Yearbook USSR, 1990and JjJ Estimates,Department of Demography,State Commfte on Statitcs; Economicand Social estimatesof statitcal unit of Commtee on the Family)Busia World 9 June1992, Moscow. 116 ANNEX 1, TABLE2: MONTHLYALLOWANCES FOR FAMILIES WITH CHILDREN Allowancesand PresldertialDecrees Presidential Presidential Presidential Compensations 1812.91 N 296 as of De, Decrees Decrees 1-01-92on enlarging 29.02.92 31.03.92 21.05.92on of cash Incomesof N 208 on single N 321 on raisingthe level the populationIn 1992 paymentsin single of social in relationto minimum February-March paymentsin allowancesand wage 342. 1992to poor April 1992and compensatory groups of the social paymentsin population protectionof 1992. additional. particular Paymentsin groups of the February, populationIn March 1992 1992. 1 2 3 4 5 Percentage of Min- wage l Matemityleave 100%of actual -wage Single paymentat birth 300% 1024 2700 Childcaretill 1.5 years Recipients:working parents with 1+ year labour record; women irrespectiveof labour record; 18+; full-ime students;for each child 60% 205 305 355 500 Childcaretill 1.5 years Recipients:working parents w/labour record < 1 year; not workingwomen; for each child (or caretaker) 45% 154 254 304 400 Children 1.5-6years 45% 154 254 304 400 Childrenof the military 60% 205 305 355 450 Childrenunder guardianship 60% 205 305 355 500 Childrenof single parents brought up in institutions 60% 205 305 355 500 Children< 16 wIthAids 60% 205 305 355 500 Childrenof singlemothers - < 6 45% 154 254 354 400 - 6-16 7m/ 50% 171 271 321 450 117 71/Swde of IS yews of age widhouswholarships Allowancesand 'lebdwDce po "prsw roiet Compensation 1812.91N 296as of 12s Dele 1.01-92on enlrgIlng 29.022 31.03692 21.05.92on of cmahInoomes of N 208on singl N 321on ais the ivel the poputo in 199Q paymentsIn single Ofsodca in reaion to minimum Februawy-Marchpayments In allowancesand wag 342 1992to poor April 1992and compensaory groupsof the social paymentsin populiaon prection of 1992. additonal. particular PaymientsIn groupsof the February. populaonin March1992 1992. _ 1 2 3 4 5 Percentage of Mm- _ _ _ _ wage _____ Childrenwhose parents don'tpay dcild support -< 6 45% 154 254 354 400 -6-18 50% 171 271 321 450 Chilcrennot recev p-ion and aowances underthe prsent systern< 16 andnot supportedby the statRP76/ 86 136 161 200 Quae come os fr'"/ famie withcildren to coer he riseof prkcs of goodsfor childre aged -< 6 30% 103 250 -6-13 356% 120 300 -13-18 40% 137 350 Compensatoypaynmet to moths (or relat t cae of chi) on a lre fromwork to takecare of a chld under3 35% 120 170 195 300 76/Slduuvof 18 yaus wAImschblas 7.7/A oftiedse q 1992in ta 118 Afowanosand Psidia Dscr B_ aP r Compensations 1a12.1 N 296as of De2rz Daorz Decrees 1.01-92on enlarging 29.02.92 31.03.92 21.0592on ofcash Incomesof N 208on senl N 321on rnsingthe level tth populaionIn 1992 paymenbtIn single of sodal In relatonto minimum Febnray-March pa_ymetin allowancesand wage342. 1992to poor Apr 1992and compsatory groupsof the soda- pa_mnt in population protectionof 1992. addonal. panlular PaymentIn groupsof the February, populton In ______|March1992 1992. 1 2 3 4 = Perentge of Min- wage _ A non-orking personof worldngage carn for a lot groupitwald or an old person,or a child-nvaid (addedto theirpension) under16'/ 35% 120 170 196 300 Non-worldngwives of senvie menof the Ministryof IrteriorIn remoteareas wherethey cannot be placed.'/ 35% 120 170 196 300 Regiered unemployed(In additionto benefit/schodrship) 30%before 103 153 178 Not paidafter 01.06.92 01.08.2 31D.cihio ordi enci of miniaombs28.08.91 (iF) no.446 2llCouni of M}ns RP. .05.05.91N242 119 Allowancesand PresidentialDeaees Presidential Presidernal Presiden l Compensations l1.2.91 N 296as of Decrees 1-01-92on enlarging 29.02.92 31.03.92 21.05.92on of cashIncome* of N 208on single N 321or raisingthe level the populationIn 1992 paymentsin single of social in relationto minimum February-Marchpayments In allowancesand wage342. 1992to poor April 1992and compensatory groupsof the social paym -tsin populaton proteconof 1992. additional. particulwa Paymentsin groupsof the February, populationin March1992 1992. l 1 2 3 4 5 Percentage of Min- wage _ Pensionersworking part- time,those not fulfilling 225 norms,or workingat home. 23% 88 As of 01.06.92 No lessthan Graduatestudents 100% 342 492 900 Undergraduatestudents 80% 274 399 720 Vocationalschool students 70% 240 345 630 Students18+ till they graduateif theydon't receive scholarship,allowances or pensions.80/ 85 Students1s.aduate students on leaveson medical grounds. 170 Compensationfor food throughoutacademic year rb. 6 per day Vocationalschool Generaleducation rb. 2 per day secondaryschool I!As of 01 .04.92 120 AAilWance and ELV emBU NBMg C IN 1221 N 296 as of D2m OceD 1-01-02on enarging a9.02.92 31.03.92 21,0592 on of ashn comes of N 2o8on ingl N 921 on raing the I" the populationIh 11992 paymets hI singl of o hI relaton to minimum Februay.March pamnts In allowanes and wage 342. 1992to poor April 1992and compenory groups of the soal paymnts In popuatlon potection of 1992. additional. paricular Payme_ in grups of the Febnuary. populatlonIn I ______March 1992 lag2. . 1 2 3 4 5 of Mmln wa_p Subsiied Mlk for chdren 0-2 years in famils with averageincome per pewson s < min va x 2, exlud albowncesand compersats rb. 4,80 p. day Minmn wage 342 (01.01.92) 9s (08.01.92) 121 ANNEX2: USTOF WOMENS ORGANZATIO OPERATINGWITH THE WOMEN'S UNION OF RUSSiA RussianAssociation of UniversityWomen PresidentOlga Romashko Telephone:214 54 11 Federationof WomenWriters PresidentMaria Asmont Telephone155 74 86 Associationof WomenArtists IRIDA PresidentMaria Asmont Telephone202 6564 Women'sClub VMoscovityanka PresidentDina Teressenko Telephone208 21 12 Association'Lubuk? PresidentLubov Aksyonova Telephone240 20 87 Women'sCentre *Gaya PresidentElena Ershova Telephone135 32 07 Sheis alsothe Presidentof theRussian Affiliation of the Intraonal Wonmn'sorum Councilof Mothersand Widows of soldierskIlled In Afghanisan PresidentAlexsandra Ivanova Telephone:200 65 75 Association'Family and health" PresidentIrna Manuylova Telephone:148 4774 Associaionof SocialWorkers and Women's PoliticalClub PresidentTatyana Khudyakova Telephone:200 35 05 Women'sAlliance PresidentTatyana lvanova Telephone:132 7171 ECOFEMME/EcologicalWomen's Association ChalrTatana PopovaTelephone: 1700930 122 ANNEX3: INSTMMUTIONSDOING RESERCH ON WOMEN A. MOSCOW Centerfor GenderSudies of th Inuthe of te SocialProblems of Popultionof theAoademy of Scences Founded: 1990 Address: Kralakova27, Rooms 904,907 Teolphone: 124861-85 Program: 1992contract with UNICEF Numberof Researchers:10-12 (5 full-time),some technW st Funding: Academyof Sciences,contracts Publications: Conferenceproceedings: 1) in NaberezhnyeTchelny,publshed in Vema; 2) Soviet-Finnishseminar, published In Finland; 3) FirstForum of IndependentWomen's Organizaions *Denmxray Minus Women is not Democracy.'*Democracy Mhus Women-A Look from Russ}ais to be publishedin London; 4) SeowndForum of IndependentWomen's Organizations. Contacts: Ehena Mezentva (Fr), Zoyalhotldna, Anastaslya Posadskaya (Eng) Insttt of Socal and EconomicProblems of Popultion Address: Krasilova27 Teephone: 1294-00 (Director) Program. 3 Taganrogsuveys Funding Academyof Sciences,contract research Coftcts: NataliaMildailovna Rimashevesk^ DOrectow IncludesCenter for GenderStudies; MarlnaAnatolyevna Mozhna, Head of laboratoryQ(rasikova 32, teL1291533, 1291544), Ldkya Mhailovna Prokyeva, NeRyPavowa 123 ResearchCentW fr Soial Protectinof Family,Chidhood and emograhc Pltcy Founded: 1992 Address: Nikoskaya10/2, 103012Uloscow Teephone: 924-3421 Pogra 2.54 yam researh ncudingsurveys Numberof Researchers:20 Funding. Minisy of Socil Proecion,contract Ministryof S8cb Director SengeVladimirovch Damnwdek Contacts. OlgaVovtchenko, Head of the DMbblnon Wmenw; CoordinationCommittee on Family,Mtenity and Childrenof Predent of the IF Founded: 1991 Address: Kremlin,hanovskaya sq. Telephone: 224-s3-2ser.), fhc 20W4439 Numberof Members: about20 Prograrm nationaprograms. e.g. ChHdhoodr,lgbiaton Contcts: Ekatina Filppovna iakha, Chair, Advis to the Presient S El"n AnaoVna Lyudrrla iFedrovaBezpia Dep Chair Rusian Centr for Public Ophion Reearch Address: Nlkoska 17,Moscow 103012 Te len 92185-66(V. Bodrova) Program: publicopinion wurveys Contacts: VabelnaVasilyewna Bodva Oriention, d Ruean StatisUticOffi, Deament of Denogrphy Address: 8 Marlt st eS, room6 (okl Telephone: 2146328,2132870 Contacts: MilhailovEvgeny BorbMch, Head of th Dep_ , Dep"t Chair 124 Commintbon SocialSupport of the Familyand Childrenof the Ministr of SocialProtection Founded: 1990as the Committee on FarnmlyrProtection of Motherhoodand Childhood, and DemographicPolicy of theUSSR Council of Ministris,restructured and renamed in 1991 Address: NoginaSq. 4 Telephone: 923-2407,room 409 (Elena Feoktistova) Groups: medico-sodal, economic assistance, psychologicaland pedagogical, organizational-methodologlcai Numberof employees: 50 Contacts: ElenaNikolayevna Feokidstova, Deputy-Chairman MedvedevYuri Smeonovich (author of thedraft law on famIlybenefits) LyudmilaIvanovna Pronina, Ministy of SocialProtection Address: NoginaSq.4, room 444 Telephone: 2209894 Orientaton: pensions,system of socialprotection B. iVANOVO OblastEmployment Center Address: Kuznetsova44, Ivanovo Telephone: 383031(Director) Director IgnatovVadim Vasilyevich Contacts: lgnatov,V.V.,Komeeva Valentina Borsovna OblastUnion of Women Address: Pushkinastr.9, 153000 Ivanovo Telephone: Numberof staff 6 volunteers contacts: OlgaA. Khasbulatova,Tatyana P. Sidyaldna,Margarita M. Razina KokhomskayeChaussee 7. Appt.177,153051 Ivanevo Business Woman Centerof the OblastUnion of Women Address: SeeObbst Union of Women Telephone: 09322/325114 09322/326771 Contacts: MargaritaMikhailovna Razina ResearchTeam on the iswuesof Women'sStatus under Transition to MarketEconomy Address: SeeOblast Union of Womenor homeaddresses Tel: (asdialed from Moscow) 849323-74202, Olga A Khasbulatova,head of the Team at lvanovoState University Orientation: self-protectionof women plus concessions Contcs: OlgaAnatolyevna Khasbulatova, Tatyana Petrovna Sidyakina (Texil Institute) 125 REFERENCES Boeriner,Joseph S., 1989,'Soviet FemaleLabor Paricpation A RegionaCrossSectlon Analysis, Joumal of CgMg§3M EornM Volume13, RussianResearch Center, Havward Universy, Cambridge, Massachusets, pp. 446472. Bridger,Susan, 1987, Vomen in the SovietCountryside: Women's Roles in Rural DevelopmentIn the Soviet Union, CambridgeUniversiy Press, Cambridge, Great Britain,(Soviet and East EuropeanStudies). Bysiewicz,Shirley Raissi and Louise1. Shelley, 1986, Women In the Soviet Economy: Procdamatonsand Practice Chapter4, Soviet Law and Eoonov Maitnus Nijhoff Publishers, DordrechtThe Netrlands, pp. 57-77. Clayton, Elizabeth and James. R. Millar, 1991, *Education, Job Experience and the Gap Between Maie and Female Wages In the Soviet Union'. Comparatfve Economic Studies, Vol. 33, No. 1, Spring 1991, Association for Comparative Economic Studies, pp. 5-22. Dodge, Norton T., 1974, 'The role of industrial revolution and social revolution In the modemization of women: The Soviet Case/Norton T. Dodge, 1974. Society for Intermational Development, 4th Annual Conference, Abidjan, Ivory Coast. Feshbach, Murray, 1985, SThe Age Structure of Soviet Population: Preliminary Analysis of Unpublished Data. Soviet Econom Volume 1, Number 2, Sliver Spring, Maryland, V. H. Winston & Sons, Inc., pp. 177-193. Fong, Monica and Paul, Gillan. 1992, The Changing Role of Women in Employment In Eastrm EuroDe, World Bank, Report. No. 8213, Washington, D. C. Gorbachev, Mikhail, 1987, Perestroika. Political Uterature, Moscow (n Russian). GOSKOMSTAT 1989 Women In the USSR, 1989, Moscow, USSR. On Russian) 1990 a. Census of 1989, Age Compositon of the Population of Russia. Qn Russian) 1990 b. Number. Composition and Dynamics of the Population of Russia, Moscow, USSR. tn Russian) 1990 c. Stical Yarbook. 199Q, Moscow, USSR. On Russian) 1990 d. Women In the USSR. 1990. Moscow, USSR. (n Russian) 1991 a. Economy of the Russian RpublIc. 1990. Moscow, USSR. 1991 b. Soc -Demog c Characteristics of The Russan PoulatTon In B Vol. 1, 'Number, Sex, Age, NatIonality, Maritl Status, Educational Lever. On Russian) 126 1991c. Sodo-DemographicCharacteristics of the RussianPoulation in Brtef, Vol. III, "Familyand Housing".(in Russian) 1991d. Womenin the USSR.1991- Moscow, USSR. (in Russian) Additionalstatistical information was also provideddirectly by GOSKOMSTAT. Heinen,Jacqueline, 1990, 'Inequalitiesat Work: TheGender Division of Labourin the Soviet Unionand EasternEuorpe", Studies in PoliticalEconomy 33. pp. 39-81. Khotkina,Zoya, n.d. "SocialSecurity", Centre for GenderStudies, Moscow, USSR (in Russian) Kremen,Eleanor. "Socialism: An Escapefrom Poverty? Womenin EuropeanRussian". TheFeminizaton of PovertyOnly in America?.Kraeger Publishers, New York, New York, pp. 158-191. Kuniansky,Anna, 1983, "SovietFertility, Labor-Force Participation, and MaritalInstability". Joumalof ComparativeEconomics. Volume 7, Number2, Associationfor comparative EconomicStudies, Academic Press, New York, New York, pp. 114-130. Lubin,Nancy, 1981, "Womenin SovietCentral Asia: Progressand Contradictions",Soviet Studies,Vol.23, No. 2, April1981, University of GlasgowPress, Great Britain, pp. 182-203. Mezentseva,Elena, 1992a. "Womenand SocialPolicy", Centre for GenderStudies Moscow,USSR. pn Russian) 1992b. "A Systemof HealthProtection for Women",Center for GenderStudies, Moscow, USSR. (in Russian) 1992c. "Situationdes femmesdans les professionsintellectuelles: perspective d'emploidans la periodede transitionvers le marche"Centre for Gender Studies,Moscow, USSR. McAuley,Alastair, 1981, Women'sWork and Wages In the SovietUnion, Katerprint Co. Ud, Oxford,Great Britain. Ofer,Gur and AaronVinokur, 1983, "TheLabor force Participation of MarriedWomen In the SovietUnion: A HouseholdCross-Section Analysis", Soviet Fertily and Labor-force Behavior,Joumal of ComparativeEconomics. Volume 7, Number 2, June 1983, - Associationfor ComparativeEconomic Studies, Academic Press, New York, New York, pp. 158-177. Ofer,Gur and AaronVinokur, 1985, Work and FamilyRoles of SovietWomen: Historical Trendsand Cross-Section Analysis", Joumal of LaborEconomics, Vol 3, No.1, Pt.2, The Universityof ChicagoPress, Chicago, Illinois, pp.S329 - 353. 127 Rimachevskaya,Natalie, 1992, "Family,Prosperity, Conditions, Standard (level), Means, and Qualityof Ufeof the RussianPopulation", IJggnr gIStudies,Institute of Socio-Economic PopulationProblems of the RussianAcademy of Sciences,Moscow, USSR. (in Russian). Romanenkova,Gottenzia, unpubl. research. SanjianStevenson, Andrea, 1991, "SocialProblems, Political Issues: Marriage and Divorce in the USSR".Soviet Studies,Vol. 43, No.4,University of Glasgow,U.K., pp.629-649. Shoemaker,Susan, 1983, "TheStatus of Womenin the RuralU.S.S.R", Population Research and PolicyReview, Volume 2, Amsterdam,The Netherlands 1983, pp. 35-51. Stemheimer,Stephen. "The Vanishing Babushka: A RolelessRole for OlderSoviet Women?" JAI PressInc. Volume1, pp. 315.33. Sternheimer,Stephen, 1985, "TheVanishing Babushka: A RolelessRole for Older Soviet Women?"JAI Press Inc., Volume 1, pp. 315-33. StevensonSanjian, Andrea, 1991, "SocialProblems, Polifical Issues: Marriage and Divorcein the USSR".Soviet Studies, Vol. 43, No.4,University of Glasgow,U.K., pp. 629-649. ThomsenJ., Russel,1992, "FamilyPlanning, Obstetrical and GynecologicalHeaith Care Provisionin the SovietFar East," Jan/Feb/March, Aiaka Medin pp. 5557. UnitedNations, 1991, The World's Women, NewYork, N.Y. Voronina,O.A., 1988, "Womenin a "Man's Society". SovietSociology. No. 2, Instituteof Philosophyof the RussianAcademy of Sciences,Nauka Publishers, Moscow, USSR, pp. 104-10. Vovchenko,Olga, 1992, "Statusof Women in Russia",Center for Social Protectionof Children,Family and DemographicPolicy, Moscow, USSR. Womenin a ChangingWorld. 1991, University of IvanovoPress, Ivanovo, USSR. (in Russian) Zavatskaya,Ludmila, forthcoming Wojciechowski,Sophie. "Poland: A Countryof Conflicts". The Feminizationof Poverty Only in America?.Kraeger Publishers, New York, NewYork, pp. 184-200. 128 Annex 4 HOUSING AND LABOR MARKET DISTORTIONSIN RUSSIA by Hanna Matras (consultant) January 25, 1993 HOUSING AND LABOR MARKET DISTORTIONSIN RUSSIA 129 I. INTRODUCTIONAND MAIN CONCLUSIONS 1. As many other goodsand servicesin the traditionalsocialist economies, housing in the Soviet Union was providedpractically free of charge and complementedthe systemof low cash wages. The state provisionof housinghas lefta legacyof chronicshortages reflected in long queuesand qualityproblems made worse by poor maintenance. At present,urban housing is still built, allocatedand managedby the stateand stateenterprises. 2. Thispaper argues that housing shortages and thehousing allocation system have significantlycontributed to distortionsin labor markets,particularly throughtheir depressing effects on labormobility. Institutionalfeatures of the systemsuch as waitinglists, the implicitownership rights of statestock rentersand the provisionof housingby enterpriseshave kepthousehold mobility at very low levels. Thus,housing is likelyto becomea majorobstacle to labor market adjustmentsand, consequently,to the restructuringof the Russian economy. The economicreforms will necessitateemployment restructuring and relocationsof largenumbers of people. Already,many have been displacedas a resultof armydemobilization and migrations following the break-upof the union. The expectedrestructuring, and even economiccollapse of some branchesand regions,will requirefurther relocations of the unemployedin searchof jobs. The situationwould becomeparticularly severe in cases of economicdemise of "one-company"towns, where most of the populationis employedby one industry; numerouslocalities with employmentconcentrated in the militaryindustrial complexmay be in such a danger. 3. Both political migrations and unemployment-forcedrelocations are problematicin view of housingshortages. The worseningsituation in the housing sectorand the postponementof the necessaryhousing reforms will continueto affectinterregional mobility, thus perpetuating inefficiencies in labormarkets. Enterprisehousing may have a stronger-than-previousimpact on mobility:since otheroptions are eithershrinking rapidly (budget-financed housing) or becoming largelyunaffordable (cooperative or privatehousing), housing benefits provided through employersare likely to remain an importantfactor in individual employmentdecisions. 4. The main Rolicyactions and recommendations.In the long run, reforms shouldresult in an increasedsupply of housing,and betterfunctioning housing markets,which in turn will contributeto the improvedoperation of labor markets. However,introducing market mechanismsinto the housingsector is likelyto be a slow process,which at this point has only just begun. While fiscal constraintshave become very serious,the socialentitlements remain largelyin place. This systemhas not yet fullycrashed. 5. The criticalactions involve removing constraints in the existinghousing systemwhich hinderlabor mobility the most. The followingmeasures should be consideredimmediately: * eliminationof the propiskasystem and relatedhousing restrictions; it shouldbe ensuredthat localgovernments at all levelsdo not attemptto 130 use the system as a mechanism to reduce demand for local goods and services; * elimination of legal and administrativerestrictions on sublets and exchanges; these include floor space norms (beyondthe safety and health codes), and exchange payments; * more control over their rental housing for enterprises;in particular, the ability to set rent levels, and evict tenants; * measures to facilitate rational housing privatization:especially the implementationof property taxes .nd condominiumlaw. II. THE HOUSING SECTOR A. The recent trends - an overview 6. Decline in housing output. The most pronouncedsectoral trend of the last two years is the sharp decline of housing output. A 20X drop was registeredin 1991 and a further 341 during the first half of 1992 in comparisonwith the same period of 1991. The trend has affected all four major housing subsectors:the output losses for the first half of 1992 were 331 for constructionfinanced through all state investments,261 for enterprise-financedhousing, 34X for cooperativehousing, and 201 for units completedthrough individual construction. The main reasons are (i) high inflation in the constructionand construction material sectors, (ii) major cuts in public outlays, and (iii) the collapse of the state supply system. 7. Structural changes in 2roduction of new housing. The main structural change in the sector is the shift within state housing irnvestment funding from direct budget financing to enterprise profit-basedfunds, and - to a lesser degree - to resources of the non-state investors. The contributionof direct budget financing to the total new stock fell from 731 in 1986 to 28.41 in 1991 and 25.71 for the first half 1992. At the same time, the share of enterprises increasedfrom 6.91 to 45.51 and 48.71, respectively(see table 1). 131 TABLE 1. STRUCTURALCHANGES IN FINANCINGOF NEW HOUSING (in percentagesof floor space) 1986 1989 1990 1991 1992 */ 1995 */ prelim. var. I/II Total New Stock 100 100 100 100 100 100 State-Financed 80.5 79.5 77.0 73.9 70 56 / 51 CentralBudget 80.5 39.2 34.1 28.4 13 9 / 13 Other State = 40.3 42.9 45.5 56 47 / 38 Enterprises 40.3 42.9 45.5 46 37 / 26 Local Budgets 10 10 / 12 HousingCoops 5.4 5.3 4.7 5.0 4 4 / 8 Population 5.9 8.4 9.7 9.7 10 14 / 23 Other 8.2 6.8 8.6 11.4 16 26 / 18 */ For 1992,August projections ( with appr. 10 fall of output);1995 forecastsbased on "optimistic"scenario (twofold increase over 1991 output level),and "pessimistic"scenario (appr. 901 of the 1991 level). Source: Ministriesof Construction& Economy. 8. Rapid increasesof housingsubsidies and trsnsfers.Since 1991, the on- budgetas well as off-budgethousing subsidies and transfershave been growing rapidly. In 1992,housing is expectedto representat least 61 of all federal (consolidated)budget expenditures, and the housinginvestment package about 251 of all budget-financedinvestments. In 1992, financialresponsibility for the maintenanceand operationof the existingstock has been passedto municipal governments.81/ Since price liberalizationhas excludedhousing rents 82/, the coverageof maintenancecosts by rentalrevenues has been deterioratingsharply, fromnearly half of maintenancein 1989 to lessthan a thirdin 1991;at present, the coverageis only 31 to 5X. Municipalgovernments are also expectedto rely increasinglyon own resourcesto financenew construction. 9. Housinggakfforaility. Under currenteconomic conditions, the transition from predominantlystate-financed housing to a situationwhere the majorityof "/The term unmicipal" or "local" is used throughout the paper to denote the lowest level of goverirent, i.e. the level of city and raiyon. "/ Rents in municipal, enterprise and all other state-owned housing are frozen at their 1928 levels. In April, municipal goverwents have been empowered to adjust rents, but until now only St. Petersburg city hes implemented some increases. By mid-1992, rents constituted barely 0.52. and together with utilities 2.52 of expenditures of urban working householdb. 132 householdspay full market price for their housing will be extremelydifficult. The real incomesof most social groups have been shrinking:at presentGoskomstat forecastsa 40% real decline in incomes for 1992. At the same time, inflation in the constructionand building material sectorswas projected to remain high throughoutthe 1992. Fourth quarter constructionprices were forecastedto be 276% and 81% higher than prices in the first and second quarters, respectively. Consequently,the price-to-incomeratios are very high and unstable. B. Housing shortages 10. The scarcityof housing in Russia is mostly an urban phenomenon,while in rural areas the problem is more of low quality. In 1991, the overall deficit as measured by a ratio of households to dwelling units was 1.21, a high figure by internationalstandards - a shortage of over 10 million units. In the urban areas, there were 32% more householdsthan dwellings. These figuresare likely to be underestimates,given the number of families sharing accommodation83/. Some Russian experts estimate that the actual shortage in cities is as high as 4,h. Crowding indicators,with an average of 16.4 m2 per capita floor space in all stock and 15.7 m2 in urban areas, are the worst (afterRumania) among former socialist countries of Europe 84/. Approximately 37% of families live in dwellings where the living space per capita is 8 m2 or lower, 6% lived in communal apartments sharing kitchen and bathroom facilities,and another 4% in dormitories. Moreover, it is estimatedthat some 68% of all dwellingsneed major capital repairs. 11. Another indicator of the housing deficits is the length of the housing waiting list 85/; as explained in para. 15, a person must live in conditions of serious overcrowding to qualify for signing up. The number of households officially "waiting"expanded from 12.7 million in 1986 to 14.5 million by the end of 1990 (with an additional 1.6 million on the cooperativewaiting lists); the correspondingfigures for urban areas are 8 and 9.5 millions (26% of all urban households). Almost a fifth of these householdshave been on waiting lists for over a decade. III. HOW DO THE BRAL ESTATE NARKETS WORK A. The scope of real estate markets in Russia 12. In Eastern Europe, for example Hungary and Poland, the marginal 'free' housing market involving a range of 'grey' (and, to a lesser extent, 'black') activities, has long coexisted with various forms of state housing delivery systems. Privatereal estate agencieswere legitimatebusinesses, and the 'grey' activitiesconsisted chiefly of conductingtransactions in hard currencies and "/ Only singles residin separately are accounted for; dwellings include comnunal apartments with shared facilities, which constitute about 6Z of all dwellings. "/ By the mid-1980s, per capita floor space was already 26 m2 in Czechoslovakia,22 m2 in GDR and 19 m2 in Bulgaria and Hungary. S/ This data does include numerous instances of double counting, since members of the same household may enlist in municipality of residence as well as in places of work. 133 underreportingof actualprices. In Russia,by way of contrast,housing markets have been much less important This is due to a combinationof factors:(i) the practicallynon-existent private sector in the Soviet economy; (ii) the predominanceof state-financedand allocatedhousing, especially in urban areas; (iii)tighter restrictions as to the ownershiprights of individually-owned,as well as cooperative,housing; and (iv) directpolicies controlling population mobility(the "propiska"system). ITABLE 2. STRUCTUREOF HOUSINGSTOCK BY OWNERSHIP1/, 1990 (in % of floor space l ______Total Hsing Stock Urban Hsing Stock Total Stock 100 100 State-OwnedHousing 64.7 77.6 MunicipalGovernments 26.7 36.8 Enterprises(self-financed) 37.2 40.1 Enterprises(budget-financed) 0.8 0.7 OtherEnterprises/Organizations 2/ 3.0 0.5 HousingCooperatives 4.0 5.7 Privately-OwnedHousing 28.2 16.2 1/ Excludinghostels and dormitories 2/ These includemainly kolhozs and othercooperative-type enterprises 13. Until recently,housing 'markets' (besides markets for vacationhouses - dachas- which have developedaround large cities) were largelyconfined to the very limitedexchange and rentalmarkets. Even thoughsuch transactionswere permittedby law,they were highly restricted. Most of theserestrictions appear to remainin place,although since 1991, the enforcementof the HousingCode and related regulationshas started to vary increasinglyacross the country. Unfortunately,the data on the volume of these transactions- in particular private rentals - is very limited. 14. The foundationsfor the emerginghousing markets have been set by three major laws - the 1990 Law on Ownership,establishing the privateownership of housing,the 1991 Law on Privatizationof the RSFSR HousingStock, and the December1992 Law on Basic Principlesof FederalHousing Policy. Additional amendmentsto the HousingCode revokea previousrestriction on the numberof dwellingsthat a familycan own. In 1991, the first housingauctions were organized,in Moscowand then in other cities. OutsideMoscow, few unitshave been auctioned;indeed generally, auction activities are decreasing.The buyers are mainlyenterprises, and pricesare extremelyhigh. Many realestate agencies have been established,and newspaperscarry extensive real estatetransaction reportsas well as listings,the most commonsource of informationfor those seekingto buy or rent. Betterapartments in Noscowand St. Petersburgare 134 typicallysold for US dollars86/. These pricesexceed the abilityto pay of all but themost affluent.Although financing can theoreticallybe obtained,at an 80X annualinterest (still negative in real terms)practically all of these transactionsare realizedin cash. B. Who can obtainhousing in state-ownedstock ? 1. Accessto state rentalhousing 15. The most commonway to obtainhousing has been to join a housingqueue, eitherat the place of residencefor localgovernment rental housing or at the place of work for enterpriserental housing. Not everyonehas accessto state housing. Localitieshave establishedthreshold norms, expressed in a numberof squaremeters of livingspace per person,which vary between5 and 8 m2. Only householdsmeeting this criterion qualify for "improvedliving conditions", i.e. the rightto join a housingqueue. Dependingon the region,one can wait from severalto over 15 years (in largecities). In addition,migrants must wait a numberof years,which vary acrossthe country,before they are allowedto sign up. Laborcontracts with specialcategories of workers,which includeimmediate occupancyof enterprisehousing, are an exception. 2. "Permanent"occupancv rieht 16. State-ownedunits are allocatedto householdson a rentalbasis with no time-limit.The implicitownership right embodiedin the right of "permanent" occupancyis an importantfeature of the system. The terminationof the rental contractis nearly impossible. Until recentlyeviction, which necessitates provisionof alternativedwelling, was only availablein the event of serious misconduct.The December1992 law on federalhousing policy allows eviction in cases of persistentnon-payment of rent or utilities.87/ Speciallegislation governsrelocation of employeesof enterprisesin sectorsconsidered important to the nationaleconomy (as specifiedby the Councilof Ministers). These workers can be relocated only upon terminatinglabor contracts with a sufficientlyimportant cause (e.g. disciplinaryreasons). An alternative dwellingmust be provided,and meet basic "social"standards (12 m2 per person plus 6 m2 per family). U 1 In early December 1992, the average hard currencyprice per square meter in Moscow was $695 (an increaseof 5-7X over October prices). In St. Petersburg,the price was $500 in center city (a 14X increase in the same period) and $427 in the suburban areas. Municipalapartments in new buildingsin Moscow are sold at auctions in rubles: the price range in December was 150-220 thousandR per m2. V 1 i.e. after 6 month of nonpaymentof rent or utilities.Alternative dwelling still has to be provided,but the only requirementis that - insteadof meeting the "social'norms - it must meet standards acceptablefor hostel-typeaccammodations. It is unclear whether this latter requirementwill now be the rule in all evictioncases, or if it is a penalty for non-payment. 135 B. The housing coogerative:an accessibleand lasting option ? 17. Housing constructioncooperatives 88/ operate mainly in larger cities, establishedeither at the members' place of residenceor at their place of work. Since in the past coops' members had to pay a high percentage of the cost of their housing (and continue to pay maintenance fees much higher than rents in state-owned housing), the coops presented an opportunity for the state to relinquish some of its commitment to provide nearly free housing to all. However, this has not been the case. The state has effectivelyrestricted access by requiringthat prospectivemembers meet the local criteria (a square meter per person norm) that would qualify them to sign up for a state housing queue. 18. The fate of the coops is uncertain. In 1991 and 1992, sharp increasesin constructioncost prompted a federal decree which set up a grant program - financed in equal parts by the federaland oblasts'budgets - that paid up to 70% of the increased costs for cooperativeconstruction 89/. This subsidy cannot easily be sustained;yet without it, new cooperativeconstruct,,n is likely to decline. The existing cooperatives,which constitutesapproximately 6% of total stock in large cities, will increasinglybecome subject of market transactions. The 1990 OwnershiRLaw of the Russian Federationincreases the ownershiprights of coop members who, having repaid the outstandingbalance of their loans, can now rent or sell their units at full market value. However, the ownershipissues have not been sufficientlyclarified. Condominium-typelegislation for the existing coops is presently under consideration. C. The grivate stock and the emerging housing markets 19. Individualconstruction was traditionallylocated mainly in rural areas and small towns. The overall quality of the private stock is low, with a high proportionof old, wooden structureswith few amenities. The share of privately- owned dwellings in urban areas of Russia is slightly over 15%. Most of these dwellings are located in cities with 7,opulationbelow 100,000. Moscow has 0.3% of privately-owneddwellings, St. Petersburg 1.4%, and medium-sizedcities, on average, about 4-7%. 20. Private construction. Under present conditions, extremely high construction costs and the low supply of land plots limit the number of households who are able to engage in homebuilding. The process of securing a building permit tends to be extremely lengthy and cumbersome90/. The Sberbank makes housing loans available to homebuilders, in amounts limited by the borrower's income. In 1992 the central budget assumed payments of 12% of 20% $/ Housing constructioncooperatives build housing for their members,while housing cooperatives,a relatively new form of a coop, purchase buildings - new or renovated - from local governments or enterprises. "/ The 1992 program is limited to projects begun before January 1992. Theoretically, only low-income coop members are eligible for these grants, but income criteria have not been defined and it appears that in practice most, if not all coop households moving to new dwellings receive them. Other subsidies to coops include free land and interest rate subsidies on Sberbankloans. so/ For example, in the city of Kaliningrad prospective homebuilders have to seek the consent of 28 municipal organizations to obtain the building permit on allocatedland plots. 136 (highlynegative) interest rate on theseloans. At present,the totalnumber of individualborrowers is estimatedat less than 300 thousand. 1. Privatizationof the state-ownedstock 21. Partialprivatization of the state-ownedstock could encourage mobility, and support the emerginghousing market. The July 1991 Law on Housins Privatizationprovides this option to tenantsof housingowned by municipalities, enterprisesand publicentities. In contrastto the 1988 leZislation,the 1991 law,by revokingthe ceilingon the numberof units thatcan be privatelyowned, providesfuller ownership rights. However,several issues are likelyto hamper the transitionprocess. The uncertaintiessurrounding the continuationof rent control,the ownershipof urban land 9l/ and the anticipatedintroduction of propertytaxes all contributeto the slowpace of privatizationand will likely mean postponementof puttingthese units on the market. However,more unitsmay becomeavailable on rentalbasis. 22. As of April 1992, 1.3X of all state-ownedrental units were privatized. Moscowhas privatizedthe highestshare of its stock,3.71, but in the majority of oblaststhe sharedoes not exceed0.51. Sincethe implementationof the 1990 law in its initialversion (allowing a free transferof the "normativeamount" of dwellingplus a price on the residualspace) necessitated the developmentof regionalprograms, the privatizationprocess in most oblastsand citieshas been initiatedonly withinthe last six months.Some cities,like Moscow, decided on the stock "giveaway",while others followed the national blueprint in establishinglocal free transfernorms. In December1992, the nationallaw was amended,so that the free norm plus residualpayment formula became a giveaway transfer,which is likelyto acceleratethe process. 2. The rentalmarkets 23. The law has long allowedrenting and sublettingof housingin all typesof stock,the main restrictionbeing a compliancewith localper capitaspace norms. Even thoughmany householdsinhabit apartments under conditions much worse than suchnorms define, this regulation can neverthelessbe used by localauthorities to controlrelocations. Rental charges cannot exceed rent and utilitiespaid by the main occupant,whether in state-ownedor cooperativestock. Until recently, rents in privately-owneddwellings were likewiselimited, by locally established ceilings.In all cases,rents exceeding specified rates were seenas an illegal income. In fact, chargingmuch higher,rents appearsto have been a fairly commonpractice, especially in areas where labor shortagesand acute housing shortagescoincided. To accommodatethis reality, the law stated that "systematic"deriving of such incomewould result in repossessionof the dwelling by the state. However,although rental agreements must be registered,the contractualrent listedcannot be easilyverified. "/ A constitutional amendmentallowing private ownership of urban land was passed in December 1992, but its direct impact on housing privatization is unclear, since it does not expressly include land on which privatized builditns are located. 137 24. At present,free marketrents are beingcharged for privatelyowned units. Apartmentsand houses for rent are listed in local newspapers;real estate agenciesalso advertise.Since they chargehigh fees,newspapers and the word of mouthare more commonways to obtaininformation. Newspaper listings rarely list prices - if cited,they are oftenfictitious. Rents in selectedmarkets such as Moscow and St. Petersburgare extremelyhigh, well over the average household'sincome. Even in smallercities rent-to-income ratios appear to be very high 92/. 3. The exchangemarkets 25. For householdswishing to relocate,for any reason- includinga desirefor a better apartment,for better job prospectsor due to a change in family circumstancessuch as divorce- the exchangemarket is oftenthe only feasible alternative.For thosehouseholds whose housing conditions are not poor enough to qualifythem for placementin the queue for either state or cooperative housing,the exchangemarket is usuallythe only optionto obtaina betterunit. Exchangesare particularlyimportant for householdsmigrating to anothercity, if the decisionto migratewas not basedon an enterpriserecruitment wherein the laborcontract includes the provisionof housing. 26. As with privaterentals, the activeexchange market has developedon the boundariesbetween legitimateactivities and the grey/blackmarkets. The existinglaws have long allowedhousing exchanges,although there were many restrictions,of whichsome remain. All state-owneddwellings, as well as those belongingto housingcooperatives, can be subjectto exchange93/; however,the finaldecision rests within the jurisdictionof the ownersof the dwellingi.e. a municipal government,an enterpriseor a cooperative. In case of a cooperative,the localgovernment has to confirmthe decision. Housing belonging to enterprisesof certainsectors cannot be subjectto exchangeunless the new occupantis an employee;otherwise, the enterprisecannot object. Generally, refusalscan be officiallyjustified if new livingarrangements result in a per capitafloor space which would qualify one of the exchangingparties to sign up for a housinglist. In othercases, the refusalcan be challengedin court,an optionwhich has not oftenbeen pursued. 27. Aside from the considerationof "socialnorms", exchanges of state or cooperativestock are also examinedas to theirequality. No exchangeof cash or otherassets as part of the transactionis allowed. An administrativebody may judge the exchangeto be "speculative"- not necessarilymeaning unequal - and deny permission. Likewise,the motivesare closelyinspected to assure whetherthe parties int nd to occupy theirnew dwellings. Again, all such decisionscan be challengedin court. In practice,many housingexchanges are accompaniedby additionalpayments, which currentlymost often involveeither hard currencyor non-cashassets (cars and electronicequipment being the most common). "/ In Moscow,the prices for well located studio apartments vWXyfrom 8 to R 10,000 per month; two-room apartments rent for R 15-20,000 Studio apartments rent for R 5,000 in Volgograd, R 3,000 in Saratov, and 8- 12 in Ekaterinburg. In the mid-1992, the average household income was approximately R 6,800. '/ The exception is dwellings belonging to kohozs. 138 28. Housingexchange offices have longexisted, either as separateentities or withinthe executivecommittees of municipalgovernment (ispolkom). They keep databases, issue publications listing exchange opportunities, and providelegal advice. Cooperative-typeorganizations have been allowedto undertakesuch activitiessince the late 1980s,but, until recently,private agents were not. At present,real estatebusinesses also dealwith exchanges;however, high fees chargedby these agenciesdiscourage potential clients. Local newspapers' real estatesections likewise carry informationon exchanges. 29. Data regardingthe volume of exchangesis difficultto obtain. It is estimatedthat some 110,000exchanges take place in Moscow each year, which involvesabout 4X of all the city'sstate-owned stcck. A surveyof migration flows and housingexchanges between Novosybirsk and the rest of the country, conductedin mid-1980s,indicates that the volumeincreased 1,5 timessince the mid-1970s. One may presume that in view of (i) the sharp increaseof constructioncosts and resaleprices, limiting the numberof householdwho can affordto build or buy (ii) the steep declineof state-financedconstruction, (iii)the optionto privatizestate-owned flat, and (iv) the intensificationof factorsincreasing migration, the numberof exchangeswill grow. IV. LINRAGESBETWEEN HOUSING AND LABORNARRETS 30. It can certainly be argued that distortions persisting in housing markets of the former socialist economies of Russia and Eastern Europe are impedingthe adjustmentprocess and reducingefficiency in labor markets in thesecountries throughreduced labor mobility. The fact that a decisionto changejobs may involvegiving up an advancedposition in one housingqueue and enteringanother is an obviousimpediment to mobility. Housingshortages and the non-existence of privaterental markets are also seriousbarriers. However, the question"to whatextent housing sector distortions do indeeddepress labor mobility in Russia and thus contributeto the inflexibilityof its labormarkets" cannot be easily answered. A. Has mobilitSbeen affected? 1. Labor turnoverrates: too low ? 31. While the pre-reformlabor turnover in Russiahas been regardedas fairly high by some,there seems to be no consensuson the issue. The notionof rates being high may have originatedfrom the evidence- particularlyrevealing from the mid-1970s- that unplannedfactors had more bearingupon employmentflows than organizedmobility. Turnover rates, even aftertheir decline at the end of 1970s, have persistentlystayed above the 7-9X limit set by planners as acceptable(Malle, 1987). Unfortunately, because of methodologicaldifferences, the Russianturnover rates cannot be directlycompared with thoseof otherformer 139 socialistcountries with labor shortages94/, such aS Poland in the 1980's. World Bank analysisof the labormarket in Polandsuggested that - in view of theseshortages - laborturnover rates of about201 were indeedtoo low. Whether laborshortages enhanced turnover is, however,not clear;in fact,Soviet data for the 1967 - 1981 period(Malle, 1987) demonstratethat industrialturnover tendedto decreaseas labor shortagesincreased. 32. In 1991and 1992,despite the shrinkingeconomy, voluntary quits remained the main reportedform of laborturnover (tekuchest) (see Chapter III, para. **). One would expectvoluntary separation rates to be affectedby housingscarcity directly,owing to the inflexibilityof the enterprisehousing benefit package, and indirectly,through the suppressedrate of inter-locationalmobility. On the otherhand, some turnovermay well be due to theworkers' search of betterfringe benefits,in particularhousing, when wage differentialsare flat. Givencurrent conditionsin thehousing sector, resignations induced by housingare most likely in enterpriseswhich either do not offerhousing benefit programs or reducethem 33. Althoughthere is no directevidence of housing'seffect on turnoverrates Malle's(1987) analysis of the turnoverpatterns shows that lowerturnover rates may be accompaniedby higherintrafactory downward mobility. Workers' willingness to acceptlower payingor lower rankingjobs - ratherthan be dismissed- is likelyto be linkedto companybenefits, including housing, which reducetheir externalmobility. Moreover, until recently, labor regulations prohibited worker dismissal,even in the case of plannedreduction of staff,unless another job (albeitof lower ranking)was not available,or refusedwhen offered. Reported turnoverrates coveredonly "unplanned"mobility, i.e. voluntaryquits and dismissalsfor disciplinaryreasons. Therefore actual turnover rates in the past were probablylower than reported,since "voluntary quits" may in facthave been dismissals. 34. A sharpdrop in the turnoverrates in the SovietUnion in the early 1980s followedthe reintroductionof compulsorymeasures of laborallocation, including restrictionson unplannedturnovers. This trendwas reversedin the secondhalf of the decade,when thesemeasures were largelyabandoned and new legislation allowedemployment opportunities outside the state sector96/. It is not clear to what extent the higher rates may reflect some abatement in mobility constraints,such as the absence of "propiska"requirement for non-state "/ Typical of all the previously socialist economies, the Soviet has also featured en excessive demand for labor. Since the early 1970s the hish growth rate of labor force did not keep pace with the growth of job vacancies in any of the esconcmically developed regions of Russia, with the exception of North Caucasus. This trend was even more pronounced in 1980s, when the labor force growth rates dropped sharply; throughout the decade large parts of the country, and in particular such migration-attracting regions as North-West and Central, showed depletion in labor resources. "'/ Standing (1992) shows housing to be one of the causes of voluntary quits in 1991. Among firms of different property forns, housing's share in reasons for resignations is low in state enterprises (1. 7), and the highest in cooperative-type enterprises (6.3). It also appears to be higher in larger establishments, reaching 8.1S in enterprises employing over 2,500 wrkers. "/ The 1987 law on the "individual labor activity" and, in psrticular, the 1988 law establishing a cooperative sector with the right to hire labor. 140 employmentand a less strict compliancewith the "propiska"regulations on the part of state employers. 2. Internal migration 35. Efforts to control employmentflows were not limitedto labor legislation but extendedto a range of explicit or implicitgovernment policies - industrial, urban and ethnic - that aimed to influencepopulation's spatial mobility. A direct monitoring mechanism, as well as an implementationtool, for these policies has been the residentialpermit system, the "propiska". The system, which essentially requires that permission be obtained from administrative authorities before relocating, has worked in conjunction with housing and employment laws. The "propiska" is also a prerequisite for access to many locally provided services. a. Explicit migration controls: the 'propiska'system 36. The "propiska"- granted for a given locality at a specific address - has been used to control migration flows, particularlyto major large cities. The propiska is issued automaticallyto people born in the municipalityas well as to immigrantspouses, but may be very difficultto obtain for others to obtain. Requests for propiska are screenedby the local government;since all levels of governmentcan enact regulationsaffecting their area of jurisdiction,the degree of difficultyvaries across locations,with the most attractivecities having the most restrictive rules. Refusals can be appealed against, to government administrationof a higher level and, ultimately,to the courts. 37. ProRiska and emloyment. As a rule, employers must not accept job applicantswithout local propiska. However,depending on their importanceto the local economy,enterprises are grantedspecific quotas for bringing outsidelabor when the local labor market fails to provide workers for certain jobs, in particular low-paying,low-status jobs. These workers are subsequentlyhoused in hostels and dormitorieswith a temporarypropiska 97/. Most large enterprises operate such accommodations;in Russian cities, over 5% of populationresides in hostels (as compared to only 0.3% in Poland). Eventually,hostel residents can apply for a permanentpropiska, but the most desirablecities, such as Moscow and St. Petersburg,require five years in the same enterprise in order to qualify. In some other cases, workers especiallysought by an enterprise can be granted a propiska upon enteringemployment, especially in smallercities when large and powerful employers exercise a strong influence over local governments. If unemployed, workers can only register for benefits and job placement in the municipalityor district of their propiska. 38. Propiskaand housing. Since the propiska is tied to its holder's dwelling, households wishing to relocate must find housing. The problem is a difficult one, since in principlea person cannot obtain one without the other. Propiska is required not only for the actual allocation of state-ownedor cooperative "/ Malle (1987) reported that the number of workers on temporary contractswas high and increasing.For example, in Hoscow non-resident workers on temporary "propiska" constituted 24. 9Z of all employees in 1974, 26.4Z in 1977 and 32.9Z in 1980. 141 housing, but also as a condition to sign up for housing lists as well as lists for land allocation for individual construction 98/. Options available to immigranthouseholds are limited. The household may not be able to afford to rent on the free market while more modest and less expensiveaccommodations may not comply with the local per capita space and other norms. The norms are not only applicableto rentals, but also to situationswhen a person wishes to stay with relatives in order to obtain propiska in their place of residence. Moreover,house buyers must be the holders of local propiska. In view of these restrictions,it is not surprisingthat the systemhas generateda black propiska market in many large cities 99/. 39. Current situation. While the system is still in place, there is evidence that enforcementvaries considerablyacross the country. Cities differ with regard to their interpretationand implementationof federal laws. At least two factorsmay contributeto municipalgovernments' support, for the time being, of the propiska regulations. Beginningin 1992, oblasts' and municipalgovernments have had financialresponsibility for most social assistanceprograms, and hence have incentivesto limit populationinfluxes. Likewise, the propiskaregulations bar outsiders from access to rationed food and other consumer goods. 40. The basic premise of a new bill 'On the Choice of the Place to Live of the citizens of within the Territory of the Russian Federation",is the individual right to freedomof relocation,although compulsoryregistration would continue. Both the draft law and the Supreme Soviet's resolution on its implementation would invalidate local propiska regulations, and render administrative interference in private relocation decisions illegal. Nevertheless it is not clear whether the proposed registrationrules would be followed by repeal of housing restrictions. The draft law does specify that registrationwould be issued - upon the presentationof the required documents - to the buyers of private housing as well as renters, which is a step forward, but the issue of local housing norms and standardsstill remains to be addressed. Moreover, the draft also impliesthat 'justifiable"restrictions, which are describedin vague terms, may be imposed. These are likely to be introducedto control inflows to some areas, if the welfare of the existingresidents of these areas is perceived to be threatened. If approved, the law will come into effect in June 1993. b. Have migration rates been depressed ? 41. The migration and labor allocation policies were largely ineffectivein achievingthe redistributionof labor resourcesbetween the surplus and deficit regions. Likewise, the growth of large cities with their ostensibly strict migration controls, was not contained. Moscow's population grew by some 2 million over the last twenty years, mainly due to migration; in fact, between "/ since 1991, the city of Kaliningradhas been receivinga large number of applicationsfrom Russians wishing to re-emigrate to the city from the Baltic republics. However, as the regulations prohibit allocation of lend for individual construction without a propiska, the local, government has issued a special decree allowing the prospective imnigrants to be registered at the allocated construction site. "/ since August 1991, the city of Moscow has been selling its residential permits to enterprises and organisations to enable them to bring in workers with desired qualifications. The current auction price of Moscow's propiska is approximately R 1.5 millon. 142 1979and 1989,Moscow and St.Petersburgand surroundingregions, while accounting for only 8X of the Sovietpopulation, absorbed 45X of all migrants.On the other hand, the rapidconcentration of peopleon the fringeof largecities over the last 30 years appearsto be linkedto the "propiska"and urbanhousing shortages. This has not been the westernscenario of "suburbanflight", but, rather,the secondbest destinationfor ruralmigrants who seek accessto amenitiesand the vastly superiorprovision of goods in largercities, but are preventedfrom becomingcity residentsbecause of "propiska"regulations and lack of housing opportunities.The increasingnumber of suburban"dachas" has helpedto provide rentalaccommodations for thesemigrants. 42. Even if manymigrants managed to circumventthe restrictionsseeking to bar them from the most attractivelocalities, the expectedoutcome of such mobility constraintswould be distortedpatterns of internalmigration, including depressedmigration rates. Establishingthe magnitudeof thesedistortions is, however,very difficult.This is partlydue to peculiarproblems of migration data for the formerUSSr>. There is no consensusas to how reliablethe data is, beyondthe recentdeterioration of the statistics.Over the years,particularly before 1960 and after 1975, gatheringand publishingdata on migrationwas periodicallysuppressed. Moreover,officially published migration data, collectedon the basisof relocationsdocumented through the "propiska"system, may have significantlyunderestimated mobility. Past discrepanciesbetween the "official"migration figures and populationcounts have been one of the reasons for suppressingthe information.These problems compound the alreadydifficult task of determiningof how high mobilityrates have been. 43. Lowerinternal migration rates in formerCPEs. Internationalcomparisons of internalmigration are difficult. Althoughthere are no studiescomparing migrationrates for formerlycentrally planned economies (CPE) of Europeand marketeconomies, migration specialists agree that rates for plannedeconomies in the past tendedto be relativelymuch lower. For example,in 1971,a year for which tentativecomparisons are available,Poland, Hungary and Czechoslovakia featuredcomparable net internalmigration rates which were approximately2.4 times lowerthan rates for the U.S. and West Germany. The (official)internal migrationrates for the USSR during1970s and 1980swere slightlylower than those in Poland. The net (averageannual) urban migrationrate per 1000 populationin USSR was 7.4 duringthe 1976-1980period, and 5.1 between1979 and 1988;the correspondingfigures for Polandare 10.8 and 6.3. The regionof the highestnet urban migration,Western Siberia, had an averageannual rate of 11 between1979 and 1988. The rates for CPEs, includingthe USSR, fell furtherin the 1980sdespite labor shortages, which were apparentlyoutweighed by the effect of the economicslowdown and lower investmentactivity. 44. Spatialmobility and housing. Severalinternational spatial mobility studiesimply that housingopportunities may carryat leastas much importance in explaininginternational variations in ratesof mobilityas the traditionally applied life-cycleapproach. However empiricalevidence demonstrating an associationbetween government intervention in housingmarkets and mobilityrates 143 is relatively scarce 100/. Table 3 suggests the feasibility of the housing opportunities approach: it shows mobility rates in Western Europe - where governmentintervention in housing markets is stronger - to be, on average,half of those in USA, Canada, Australia and New Zealand 101/. The table is based on the best measure for internationalcomparisons of mobility: the residential mobility rate, defined as a percentageof populationmoving from one dwelling to another during a given period of time. While no such data exists for the former USSR, Soviet housing experts estimatedthe rate to be between 3 and 4 percent. 45. Long (1991) suggests that since no direct associationis found between a country's mobility rate and per capita residentialconstruction, mobility is affectedby unmeasuredcharacteristics of housingmarkets such as their openness, the ease of housing exchanges and other features of housing policies and practices. This is likely to be true for the Eastern European Countries and Russia as well. Nonetheless,one may expect that given the level of housing scarcity present in those countries,the relationshipbetween the shortagesand mobility could be demonstratedmore readily. TABLE 3 Estimated Percentage of Population Changing Usual Residence In One Year, Circa 1981 Ireland 6.1 Belgium 7.3 Austria 7.6 France 9.4 Sweden 9.5 Australia 17.0 United States 17.5 Canada 18.0 New Zealand 19.4 | SOVIET UNION (estimated) 1 between 3 and 4 MOScOW(turnover in public rental stock, including T eatim. fLat exchanges, 1992) j 4.7 Source: L. Long, Residential Mobility Differences Among Developed Countries, 1991. Moscow: internal WB reports. Moscow and St. Petersburg havw higher mobility than the rest of the country, where rates are likely to be between 2-4X 46. Although such associationwas found by Mayo and Stein (1987) for Poland, the results of a similar study in Russia have to be approachedmore cautiously. 'lE For market economies,see, for example, Clark and Everaers (1984),Bughes and McCormick (1981, 1987); for CPEs, see Mayo and Stein (1988), and PogodzinAki (1991). lo'/ Several small countrieswith high mobility are not includedin Table 3; the author found the size of the country not to play a determinant role in explaining variations in rates. 144 The 1988 study of Karel at al, based on 1966-1985data, concludesthat labor is deterred from moving to regionswith increasinghousing shortages. The authors show that during the period the migrationinflow areas had higher housing output than the outflow regions. In their all-republic regression model of net migration per capita residential constructionwas the single most important explanatoryfactor, accounting for 44% of variation in the dependentvariable. However, in the migrationvolume (in-flowand out-flow)models, the same housing variable had little or no explanatorypower. This may be due to misspecification of the models, even though - according to numerous surveys - the factor "better housing opportunities"shows consistentlyas one of the most importantmotives for migration. Another plausibleexplanation lies in the fact that significant numbers of migrants relocate throughhousing exchanges:for example, in the mid 1980s, this was the case for some 16% of those leaving Novosybirsk, and 13% moving to the city. Exchangeswould have negligibleeffect on net migration,but would certainly affect volume. 47. Recent trends. Recent data (obtainedas a residualbetween the total and the natural population increase)suggests that rates of internalmigration have declined further. The actual scale of largelyanticipated massive refugee flight spurred by trends of ethnic isolationhas so far been moderate: at the end of 1991, there were approximately200,000 refugees in Russia. Estimatesof how many of the 20 million ethnicRussians currentlyresiding in other republicswould try to re-emigrate range between 2 and 7.5 million. In any case, the influx of refugees will certainly exacerbatehousing deficits. Moreover, from the labor market and housing perspectives,there is the problem of army demobilization. Despite the western assistance to help cover the cost of housing for returning personnel, demobilizationwill also contributeto the emerging housing crisis. B. Housing onnortunitiesand relative wages 48. It is argued that in Russia there is little or no link between regional wage rates and housing shortages such as found in Poland by Mayo and Stein (1988). Their study shows industrialwages to be significantlysensitive to changes in housing shortageratios. In Russia, rather than offeringhigher cash wages to compensatelabor for higher cost of scarce housing, employersprovide a range of non-wagehousing benefits. Some 60% of population,as opposedto less than 15% in Poland,reside in enterpriserental housing,hostels and dormitories. Other companyhousing benefits, such as rent allowances,grants and loans, have also been considerablymore common than in Poland. V. ENTERPRISEHOUSING AND LABOR MOBILITY A. Dominant role of enterprisesin provision of housing 49. Over the years, investmentin housing and social infrastructurehas largely resided not in the revenue base of the local soviets but rather in the social funds of enterprises. Throughout the 1970s and 1980s, enterprises- especially those located in areas with persistentlabor shortages,as in the north and east - came to rely increasinglyon the provision of housing to attract workers. At present,enterprises manage about 40% of all existingurban stock, and 57% of the total state-ownedstock. Regional differencesin the share of the enterprise- 145 owned stock in all housing 102/ reflect previous priorities in industrial policy: regionsdominated by heavy and defenceindustries have the highest share. Enterprisescurrently dominate new construction,accounting for 45.52 of the total in 1991. Prior to 1986, resources for enterprise-financedhousing consistedmainly of centralbudget funds channeledthrough ministries. In 1986, the Law on State Enterprisesgranted a partial autonomy in the allocation of internallygenerated social funds, which allowedthe rising share of enterprises in new construction,from 8X in 1987 to about 46X today. 50. While overall new housing constructioncontinues to decline, enterprise- financed construction- with the expected 201 loss of total output in 1992 - has fared relativelybetter. Non-state enterprisesand public organizationshave actually expanded their role as providers of housing in terms of both absolute levels of new constructionand its share in the new stock. Together, state and non-state enterprises and organizations are projected to account for approximately552 of the total 1992 housing output. 51. Types of housing benefits. Enterpriscsmay offer their employees rental housing, as well as various accommodationswith shared facilities. In addition, there is an array of both in-kindand cash forms of housing assistance,for which data is largely anecdotal. This is partly due to the fact that these benefits do not constitutean entitlement- in the past legislationencouraged, but did not oblige, enterprises to extend help to employees pursuing self-help constructionor wishing to join a housing cooperative. For those constructing their house, this can involvemediation in securingland plots from the city, as well as assistance in obtaining and transportingbuilding materials. Cash assistancecan take the form of rental allowances,medium- and long term coop downpaymentloans, or partial reimbursementof annualhousing debt repaymentsof either individual constructionor coop loans. Until recently the Sberbank (SavingsBank) housing loans for individualconstruction were channeledthrough enterprises. B. To what extent does enterprisehousing provision limit labor mobility ? 52. Among the institutionaland legal features of the Russian housing sector, the provision of housing benefits by enterpriseshas arguably been one of the most importantfactors affecting labor mobility. Enterprisehousing has affected local and regional labor mobility and has likely influencedmobility within enterprisesas well. It has also affected interbranch'total wage' differentials throughthe considerabledifferences in housingbenefits offered to employeesof powerful, as opposed to weaker, sectors and branches. Enterprise-levelwage differentialsmay be similarlyaffected. The lack of flexibilityof the benefit system is an additional factor compoundingthe effects on labor mobility. 53. Waiting lists and seniority-based benefits. Enterprise housing opportunitiesgenerally depend on the length of the individual'semployment in the enterprise. The allocation of new apartments proceeds according to the enterprise'shousing list. The waitingperiod varies greatlyacross branches and regions,but could be well in excess of ten years. Nevertheless,signing up for / see Table 1 in the Statistical Annex 146 enterprise housing in many localities has been favored over municipal housing lists. The waiting period could be shorter that for municipal housing. In some localities workers whose overcrowded housing co:t4itions would otherwise fail to meet the criteria for access to municipal housing, could still qualify for enterprise lists. An employee's qualifications and contribution to the company may entitle the family to an apartment of a size and quality exceeding municipal norms. Some companies have also offered seniority-based housing assistance to employees burdened with servicing housing debts, whereby they would pay depending on the length of employment - from 10 to 50 percent of the outstanding loan amount. Other forms of assistance - such as mediation in land plots' acquisition from municipalities - may be contingent (albeit in an unregulated way) on the length of employment. Thus, the system has created considerable incentives against voluntary quits. 54. Labor mobility and occupancy of the existing enteririse stock. A further mobility depressing factor is the limited control that enterprises can exercise over their existing stock. Employees moving into enterprise-provided rental dwellings (not including hostels and dormitories) acquire a permanent occupancy right which in principle cannot be terminated upon the termination of employment. Hence, vacancies do not arise frequently. Enterprises in branches deemed important for the economy have the right to evict former employees under certain circumstances (see para.14), yet the obligation to provide an alternative dwelling remains and the enterprise's decision could still be overturned by courts. C. Changes in enternrise housing programs: how will they affect mobility ? 1. Enterprise housing in the housing reform debate 55. Recent policy statements and legislative draft proposals - in particular, the recently passed Law on Basic Princinles of Federal Housing Policy - stipulate that enterprises and public entities providing housing for their employees will be the principal players in the housing delivery system, at least during the transition. Whether enterprises are willing and able to remain in this role is unclear, but, clearly, the possibility of substitution of private construction for public programs is still very limited. In the official new construction forecasts for 1995 (see Table 1), enterprises' share of new stock in two different scenarios is 26X and 371. Fiscal incentives encourage employer provision of housing benefits through both federal and municipal tax exemptions and rebates. Since 1991, all housing investment financed from the enterprise social funds is exempt from profit tax. 56. A major housing finance scheme which would involve enterprises is a contractual savings system recently proposed by the Sberbank. It would factor enterprises' annual contributions to the amount of approximately 10-12X of the estimated cost of urban dwellings, both during the savings and the repayment period, for a total of 14 years. The proposal, although unlikely to be implemented, reflects widely held assumptions about the continuing of the role of enterprises as providers of housing. 147 2. Will enterpriseswithdraw from the provision of housing ? 57. It is presentlyuncertain how enterprisesare responding,in terms of their housing programs, to the changing economic environment. The existing housing stock of enterpriseshas been formally transferred into their ownership. It is legally subject to privatization on individualoccupant demand, though some enterpriseshave been reportedlytrying to obstructthe process. There have also been incidentsof enterprisesabandoning their housing, in which case the stock would be transferredto the municipal governments. There is evidence that some enterpriseshave alreadybegun to withdraw from the direct supply of housing in favor of low- or no-interest loans and grants for employees engaged in constructionof own houses or for those who are members of housing cooperatives. It is not clear under what conditions such benefits are granted and what provisions are being made for voluntary or forced separations. 58. Will many enterprises,in the short run, decide to withdraw from their housing responsibilities? That seems unlikely. Beyond the strong fiscal incentives, the enterprise privatization law to be enacted shortly vests employeeswith substantialcontrol over companies. Consequently,it is suggested that housing would be one of the last benefits to be discontinued,even if the scope of housing programs may be curtailedand their characterchanged. 3. Some evidence: results of the World Bank's enterprisesurvey 59. The World Bank enterprise survey of wages and benefits, conducted in November 1992, sheds some light on the current situation regarding housing programs as well as on the enterprises' outlook for the near future. The following is a summary of the survey's findings . 60. The survey shows that most enterprises- 75X of respondents- do offer some form of housing assistance. Firms which do not tend to be very small. More than one 1/3 of enterprisesproviding housing assistancehave three of more different housing programs. Help with rent payments is available in two of the surveyed enterprises only; this form of benefit is reported to have been largely discontinued. Programs furnishingland plots for constructionof homes are the most common type of housing assistance:they are availablein more than half of the enterprises. About 1/4 offered help in both acquisitionof land plots and constructionloans. 148 a. Current housing programs TABLE 4. HOUSINGPROGRAMS IN THE SURVEYEDENTERPRISES Firms by Perm Temp Constr Land Rent No Prg Total Employment Housing Housing Loans Plots Assist # of Size 1/ (avr. X Firms tenants Resp in l ______staff) Very Small 2 1 0 3 0 6 10 (n/a)2/ Small 5 3 6 7 1 2 11 (20%) Medium 8 4 4 7 0 0 10 (25%) Big 6 3 4 6 1 0 7 (33%) Very Big 1 0 0 3 0 0 3 (8X) Total | 22 11 14 1 26 j 2 8 41 1/ Employment size: very small: staff 78-350; small: staff 351-700;medium: staff 701-900; big: staff 901-1500;very big: staff over 1500 2/ housing under construction/ortotally privatized 61. Tenants of existing stock: high Dercentae of non-emgloyees. In the enterprisesthat have permanenthousing, on average only one fifth to two thirds of staff are companytenants. As noted earlier,former employeesusually remain: all enterpriseshave tenants who are not their employees,and in half of these companies, such tenants constitute over one third of all occupants. Privatizationof apartmentshad begun in more than half of the enterprises,where between 1% and 13% of all apartments have been transferred into private ownership. One small company has already privatized its entire housing stock. b. Are enterpriseschanging their housing Rrograms ? 62. The survey contains several questions concerning enterprises'plans for their housing benefit programs. The answers must be regarded as tentative. In a few cases they appear inconsistent,and generally reflect uncertaintieswith regard to both the enterprise'sfuture economic situationand factorsthat affect housing programs. The most important of the latter include (i) rising construction costs, (ii) legislative reforms regarding rent and the tenancy rights', (iii) the legal and economic implicationsof the regulationsallowing 149 private ownership of urban land 103/, and (iv) the privatizationlaw and the rights of persons on housing lists. TABLE 5. PLANNEDCHANGES IN HOUSINGBENEFIT PROGRAMS IN SURVEYED ENTERPRISES Firms by Firms w/ Plan: no Plan: Plan: Plan: Plan: Employment Size Housing Change in Continue Reduce Swith End under Constr Constr, Constr to all Constr. Prg Reduce & Use Other Hsing 1991/92 Volume Other Prg Prg Very Small 2 3 0 0 0 0 Small 4 3 1 0 1 0 Medium 4 3 4 0 1 1 Big 2 2 2 2 0 1 Very Big 0 1 O 0 0 0 Total 12 12 7 2 2 2 63. Constructionnrograms: what is the status of new enternrisehousing ? More than one third of enterprisesoffering housing benefits show capitalexpenditures for housing construction in 1991 or 1992, and the same number of cumpanies indicate that they have no plans to reduce their construction programs 104/. Given that the status of new housing vis-a-vis the privatizationlaw remains unclear, the reluctanceof many enterprisesin the sample to at least scale down new constructionis remarkable. With very high and growing constructioncosts, it seems unlikely that enterpriseswould continuebuilding and transferringnew apartments into the ownership of employees. 64. Will enterprises obtain the right to limit rental housing to current employees only, and increase rents in these dwellings? Even if new enterprise housingwas not subjectto privatization,there remain unsolved issues in current rental legislationwhich applies to all state-owned housing. The right to terminate the rental contract upon the terminationof employmentwould depart from the principle of permanent occupancy. The power to increase rents, at presentdelegated to municipalgovernments, is crucial:maintenance subsidies for / In the Law on Basic Principles of Federal Housing Policy, December 1992, and amendment to the Constitution. 'N/ These are not necessary the same enterprises; some companies that have indicated "no change" or "reduce volume° in construction have not beon building in either 1992 or 1991. Presumably, thw answer refers to construction programs prior to 1991. 150 enterprisehousing, always considerablyhigher than those for municipalhousing 105/, are growing rapidly. Nonetheless,while 75X of the surveyed enterprises would like to transfer their existinghousing to municipalgovernments, 40X (of which two have just started their construction programs) express no such interest. 65. Programs supporting private construction. Only 4 of the surveyed enterprisesindicated that they would like to switch to indirecttypes of housing assistance. Most of the companieswith housing programs already offer help in acquisition of land plots and construction loans. A high percentage of respondentsregard these programs as very important,which reflects increasing interest in self-help construction. However, new regulationsallowing private ownershipof urban land will affect the role of local governmentsin the supply of land for the emergingland markets, and, consequently,the role of enterprises as intermediariesin land provision. 66. Divestitureilans. As shown in Table 5, only two enterprisesdeclared plans to discontinueall housing programs. Inconsistenciesin response to other surveyquestions indicate, however, that their intentionsare somewhatambiguous. For example,both enterpriseslist housingassistance as the last benefit - among all others provided - that both management and workers would relinquish. In fact, over one third of all companies offering housing programs gave similar responses, with management and workers equally reluctant to allow housing benefits to be suspended. Clearly, as alternativeoptions to obtain housing become less accessible,it will become an increasinglyimportant benefit provided by employers. m Many enterprises may have one or two residential buildings, but they have large administrative staff to deal with housing allocation as well as extensive in-house service units to perform maintenance and repairs. Inefficient management results in maintenance costs several times higher than in the municipal sector. 151 VI. POLICY IMPLICATIONSAND RECOMMENDATIONS 67. In the long run, reformsshould result in an increasedsupply of housing, and better functioninghousing markets, which in turn will contribute to the improved operation of labor markets. However, not only is the pace of the transitionto the market-basedhousing system in Russia more severelyconstrained by macroeconomic and political factors than is the case of Eastern European countries,but it starts from a notably differentbase, one with a much higher degree of state monopolyover production,distribution and managementof housing. Introducingmarket mechanismsinto the housing sector is thus likely to be a slow process, which at this point has only just begun. A. General recommendations 1. The legal process: need for emphasis on coordinationand imRlementation 68. Fueled by the apparent consensus for the general "market" direction of housing reforms,the legislaturehas introducedseveral uncoordinated, piecemeal measures without a coherent, long term policy framework. This fragmented approach has contributedgreatly to the confusion presently prevailing in the legal environment for housing. The uncertainties as to the status of old regulationsand the interpretationof new laws and decrees, and in the absence of clear implementation procedures, create a situation in which local governments,enterprises, banks and other agencies,as well as households find it very difficult to make rational choices in response to the rapidly changing environment. Lack of coordinationamong the decision centers active in housing policy making, and delays in implementationof new laws and decrees result in ever-increasingeconomic and social costs, includinga seriousundermining of the labor market transitionand industrialrestructuring. 69. The first attempt in developing a framework for comprehensivehousing reform is the Law on the Principlesof FederalHousing Policy,December 1992. The law reconfirmsthe right to private ownershipof housing and introducesprivate ownershipof urban land which is one of its most importantfeatures. It embraces a set of broad guidelines for future actions, establishinga basis for a more integratedapproach to reforms. Its enactmentshould acceleratethe development of specific legislationin the key areas of housing policy and encouragea much needed emphasis on the implementationof existing and forthcominglaws. 2. Eliminationof the "oroRiska"system 70. The new registrationlaw to replace the "propiska"should be implemented as soon as possible,as the existing system clearly constrainsmobility. Beyond its direct control impact, it impedes private market transactions by significantlyraising transaction costs. In large cities,out-of-town buyers are faced with either purchasing the "propiska" - the cost may run as high as R 2 million per household in Moscow - or having to wait, sometimesas long as five years, to be registeredin their new dwellings. All housing restrictions(beyond norms requiredby sanitaryconsiderations) tied to "propiska"regulations should be abolished. However, given the scarcityand rationingof many local goods and services,some local governmentsare likely to attempt to use the clause allowing 152 "Justifiable"restriction of registrationrights' to maintain control of in- migration. This should be avoided: the "propiska" is not the way to solve housing problems, nor access to rationed goods. If rationing is "needed", it should be direct, not indirect. B. Reform measures and mobility: emphasize changes for existing stock 71. Improve household mobility to facilitate labor market transition is a particularlypressing issue, which has to be addressed in the context of the overall housing reform. Although reforms aimed at existing housing and new constructionshould be consideredsimultaneously, those targeting the existing stock, which constitutes95% of the housing system,have the potentialto affect mobility relativelyquickly. 1. Increasingmobility in the existipg state-ownedhousing 72. State-ownedrental housing accounts for approximately78% of urban stock. Attempts should be made to achievemore efficientuse of this stock throughmore rational privatizationand rent policies,better managementof repossessionsand reallocations,together with repeal of administrativeand legal restrictionson exchanges and sublets. The followingsection reviewsmajor issues involved in policy choices in these areas. 73. Rent reforms: what ootions? Given fiscal constraintsescalating housing maintenancesubsidies are unsustainable. If housing rents are not adjusted and revenues continue to fall rapidly in real terms, the most likely response from municipal governmentsand other owners of state rental housing will be further cuts in the already low maintenancebudgets, which in turn will cause rapid deteriorationand depletion of the stock. Rent increaseswill not only raise revenue, but will encourage mobility through privatization and exchanges of dwellings. Exchanges will intensify as tenants who cannot or would not pay higher rents seek to move to smaller units. 74. Russia has the lowest cost recovery levels on state rental stock - housing rents cover 3 to 5% of recurrent expenditure - and the lowest rent burden on household incomes - below 1% without utilities - of all former socialist countriesof Eastern Europe. Reformingthis system will be a formidabletask for municipal governments,as strategiesfor rent adjustmentshave to be developed in a situation of falling real incomes and rapid changes in structure of household expenditures 106/. While general rent increases should be implemented,almost any meaningful increase of the basic tariff will have to be accompaniedby housing allowance programs, so net budget savings may be very small. R. Struyk at al. (1992) estimate that if rents in Moscow were brought to cover even half of the full cost of serviceprovision, it would absorb the entire cash income of households in the lowest 25% of the population. '/ According to Goskomstat household budget survey, the share of food in expenditures of households of state employees (outside of agriculture) increased from 28S in 1990 to 40X in the mid-1992. The share of food in expenditures of urban pensioners has reached approximately 7O0. 153 75. In this context,what are the viableoptions for rent reform? Municipal governmentsshould considerprograms combining rent adjustmentsand housing allowanceschemes 107/ with the followingprovisions: * Programsshould not be standa--dizedand uniformacross the country. Housingconditions differ across localities,as do characteristicsof occupanthouseholds. The RussianFederation unlike governments of most EasternEuropean countries - has recognizedthe localaspect of housingby empoweringmunicipal governments to adjustrents. Consequently,programs should be designed with local conditionsin mind, and alternative scenariosshould be generatedand examinedbefore choices are made. * Other optionscan be consideredconcurrently with the basic rent tariff increase. These may include: (i) implementinghigher rent increaseson housingspace exceedingthe "socialnorm", possibly with a downwardadjustment of such norms to minimizethe per unit subsidy,(ii) further differentiationof tariffs, in particular to account for locationaladvantages; and (iii)targeting the best partsof housingstock for fasterrent increases,possibly covering at leastcurrent maintenance. 76. Rentals and exchanes: revoke restrictions. All remaininglegal and administrativerestrictions on sublets,and exchangesin municipalhousing, such as prescribedfloor space norms and bans on cash payments,should be revokedor redefinedso thatonly reasonable safety and health codes apply. Despite existing constraints,apartment exchanges have been relativelyfrequent and theirnumber shouldincrease with rent adjustments.Exchanges contribute significantly to both local and interregionalmobility: their further facilitationwithin municipalstock is recommended. 77. Sublets,like privatization(and, to some extent,exchanges) each raise similarconcerns, in that they allowhouseholds - especiallythose who received preferentialtreatment under the previoussystem - to capitalizeon the state subsidy. Unfortunately,it is only in the long run that efficiencygains can justifycurrent equity losses. Placinga ban on sublettingwould be costlyfrom the administrativepoint of view,but, more importantly,it would sharplyreduce the availabilityof rentalhousing and raiseprices. Measures,such as those recommendedin paragraph75 above, could encourageexchanges and reduce windfalls. 78. Privatizatign.The housingprivatization program has recentlyshifted from a residualpayment scheme to that of free transfer,available to all occupant householdswho apply. This changeis likelyto acceleratethe process. The demandfor transferswould also be stimulatedby implementing(i) rent increases, (ii)property taxes (uncertaintyabout their levelsis often reportedto delay 10/ Since housing subsidies are effectively a form of in-kind labor income an alternative strategy would be to restore the purchasing power to households through wage increases. The logistics of implementation and the possibility of further dist.rtions makes this alternative unfeasible (for discussion, see Struyk at al. (1992)). ousing allowance programr are currently in use or under consideration in Eastern European countries; the first program in Russia is being designed for Moscow. 154 privatizationdecisions); and (iii) condominiumlaw for privatizedor partially privatizedbuildings. Moreover, since urban land can now be privatelyowned, new owners' rights to land on which privatized buildings are located need to be clarified. 79. Privatizationof housingwill have a direct impact on mobilityas increased number of units are placed on rental and resale markets. New constructioncan be stimulated, especially if owners can use their privatized dwelling as a collateralfor housing loans. Housingprivatization may also contributeto labor market transition in different way, if privatized dwellings can be used as a collateral for small business loans. As privatization of municipal stock proceeds,budgetary resources thereby freed can be directed to new construction, capital repairs or housing allowance programs in the remaining rental stock. Furthermore,rent decontrol could proceed faster. 80. Enterprises:more control over housing. shift to indirect assistance. Although enterprisesshould eventuallybe freed from housing responsibilities, their withdrawal in the short run would cause acute crisis in new residential construction. Enterprises currently contribute approximately 65Z of total financingof new housing stock; while budgetary funding continues to fall, and the private sector is still clearly not yet able to replace it. The new legislation provides fiscal incentives for enterprises to provide housing benefits, and - as noted - the enterprise privatization law will grant substantialcontrol to workers, who are likely support continuanceof housing programs. 81. Given that in the transitionperiod enterpriseswill continue to play an important role in provision of housing, the following recommendationscan be made: * Enterprises should exercise more control over their housing. This implies the right to (i) determine rents, (ii) establishown policy with respect to rentals and exchanges, and (iii) evict workers after the termination of employment. Such changes should at least apply to new units. * Shift from to other assistanceprograms, such as short-to medium term downpaymentloans. In terms of labor mobility, loan and grant programs could be an improvementover enterprise-managedrental housing, since (i) there is a potential for more flexibility,and (ii) the benefits would support private ownership and thus the development of private housing market. These programs would enable both efficiency and equity gains, since smaller subsidiescan be allocatedto more recipientswho will match them with own resources. 155 2. Conversionsof "dachas" to germanenthousing 82. The federalhousing policy law encouragesconversion of "dachas",and other temporaryhomes meeting normative requirements,into permanentresidences. The exact number of such homes is not known, but, particularlyaround large cities, has reportedly been growing fast. Conversionscan significantly expand the existing stock of permanent housing in areas when housing shortages are most acute. Municipalgovernments should facilitatethe process and identifyfunding sources for infrastructureextensions. C. Other Rolicy issues and recommendations 1. New construction 83. Actions in severalpolicy areas must be simultaneouslyundertaken to revive new construction. These include: * the development of mortgage finance system with indexed mortgage instruments appropriate for an inflationary environment; which would increase the effectivedemand for new units; * better targeting of subsidies: (i) shift the current explicit and implicit interest rate subsidies to up-front grants to help households with down-paymentsfor private or cooperativehousing, and (ii) subsidy systems such as housing allowances should be designed in the context of general social protectionpolicy; * the developmentof markets for land requiresclarification of: (i) the conditions under which municipal goverments will make land available to investors, and (ii) the issue of land development and infrastructure financing 108/; and * a program for the building industry, with strategies to introduce competitioninto the sector. 84. New rental housing. Even if market prices can be charged in privaterental sector, it is unlikely that new private rental housing will be developedunless enforceable eviction legislation is enacted. At present, alternative accommodationsmust be provided to be evicted in practicallyall cases. 2. What to do with waiting lists ? 85. Despite what is implied by the privatizationlaw, it is unrealistic to expect that free housing will continue to be provided to households on waiting lists. It is also obvious that waiting period for those in queues will expand tremendously,with no ultimateguarantee of housing. Some householdswill simply "/ In the past, enterprises financed and maintained not only housing but large parts of local infrastructure; this practice is not likely to continue. Municipal governments revenue basis and borrowing rights also need to be clarified. 156 lose hope and drop out of queue to seek other options, as has been the case in Poland. Polandhas sought to shorten its waiting lists furtherthrough a program whereby households are offered preferentialaccess to land and a construction grant, though it is unclear how many households have taken advantage of this offer. Similar programs could be considered in Russia. 157 BIBLIOGRAPHY Buckley, R.M., P.H. Hendershott, and K.E. Villani, (1992), "Rapid Housing Privatization in Reforming Economies: Pay the Special Dividend Now", a joint USAID/World Bank paper prepared to developed an Urban Actinon Plan for Budapest, Hungary. Commander, S. and R. Yemtsov,(1992), "Prices, Wages and Employment in Russia: Developments in 1992", paper prepared for Workshop on the Labor Market in Transitional Socialist Economies, CSFR, July 10-11 1992. Everaers, P.C.J. and W.A.V. Clark, (1981), "Public Policy and Residential Mobility in Dutch Cities", Journal of Economic and Social Geography, Vol. LXXII, No.6, 1981, p.322-333. Everaers, P.C.J. and W.A.V. Clark, (1983), 'Policy and Mobility in Dutch Housing Market Contexts: the Influence of National and Local Policies on Intra- and Inter-City Mobility", Journal of Economic and Social Geography, Vol. LXXV, No.4, 1984, p. 24 2 - 2 4 8 . Hughes,G and B. McCormick, (1981), "Do Council Housing Reduce Migration Between Regions ?", Economic Journal, 91, p. 13-39. Hughes, G. and B. McCormick, (1987), "Housing Markets, Unemployment and Labor Market Flexibility in the UK", European Economic Review, 31, p.615-641. Kalinina, N.V.,(1992), "An Account of Housing Privatization in Russia", paper prepared for the Technical Cooperation Project on Housing Reform and Privatization (draft). Korel, L.V., V.C. Tapilina and V.A. Trofimov, (1988), "Migration and Housing", Novosybirsk: Nauka (in Russian). Litovkin, V.N., (1988), "Housing Legislation", Moscow: Profizdat (in Russian). Long, L., (1991), "Residential Mobility differences Among Developed Countries", International Regional Science Review, Vol.14, No.2, p.1333-147. Malle, S., (1987), "Planned and Unplanned Mobility in the Soviet Union Under the Threat of Labor Shortage", Soviet Studies, Vol.XXXIX, No. 3, p.357-387. Mayo, S.K. and J.I. Stein, (1988), "Housing and Labor Market Distortions in Poland: Linkages and Policy Implications", Washington, D.C.: the World Bank, Report INU: 25. Mitchneck, B.A., (1991), "Geographical and Economic Determinants of Interregional Migration in the USSR, 1968-1985", Soviet Geography, March 1991, p.168-189. Oxenstierna, S., (1990), "From Labor Shortage to Unemployment ? The Soviet Labor Market in the 1980s", Swedish Institute For Social Research, University of Stockholm. 158 Oxenstierna,S., (1992), "Labor Market Transition in the Post-SovietEconomy', Swedish Institute For Social Research,University of Stockholm. Pogodzinski,J.M., (1991), "Reform of the Polish Housing Market: Issues and Methods". Paper presented at the AREUEA conference,May 1991. Pogodzinski,J.M., (1992), "The Effect of Housing Market Disequilibriumon the Supply of Labor: Evidence from Poland, 1989-1990", paper presented at the AREUEA/USC School of B.A. InternationalConference on Real Estate and Urban Economics, October 1992, Redondo Beach, California. Renaud, B., (1991), "HousingReform in Socialist Economies",Washington, D.C.: the World Bank DiscussionPapers: 125. Renaud, B., (1992), "The Housing System of the Former Soviet Union: Why do the Soviets Need Housing Markets ?", Housing Policy Debate, Vol.3, Issue 3. Struyk, R., N.Kosareva, J.Daniell, C.Hanson and M. Mikelsons, (1992), "ImplementingHousing Allowances in Russia:Rationalizing the Rental Sector",The Urban Institute,Washington, D.C.: paper preparedfor The EconomicReform Working Center of the Russian Federation. Struyk, R., J.Daniell, A.Puzanov and N.Kosareva, (1992), "Income Adjustments While Raising Rents in Post-SovietEconomy: Housing Allowances or Wage Increases - Analysis for Moscow", The Urban Institute,Washington, D.C. and.the Institute for Economic Forecasting. Standing,G., (1992), "Employment"Rigidity" and External Flexibilityin Russian Industry",paper (No.4) presentedat the Conferenceon EmploymentRestructuring in Russian Industry,October 21-28. StatisticalYearbook 1990 for Russian Federation,Goskomstat 1991. Zayanchkovskaya,Z.A., (1991),"Inter-Republic Population Migration in the USSR", Studies on Social Economic Development,Vol.2, No. 3., p.228-242. 159