The Russian Labor Market: Moving from Crisis to Recovery Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized A copublication of Izdatelstvo Ves Mir and the World Bank Public Disclosure Authorized © 2003 The International Bank for Reconstruction and Development/ THE WORLD BANK 1818 H Street, NW Washington, D.C. 20433, U.S.A. All rights reserved Printed in the Russian Federation A copublication of the World Bank and Izdatelstvo Ves Mir Izdatelstvo Ves Mir 9a Кolpachny Per. 101831 MoscowCenter Russian Federation The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Execu tive Directors of the World Bank or the governments they represent. The World Bank сannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgement of the legal status of any territory or the endorsement or accept ance of such boundaries. Rights and Permissions The material of this work is copyrighted. Nо part of this work may be repro duced or transmitted in any form or by any means, electronic or mechani cal, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with com plete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 9787508400, fax 9787504470, www.copyright.com. ISBN: 5777702740 All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818, H Street NW, Washington, DC 20433, fax 2025222422, email: [email protected]. Library of Congress CataloginginPublication Data has been applied for. CONTENTS Acknowledgements . .VII Acronyms and Abbreviations . .VIII Executive Summary . .IX I. Understanding Employment: Level, Composition, and Flows . .1 A. Setting The Stage: Macroeconomic Developments . .2 B. Aggregate Labor Market Trends . .4 C. Understanding Aggregate Employment Fluctuations . .6 D. Adjustment through Hours of Work . .15 E. Time Allocation . .18 F. Understanding Unemployment . .20 G. Structural Change And Labor Mobility . .26 H. The New Private Sector . .35 II. Understanding Wages: Structure, Uncertainty, and Inequality . .45 A. Level and Determinants of Wages . .45 B. Nonwage Compensation Practices . .51 C. Wage Inequality And Poverty . .63 III. LaborMarket Regulation . .69 A. Background . .69 B. Labor Contracts . .72 C. Dismissals and Terminations . .76 D. Wage Determination . .82 E. Trade Unions, Employer Organizations, and Collective Bargaining . .87 F. Enforcement and Dispute Resolution . .93 IV. Safety Nets for Workers . .103 A. Background . .103 B. Evaluation of Unemployment Protection Programs in Russia . .104 C. Policy Options . .131 Boxes Box I.I Who Is Unemployed? Some definitional problems . .13 Box IV. 1 The UnemploymentBenefit System in Russia . .106 IV THE RUSSIAN LABOR MARKET: MOVING FROM CRISIS TO RECOVERY Box IV. 2 ALMPs in Russia: A Brief Overview . .119 Box IV. 3: Profiling to Reduce LongTerm Unemployment . .123 Figures Figure I.1: Real GDP (1990=100), Russia and Select CEE countries . .3 Figure I.2: Real GDP, Employment, Real Wages, and Labor Productivity . .3 Figure I.3: Real Wages in Russia and Select CEE Countries . .5 Figure I.4: Alternative Measures of Employment . .7 Figure I.5: Employment Trends in Russia and Select CEE countries . .8 Figure I.6 Employment Rates in Russia and Select CEE countries . .9 Figure I.7: Unemployment Rates in Russia, Select CEE countries, 19932000 . .11 Figure I.8: Changes in Labor Force Participation Rates, 19932000 . .12 Figure I.9: Percentage of LongTerm Unemployed, Russia/CEE . .22 Figure I.10: SelfEmployed as a Share of Employed, Select Countries . .37 Figure I.11: Evolution of NonAgricultural SelfEmployment . .38 Figure I.12: Foreign Direct Investment in Selected Transition Economies . .39 Figure I.13: World Business Environment Survey (WBES) of Obstacles to Investment in Russia . .39 Figure I.14: Payroll Tax Rates in Russia, CEE Countries, EU, and OECD . .40 Figure II.1: CPIDeflated Real Wage Rate Due, 19912001 (Jan. 1991 = 100) . .46 Figure II.2: Real Wage Arrears, 19902000 . .53 Figure II.3: Lorenz Curve for Wages, 19982000 . .65 Figure III.1 Minimum Wage as a Proportion of Average Wage, Transition Countries . .86 Figure III.2: Percentage of Employees Reporting They Can Be Dismissed Without Any Formal Grounds by Sector, Year . .95 Figure III.3: Number of PersonDays Lost in Strikes, 199599 . .97 Figure IV.1 Simulation of UnemploymentBenefit Expenditures . .137 Tables Table I.1: The Socioeconomic Composition of the Unemployed, 1999 . .21 Table I.2: Regional Unemployment Rates: Standard Deviation and Max/Min Ratios . .23 Table I.3: LaborMarket Transitions, 19982000 . .26 Table I.4: Job and Occupational Mobility (SelfReports in the RLMS) . .28 Table I.5: Hiring, Layoff, Quit, and Separation Rates, 199198 . .29 Table I.6: Composition of Employment by Industry, 199099 . .30 Table I.7: Job Flows over Time, Russia and select Transition Countries . .33 Table I.8: Share of Employment in New Private Sector, 19942000 . .35 Table II.1: Changes in Real Wages by Characteristics of Firms and Workers, 19982000 . .47 CONTENTS V Table II.2: Results of Simple Earning Functions, RLMS, 19922000 for Women . .48 Table II.3: Provision of Fringe Benefits, by Type, 19901998 . .52 Table II.4: Incidence and Magnitude of Forced InKind Substitutes for Wages . .61 Table II.5: Poverty Rates by Socioeconomic Groups . .66 Table III.1: Forms of Labor Contracts by Sector, ISITO Survey, April 1998 . .73 Table III.2: Provisions Stipulated in Contracts (Permanent and Fixed Term) by Property Form, Employer Reports (n=278), 1999 . .75 Table III.3: Reasons for Leaving Previous Job, by Sector of Previous Employment, Kemerovo Oblast and Komi Republic, October 1997 . .79 Table III.4: Official Minimum Wage and Average Monthly Wage, 19952000 . .83 Table III.5: Percentage of Employees by Sector, Reporting Guarantees Stipulated by Legislation or Contract Are Not Fully Provided, 1999 . .84 Table III.6: Forms of Wage Payment by Sector, Kemerovo and Komi, 1997 . .85 Table III.7: Who Protects the Employees? Opinions of Employees, Employers, and Trade Union Leaders, 1999 . .89 Table IV.1: Employment Fund Budget (Percent of GDP) and Arrears (Millions of Rubles) . .105 Table IV.2: Share of Benefit Expenditures in Total UnemploymentProgram Expenditures . .107 Table IV.3: Replacement Rate of Unemployment Benefit . .108 Table IV.4: Minimum Unemployment Benefit . .109 Table IV.5: Trends in Applicants and Registered Unemployed . .111 Table IV.6: Poverty Impact of Unemployment Programs in Select Transition Economies, Mid1990s . .113 Table IV.7: International Assessment of Unemployment Benefit Programs . .115 Table IV.8: Effectiveness of Active LaborMarket Programs: International Evidence . .118 Table IV.9: Employment Fund Expenditures on Active Policies, 19921999 . ..