About the system and screws

Артем Коваленко
20 августа 2012, 00:00

The labor market needs to be seriously reloaded: a complex solution to economic, social, migration, and educational problems is to be found; otherwise, it will be deprived of its key resources

Analysts keep saying that the new economy should be based on the creative human capital. In the meantime, Russia is on its threshold with a pile of its old structural misbalances in the labor resources system. Disproportion mainly concerns the territorial division, the educational and qualification structure and system, the gender and age structure and its dynamics. No natural redistribution of resources according to the arising needs takes place: there is no social and transport infrastructure for labor migration, no sufficient infrastructure for educational migration, and no common information field. In fact, there is nothing.

Without exaggeration, we can state that the HR limits have always been a key issue in economic development. Natural preconditions for active activities (economic activities in general and industrial activities in particular) involving the human capital, for example, in the Ural industrial area, have been historically lacking. Various measures were taken at different times to regulate and redistribute resources; but they failed to prevent formation of deep structural disproportions.

Demidov “cluster”

Many misbalances were practically formed during centuries. We do not aim at providing an in-depth historical analysis. All we want to do is to give some example facts which have to be taken into account, in our opinion, to help understand today’s problems. And such examples can be tracked since the very beginning of our region industrialization.

It is worthy of note that in the early 18th century when Nikita Demidov launched the first ironworks in Ural, he transferred several qualified workers from Tula plants to Ural that formed the starting intellectual capital; however, his HR policy was based on bonded workers and not on free ones. “Nikita wanted to create plant-related townships for workers and asked the government to offer hay for cattle and plough land.  In March 1702, the government satisfied Nikita’s requests (although it refused to finance settlement of people on plants) and, in December of the same year, started to bond farmers to them” (Kh. Khadson, the First Demidovs). Therefore, the key method of supplying personnel to plants and bonding such personnel was the law of serfdom. On the whole, it was not a common practice: for example, Tula had a “market” recruitment system based on salaries. 

In the medium term, use of the law of serfdom made it possible to considerably reduce the personnel-related costs. The main short-term disadvantage of this system included the idle time of plants lasting for about six weeks per year: farmers had to carry out agricultural works. But in the long term, use of the law of serfdom had huge negative consequences. Firstly, there was no system of engaging motivated qualified personnel. Secondly, if “at first, cheap labor compensated its low productivity ensuring cheap products, later on, in the course of moving to a more perfected process requiring lower labor costs, the plant owner could not dismiss unwanted workers as they were bonded to the plant. Up to 50% of workers bonded to some Ural plants had been unemployed by the time the law of serfdom was cancelled. This reserve labor army … seriously increased overhead costs.” (A. Preobrazhenskiy, History of Ural before 1861).

It should be noted that there were attempts in Ural to create an education system in the 17th and 19th centuries. The first schools at plants were introduced by Vasiliy Tatishchev (1720 – 1730). After that, Ekaterina II tried to set up a system of popular education (1786) which resulted in emergence of a network of popular specialized schools. Later on, a network of parochial schools was set up. However, the number of students at such educational institutions totaled just a couple of hundreds across the entire Big Ural even in the best years while the general level of literacy remained quite low and there was no engineering education system at all. There were many reasons behind that: inappropriate funding of the Ekaterina reform, the social structure (education was nearly inaccessible for bonded farmers forming the labor resources of Demidov-owned plants).

The story then developed according to the known scenario: as engineers were inappropriately trained, this resulted in lack of development of any new technologies and inventions. And “during the 1812 Patriotic War, Ural plants failed to manufacture the required amount of weapons and ammunitions. The technical inferiority and insolvency proved to be even stronger during the Crimean War” (B. Kafengauz, History of the Demidov Properties in the 18th–19th centuries). Cancellation of the law of serfdom triggered massive migrations and redistribution of labor resources once peasants were granted the right of free travel in 1870.

First five-year plans

The second phase of formation of disproportions of the Ural labor resources structure took place at the time of the Soviet overtaking industrialization, in particular, its territorial policy regarding location of production facilities and organization of the settlement carcass of the country.

“New objectives were aimed at gradually populating the deserted and border territories of the country with labor and special settlers. The spatial organization concept of the Soviet state was based on a massive drift to Ural, Siberia, and Far East. This concerned primarily heavy industries and the power sector. The drift was supposed to be made to the areas abundant in forest resources and large fields of minerals, to the places to which transport arteries started to be laid, and which could not be reached by planes of potential enemies at that time” (M. Meyerovich, Road, Region, Soviet Authority).

A separate task of the said system of production facility location consisted in fixing the population on a specific territory: here you have, grandma, St. George’s Day. There is an exemplar case relating to construction of Magnitogorsk Ironworks. In 1931, 103.3 thousand people out of 116.7 thousand people that came to Magnitostroy left the city during the year; in average, the labor turnover for the five year period was about 70%. However, the turnover had declined to 3.9% by 1935: the registration system introduced in 1933 showed its results.

It should be added that the internal regional system of locating production facilities was based on the military doctrine principles in many respects. For example, following the economic principles, companies tend to be concentrated on the same territory at least with the purpose to reduce the costs of creating the infrastructure (the cluster principle). From the military defense perspective, plants are to be located on a certain distance from each other so as to prevent destruction of several facilities in one bombardment. This resulted in a scattered and dispersed structure of similar territorially industrial complexes. 

Post-Soviet misalignment

The last 25 years have contributed again to the aforesaid misbalances. First and foremost, these misbalances concern the age structure of the population and overturn of demographic trends. The 1990 birth rate collapse starts to affect the number of the working population of Ural. As our estimates show, the total population of the Middle Ural at the working age will decline by 9%–10% by 2010. We cannot influence this process: changes in the model of forecasting secondary factors (Russia’s domestic migration, death rate indicators, etc.) permit to win less than one percent only.

Furthermore, the age structure is changing: the working population is getting older, the number employed pensioners is rising; and the demographical impact is growing. In the years to come, for example, Kamensk-Uralsk will have a ratio of one specialist entering the working age to two retiring workers.

The misalignment of the educational and industrial systems is the second proportion of latest misbalances. The changing structure of social and economic demand by education levels is important here: on the whole the country (including Ural) develops in the direction of universal higher education while the economy experiences an acute deficit of young qualified workers. Our estimates show that in the mid-term, the higher education system in Sverdlovsk Region will account for almost 60% of the total number of graduated specialists; the secondary education systems will account for slightly more than one fourth, and the elementary vocational education (EVE) will account for 14%–15%. At the same time, demand of the industrial core of the Middle Ural economic complex includes the need for the EVE system graduates by 50% and university graduates by only 23%.

In addition, the misalignment process resulted in the well-known “educational bubbles”: economic and legal professions in higher education, a group of social professions in elementary education. Demand for graduates of these educational programs is, according to our estimates, relatively small, while the “bubbles” among students account for almost half of them. This topic is hotly discussed in the process of reforming the educational system.

Therefore, the new economic development solutions are faced with the old disproportions on the labor market: territorial, education and qualification, gender and age related ones. Under the Human Capital project, we are planning to prepare several publications and, with the help of experts, propose methods of resolving the aforesaid decisions.

Market without labor

The Russian Federation Ministry of Healthcare and Social Development started to develop amendments to the Labor Code (LC) and prepare professional standards. Both areas are relevant. The LC is, in fact, a blend of conflicting Soviet-era and Russian laws on labor and social partnership: for example, the document still lacks new occupational forms. And standards, totaling about 800, are extremely necessary to ensure interrelation between professional training and requirements of the changing economy. However, this is not a complete list of questions to today’s labor market. Here is a brief list of problems without solutions to which there will be no success: low salaries and wages, serious inequality and a high level of poverty among workers, rise of informal labor relations, lack of investments in training and retraining on the site. We are looking for answers in our interview with Sergey Roshchin, Provost at the High School of Economy, Head of the Labor Economics and Human Population Department.

Sergey Roshchin, Provost at the High School of Economy, Head of the Labor Economics and Human Population Department exp_august_081.jpg
Sergey Roshchin, Provost at the High School of Economy, Head of the Labor Economics and Human Population Department

— Sergey Yurievich, what are the trends on the Russian labor market? Its situation is often measured by the unemployment level: if it is high, everyone raises alarm. To what extent is that criterion representative of the general situation?

— The labor market, just as any other market, is a live substance responding to changes in the economic situation and demand macro shocks toward the negative or positive side. We should keep in mind that it always results from what happens to output of products or services and is subject to the same fluctuations to which these markets are subjected.

But global trends have been stable and unchanged so far. On the one hand, we have a general situation associated with a low unemployment level in terms of modern global indicators. But we should not be deceived by it: its size is not primarily explained by a well-thought policy, but is a result of a specific institutional structure of our labor market. Besides, even if we do not mention unregistered unemployment (the number of unemployed people registered with the employment service), but unemployment which is taken into account from the economic analysis perspective (unemployment as defined by the International Labor Organization), trends are quite stable here and there are no important fluctuations.

On the other hand, specialists have been explaining for a long time that the labor market should not be seen through the unemployment level as this is just one of the indicators. It is more important to understand what happens to employment. And we should mention here employment with various quality. Trends are stable here as well, but they are not so rosy. For example, few people know that during the first decade of the new century distinguished by an economic growth when the total employment remained stable or increased, employment at large and medium-sized companies was steadily declining. Jobs were created primarily in the so called informal or semi-formal economic sector. It is clear that such workers have practically no rights and their situation is instable. This is a serious problem.

Another specific feature: the Russian labor market responds to shocks not only by changes in the structure of employment or redundancies, but reduction of salaries. His problem has been identified in the works of my colleagues Vladimir Gimpelson and Rostislav Kapeliushnikov. Practically every serious shock in our country is followed by the pricing response: sudden fluctuations of real salaries. What is there behind it? Any salary consists of roughly two parts: the fixed and variable ones. The share of variable salaries in Russia is quite considerable as compared to other countries, which permits the employer to flexibly change salaries as a result of the shock and, if necessary, make employees redundant: a worker has to choose whether to continue to work for 20%–30% of the previous earnings or opt for another decision. This unique mechanism gives rise to significant differentiation of income: they may differ considerably even within one sector. We have serious differentiation of salaries by regions, which is one of the highest differentiations in the world.

— This problem gives rise to the phenomenon of the working poor: a person works but cannot achieve the decent life standard.

— ... And many other specifics. Let us suppose that the employer says: “I lack specialists”. You should understand that demand is not satisfied as there are no professional personnel. After that, it becomes clear that specialists are not very needed after all, but he looks for people that will work for RUB 8 thousand a month. And those who do not understand the way the labor market works believe that this myth about lack of specialists is reality. Such jobs are offered by inefficient businesses which, unfortunately, are not ousted by the market at the moment. Ideally, there must be demand for appropriate jobs in efficient businesses with good salaries.

Mobility is needed

— Poorly paid positions are normally demanded by citizens from other countries or neighboring regions where the market cannot offer such salaries. But we cannot give up labor migration.

— Moreover, it should be developed. What is migration? This is a possibility to flexibly respond to the market changes taking place, among others, in the regional business redistribution. And if we have significant barriers for territorial mobility, this will lead to tensions in these or those sectors, because they will be unable to engage workforce. The question how to reduce the migration-related costs affects various aspects as the case may concern migration of specialists or workers from other countries and the country’s internal mobility. As experience shows, issues relating to migration costs depend on the housing market. If the housing market is immature, including the lease market, the costs of any mobility are rising. This is a well-known phenomenon and the first considerable problem.

Another complex of problems is related to regulation of external migration and engagement of appropriate workforce. I would say that we have to build a policy, which should not be prohibitive but would help engage the required number of highly qualified specialists. No new efficient sectors will be developed without it. Administrative barriers should be removed to the maximum extent so that foreign specialists could prefer our market and would actively cooperate with us. The problem of lowly qualified workforce affects related and often social aspects: people have to fit in the existing social structure, even if it is for a brief time period.

— The current demand for foreign workforce can be rather explained by negative factors: employers can give no guarantees or reduce salaries and wages.

— There must be no situations when labor of migrants is used solely because obligations due to Russian workers may not be performed with respect to migrants. Salaries and wages are another issue: it is clear that migrants will arrive from regions with a relatively low level of revenues and will be satisfied with lower earnings. But everything should be equivalent in terms of labor standards.

— What competitive advantages should territories have today to fight for human resources, including for labor ones?

— They should be spots of efficient economic growth because qualified workforce will always be interested in high revenues and career opportunities. Lifestyle and social infrastructure are important as well.

Motivation deficit

— How could you explain the problem when the market offers well-paid jobs and there are unemployed people lacking the necessary qualification, but who can obtain it on a free of charge basis; however, they prefer to be on welfare. Is this problem relevant to quality of educational centers?

— This is quite a complicated problem: every human destiny is a case apart. Why do people become unemployed? There are many reasons. But on the whole, people lose their jobs because their professional knowledge and skills are not demanded. And they lack motivation to be active on the labor market. Individual characteristics are an important component of their human capital. Many people that lost their job wish to find it; but there is also a category of people taking a passive attitude. Both official institutions and the unemployed should make efforts to return on the labor market.

There must be retraining and requalification programs. On the other hand, all of this require a specific and target approach: not everyone can switch from one profession to another one. In 2012, the employment service programs have gone to the regional level, i.e. unemployment relief is paid from the federal budget while support of the so called active policy on the labor market is to be funded by the regions. At present, the latter will be in charge of building a policy, finding funds, assessing the cost efficiency in this area. It seems that retraining can be organized quite simply; however, it is important to understand what results it will bring. Specific tools are required for this purpose: information, analysis of demand for such assessment. And the regions will have to take it seriously.

— What educational institutions are more efficient in this case: those created on the basis of employment centers, universities, or companies?

— Any of them. This is not about design, but about the need and efficiency. It should not be shifted.

— At what educational level are disproportions between the educational process and demand for human resources of the economy the strongest?

— There are many questions regarding interrelations between the education market and the labor market in Russia. A country steadily targets total higher education. The share of individuals with such education has suddenly risen among the employed and the entire working population: from this perspective, we are among the world’s leaders. However, this also gives rise to certain problems: certified specialists entering the labor market have their relevant ambitions, and the economy does not and will not generate such a number of jobs for them. Furthermore, any benefit loses its quality when it becomes massive. And this is a serious issue. Quality of education with which young people go to the labor market is not the same. Not only professional skills relating to specific technologies of business processes are important, whatever we mean by them, but also skills at building communication processes, team work, independent decision making, and so forth. In other words, those are many general skills beyond professional education. The labor market clearly shows that they are demanded. Who has to form these skills?

Russia is known for another phenomenon. As compared to companies of other countries, our companies invest in training and retraining of specialists relatively to a small extent. Any international comparison shows that we are more or less comparable with other countries in terms of the number of companies training their personnel. But if we look at the destiny of workers that completed training, the difference is considerable. Why? There are no unambiguous answers to this question. Perhaps, our labor market is characterized by high mobility and employers prefer to find an employee from abroad without investing in our specialists as they are aware that these investments may leave? Perhaps, there are still illusions that all of these expenses may be shifted to the education area. They might think that this area should generate a well-trained person for a specific technology that is needed today or tomorrow, which would be even better. But such things do not happen. Formal education differs from on-the-site training, which is related to specific technologies. The entire world invests in such things. I would like to emphasize that investments in personnel training and retraining our companies currently make are modest from the global perspective. Can you cite many such companies, for example, in Ural?

— Perhaps five or six large companies…

— It reminds me Zhvanetsky: “England has writers, too; there are seven of them … no ….there is still that one, so there are eight of them”.