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Russia: The Consequences of a Perfectly Flexible Labour Market

Russia: The Consequences of a Perfectly Flexible Labour Market. Professor Simon Clarke Centre for Comparative Labour Studies University of Warwick. Orthodox structural adjustment.

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Russia: The Consequences of a Perfectly Flexible Labour Market

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  1. Russia: The Consequences of a Perfectly Flexible Labour Market Professor Simon Clarke Centre for Comparative Labour Studies University of Warwick

  2. Orthodox structural adjustment • Collapse of soviet system and incorporation of Russia into world market economy demanded massive structural adjustment • Standard structural adjustment package: liberalisation of prices and wages; financial stabilisation; fiscal responsibility • Burden of adjustment initially placed on the labour market

  3. Structural adjustment and the labour market • Wage differentials promote flow of labour from low to high value-added companies, industrial branches and regions • Presupposes labour market flexibility • Market determination of wages • Dismantling of barriers to mobility

  4. A Flexible Labour Market • Liberalisation of wages in October 1991 led to a doubling of wage inequality (Gini 0.24 to 0.48) and of labour turnover (hiring rate over 20%). • Russia ‘conforms better to the OECD’s recommendations than any OECD country’ (Layard and Richter 1995: 40). • Massive employment restructuring with low rates of unemployment (ILO unemployment less than 10%). Vindication of a flexible labour market?

  5. Labour market flexibility and economic regeneration • Employment restructuring did not lead to economic regeneration • Longest and deepest recession in recorded world history • Post-1998 recovery not result of market-stimulated restructuring but of massive devaluation and recovery of oil price. • Why did a flexible labour market not achieve the desired results?

  6. Wages and the labour market • Increased wage differentials bore very little relation to labour market pressures: • Branch and regional differentials bore very little relation to rates of unemployment or changes in employment. • Wage determination is firm-specific: Largest component of differentials is within occupations within local labour markets. • Employers pay what they can afford, and if they can’t afford to pay, they don’t pay.

  7. Market and Institutional Determinants of Wages • This is not a Russian peculiarity. • Industrial relations specialists have long shown that employers do not pay market-clearing wages: motivational role of wages. • It is foreign-owned companies, not paternalistic ‘red directors’, who pay the highest wages and have the best employment practices.

  8. Labour market flexibility and unemployment • Low unemployment is not a result of the creation of high value-added jobs stimulated by a flexible labour market. • Job creation dominated by new private employers in trade, catering and services, predominantly with low-wages, poor employment practices, high turnover

  9. Labour market barriers to restructuring • Wage flexibility has been a barrier to restructuring not an instrument of restructuring. • Low pay/no pay perpetuates inefficiency, removes incentives to renovation: cut wages rather than raise labour productivity. • Little renovation in traditional enterprises: emphasis on energy-saving, not labour-saving. • Ageing of industrial plant: 1999: about two-thirds installed before the start of perestroika. • Even dynamic sectors (oil and gas, metallurgy) have seen a sharp fall in labour productivity.

  10. Labour market exits and women’s employment • Low unemployment because of proliferation of low-wage jobs and labour market exits • Soviet Union supposedly characterised by the ‘over-employment of women’ • It is not women, but the young and the old who have fallen out of the labour market, and prime-age men who have died

  11. Conclusion: The Labour Market and Structural Adjustment • Flexible labour markets are a very inefficient tool of restructuring • Excessive wage flexibility sustains backward employers, encourages churning and removes incentives to innovate. • The labour market reflects restructuring, it is a very weak instrument in facilitating it.

  12. References Simon Clarke (ed) Structural Adjustment without Mass Unemployment? Edward Elgar, 1998. Simon Clarke: The Formation of a Labour Market in Russia, Edward Elgar, 1999. Simon Clarke: ‘Market and Institutional Determinants of Wage Differentiation in Russia’, Industrial and Labor Relations Review, 2003 www.warwick.ac.uk/russia

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