October 14th, 2012

Unemployment in Russia hits record low

Aluminum tycoon Oleg Deripaska is not allowed to shut down any of his obsolete money-loosing production sites

Unemployment in Russia in August fell below 5.2%, a 20-years minimum. The Russia government could be proud of its strategy for protecting jobs.

First of all, jobs are created directly by the government. There are millions of excessive bureaucrats, armed men and teachers. The recent pre-election salaries rise made public sector positions quite comfortable.

Second, state-control companies, including those in the defense sector and state-run monopolies, employ times more people than their western counterparts. In depressive regions the government together with state-controlled companies often provide up to 80% of all jobs. For millions of Russians Soviet-era saying that “we pretend to work and they pretend to pay us” is still the most accurate description of their employment.

Finally, even in the private sector large companies are informally restricted from downsizing by regional and federal governments.

Lacking election-based legitimacy, the Russian government is afraid of any economic unrest. Instead of addressing structural problems of the labor market, such as low mobility of the workforce and its obsolete qualification, the government prefers to pay for the excessive employment by oil revenues. People don’t acquire any new skills and get used to rely on the government as a guarantor of their life style.

This jobs protection policy increases long-term risks and creates an illusion of stability. If commodity prices continue to fall, Russian companies will need to lay off redundant workforce in order to stay in the market. At the same time, the government won’t be able to pay newly raised salaries if the oil price drops.

In sum, Russian economy has no room for growth in the favorable economic conditions because of the labor deficit (unemployment in Moscow and Sankt Petersburg is below 1%) but in the case of falling commodity prices Russia might face two-digit unemployment.


Categories: Economics Tags: , ,
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