It is Important to Release Workforce fr om Sectors with Low Efficiency

In September 2014, the level of unemployment (the ratio of the number of the unemployed to the number of the gainfully employed population) amounted to 4.9%. As compared to August 2014, in September 2014 the number of the gainfully employed population decreased by 425,000 persons or 0.6%, while the number of the unemployed rose by 57,000 persons or 1.6%. As compared to September 2013, the number of the gainfully employed population increased by 179,000 or 0.2%, while the number of the unemployed fell by 270,000 persons or 6.8%.

So, with an economic slump in Russia the index of unemployment remains at a low level, wages and salaries keep growing, while labor efficiency is falling.

It is important to stress that the main problem of the Russian economy is a continued decrease in growth rates of labor efficiency due to which situation the rate of unemployment is at a low level (manufacturing with low labor efficiency requires engagement of a larger number of labor resources). So, if in 2007 the growth rates of labor efficiency amounted to 7.5%, in 2013 that index rose by the mere 1.8% (the Rosstat). It is to be noted that Russia's lag behind the EU and the US as regards labor efficiency (output of products per unit of workforce) is quite a big one. So, in 2013 in the US and the EU that index amounted to $107,600 per worker and $69,300 per worker, respectively (as regards purchasing power parity). In Russia, the average labor efficiency amounted to the mere $33,900 which is 3.2 times and 50% lower than the US index and the European index, respectively.

It turns out that most Russian nationals are employed in industries with low labor efficiency, while the offer of high-efficiency jobs with a higher pay is rather limited. According to the logic of economic development, it is necessary to release the workforce from sectors with low labor efficiency and provide it employment in high-efficiency sectors. However, to do that the structure of the economy needs to be changed.

The labor efficiency-related problem is further complicated by the geopolitical situation in the country and anti-Russian sanctions. On the one side, closure of Western capital markets for Russian companies will only result in strengthening of state-owned companies and weakening of the small and mid-sized business. It can be explained by the fact that state-owned companies can receive any time cheap long-term money from the National Welfare Fund, while large private companies and the small and mid-sized business have to either cut their investment programs or borrow funds at a high interest rate and on unfavorable terms on Asian markets.

On the other side, depreciation of the national currency has already resulted in a dramatic appreciation of foreign equipment and technologies for Russian companies which situation actually makes technological modernization of the economy impossible. It means that labor efficiency will keep falling, while Russia's technological lag behind Western countries increases; the country's population will be employed at low-efficiency industries wh ere there are no motivation and possibility to upgrade one's skills and promote labor efficiency.

So, Russia should not be proud of its low index of unemployment. On the contrary, full employment with low labor efficiency is evidence of structural problems in the economy and the result of the country's inability to cope with demographic challenges by intensive methods. However, the pressure of demographic problems on the Russian economy will increase from year to year. The problem can only be solved by promotion of labor efficiency and release of the workforce from ineffective industries.

Yekaterina Pospelova, Senior Researcher