Employment without a Job: How the Pandemic Affected the Labour Market
Globally, the labour market's reaction to the Covid-19 pandemic has been a reduced working week, compulsory leaves and pay cuts. However, unemployment rates turned out to be lower than during previous crisis periods, partially due to the state employment support programmes. HSE Graduate School of Business professor Elena Varshavskaya shared the results of her research.
There are several ways of adapting employment to economic crises. Anglo-Saxon countries usually reduce the number of staff and stop hiring, which leads to increasing unemployment. European countries and Japan prefer to shorten working hours, switching employees to part-time work, explained Elena Varshavskaya on a seminar of GSB department of organizational behaviour and human resource management.
The Russian labour market has a model of adaptation to crises through pay cuts. Thus, real wages were decreasing faster than GDP in the 90s. Then, 20-25% unemployment rate was predicted but the lowest point that it showed was about 14% in 1998. In 2015 amid a GDP decrease of 2%, real wages became 9% smaller. Many researchers, including Deputy Director of Centre for Labour Market Studies Rostislav Kapeliushnikov, believe that many reasons cause flexibility in wages.
In Russia, automatic wages indexation in accordance with inflation is not habitual. The fraction of the variable part of earnings based on the volume of services or the product manufactured is considerably higher than in Europe and reaches 25-40%. Employers can pay only a fixed wage without breaking the contract. The fraction of informal payments is also high in Russia – up to 30% of the wage fund. During a crisis, the employer lowers them almost to zero. Moreover, in Russia, the procedure of dismissal is complicated and has high costs.
Elena Varshavskaya believes that the current crisis is unusual by its nature – it is not caused by economic factors. Companies are not closing because they are not efficient but rather due to regions and industries being on lockdown. Since April of 2020, up to 90% of employees work in the fields under restrictions, as estimated by the International Labour Organization.
However, the prediction of high unemployment did not materialize. The decrease in employment was not big even at the peak of development of the crisis and constituted 2-4 points. It is not a lot considering GDP dynamics, which plunged by double digits at the peak of the crisis in the second quarter of last year. In Russia, the unemployed increased from 4.5 to 6.2-6.3%. The USA is prominent among other countries: the unemployment increased from its historic minimum of 3.5% just before the crisis to 14.8% in April, 40 million people applied for subsidies. However, Elena noted that the national statistical methods could explain the situation in the USA: temporarily laid-off employees who do not have a job for economic reasons and will be hired back by the company when the situation improves, count as unemployed. In Europe, those people are considered employed. If we subtract temporarily laid-off employees then the unemployment rate in the USA will be close to such in Europe.
The crisis also affected working hours: it was shortened by reductionf of a workday and administrative leaves. On the spring peak of the crisis, it was 40% shorter than in the same period of 2019. In Russia, the decrease in April was 25% but soon the situation began to recover. In general, in Russia about 2.5 million people are absent from work for various reasons, in April this number was over 17 million.
According to official statistics, real wages in Russia in April decreased by 2% in comparison with April of 2019 and increased by 2.5% by the end of the year by preliminary estimates. But Elena says that Rosstat does not cover the situation in the non-corporate segment of economics that was affected by the crisis more than others. More accurate numbers become more apparent if one considers the data of Federal Tax Service in April: in this month a year ago, a 20% decrease of taxes from individuals was registered, in May – 14%, and then it started increasing again but this information is only relevant for official salaries.
Elena noted that the pandemic also affected forms of employment:
The crisis triggered developing distance working formats in many countries. Or encouraged it, like in Europe.
The crisis had the most effect on the Market Services field - entertainment, tourism, hospitality, dining - which usually got affected by crisises only after industry and construction. Employment of the youth also was affected, which led to risks of unemployment and working outside of profession. Numbers of unemployment among work migrants and low qualified workers got 5 times higher than for highly qualified workers.
Countries had different ways of responding to the crisis. Programmes of preserving employment allow employers to give their employees paid leaves and receive compensations from the state. By the beginning of the crisis, 22 countries of the Organisation for Economic Co-operation and Development (OECD) had those programmes, and then 10 more countries launched them. In total, in OECD countries 50 million workers were part of the programmes, which is 10 times more than during the 2008-2009 crisis.
Russia had similar programmes. For example, the FOT 2.0 programme offered loans in support of employment at a 2% rate. According to the data of the Ministry of Economic Development, about 226 thousand loans were taken out, amounting to 443 billion rubles, which helped to retain 5.4 million workplaces.
Protection from unemployment was another form of support. In 16 OECD countries subsidies became more available, the payments became bigger and were effective until the end of the crisis. In the USA for 4 months from May to August unemployed citizens received payments of $600 a week. 76% of the unemployed received payments higher than their wages.
Elena noted that in Russia easier access to subsidies and increasing the payments to the level of the minimum wage (12 130 rubles) led to a sharp surge in registered unemployment. Previously, it was about 4.5 times lower than actual unemployment but in spring, the gap quickly shortened. In the modern crisis the GDP of Russia decreased by 3.1%, the number of employed people at the peak of the crisis decreased by 1.5 million or by 2%, mostly through small business employees.
Larisa Smirnykh, deputy head of Laboratory for Labour Market Studies, added that in 2020 distance working became very popular. It was the most popular method of adapting to the crisis among employers; second, being leaves and shortening work hours and third – decreasing the variable part of salaries.
Olga Filatova, professor of HSE Graduate School of Business, posed the question about the future of the development of hybrid formats of work in Russia. Elena Varshvskaya believes that employers outside of Moscow and the IT sector are not ready to accept it. Larisa Smirnykh believes that up to 15% of employees will continue working in a distance format. Even before the pandemic major companies planned to allow workers to choose distance working.
Board member of the Russian Union of Industrialists and Entrepreneurs, director of HSE Institute of Employment and Professional Occupation Fedor Prokopov believes that after the pandemic many of its consequences will last. In particular, he named the tendency of not firing employees for economic reasons; maybe this crisis will change the position of legislators and trade unions. In January of this year, a law came into effect that allows including distance format of working into the contract. However, many other changes are needed concerning payment, controlling the quality of work and work hours.
In Russia, in comparison with USE and Western Europe, the responsibility of overcoming the crisis was given mainly to employers, the expert says. State support had a limited effect on the labour market, the size of subsidies for employers only partly covered their expenses. He also pointed out that unemployment subsidies should be temporary reimbursement of part of earnings during the job search. While in Russia it’s a subsidy that is not connected to the previous salary.