SOCIETY
“The cart keeps creaking along the long path down”
Interview with Vladimir Gimpelson
September 7, 2022
September 7, 2022
Denis Kasyanchuk
Interviewer
Vladimir Gimpelson
Director of the Center for Labor Market Studies at the Higher School of Economics
The war with Ukraine looked set to be a big shock for the labor market and the economy as a whole, but so far we haven’t seen drastic changes. We talked about the outlook for the labor market with Vladimir Gimpelson, the director of the Center for Labor Market Studies at the Higher School of Economics.
The original text in Russian was published by The Bell and republished here with their permission.
AvtoVAZ plant in January 2016. Source: Wiki Commons
In June, Rosstat reported unemployment at a record-low 3.9%. Yet going into March, many experts had forecast the imminent collapse of the Russian economy, which should have impacted the labor market. How did we get here?
Low unemployment in the current crisis seems surprising. Companies are closing and leaving, production is shrinking, but unemployment isn’t rising. Is it possible? The short answer is yes, it is. There are several explanations for this phenomenon. They aren’t mutually exclusive, but rather complement each other. Firstly, the Russian labor market has always reacted to crises by cutting pay, not employment. This reaction is attributable to the current institutions of the labor market: the complexity of mass layoffs, the low minimum wage and meager unemployment benefits. Nothing has changed here. Secondly, the departure of companies and shuttering of production is a gradual process, which in many respects hasn’t yet translated into mass layoffs. Employees are receiving compensation, many industries (such as AvtoVAZ) are subsidized by the state, in some places workers have been furloughed, in some places the working day has been shortened. Thus, there hasn’t been a big exodus of labor onto the market yet. Thirdly, those who lose their jobs can look for alternatives in the gray or informal sector. It's hard to say what's going on there. But it has always worked like an absorbent sponge. Low unemployment benefits don’t allow people to stay unemployed long, indirectly pushing job seekers there. Fourthly, unemployment is always lower in the summer – even people who have lost their jobs often want to take a break, relax, work in the garden and so on. Their job search starts up in autumn. Fifthly, there is inertia in the economy – let's see what happens by the end of the year. Unemployment may rise, but I still don’t expect a significant uptick.
How has the labor market evolved over the past six months?
Because of the lack of data, it’s still very difficult to assess what happened in the labor market in the second quarter. It can be assumed that there are fewer vacancies and what’s out there is worse. You can draw conclusions for earnings.
Many foreign companies have left Russia – how has this affected employment?
The departure of foreign companies hasn’t immediately affected employment. Many companies left, but for a while they continued to support their workers, paying out some money. Employment has been supported, so it won’t collapse immediately. And then, when people lose their jobs, it doesn’t mean that they immediately become unemployed. They gradually adapt. For example, if IKEA fired its employees, it doesn’t mean that, hypothetically speaking, Perekrestok will immediately hire them. These people either won’t work for some time or they’ll immediately move into semi-formal activity – they’ll go to work as couriers, nurses, nannies and so on. Don’t think that if 100 people are fired, then those 100 will immediately be unemployed.
Plus, there is such a thing as unemployment benefits. The cushion that a person can count on when looking for a job. The softer, more comfortable it is, the longer you can look for a job. And a long job search means an increase in unemployment. And when you have ridiculous benefits that are difficult to get, as, for example, in Russia, you can’t look for a job for a long time, you have to take the first one that comes up. If you have a license and a car, you register with Yandex and go to work as a taxi driver. Or there are the endless Lentas, Magnets, Perekrestoks and other supermarkets that go through a huge number of cashiers, salespeople, merchandisers. There are always opportunities to choose from and make money.
Low unemployment in the current crisis seems surprising. Companies are closing and leaving, production is shrinking, but unemployment isn’t rising. Is it possible? The short answer is yes, it is. There are several explanations for this phenomenon. They aren’t mutually exclusive, but rather complement each other. Firstly, the Russian labor market has always reacted to crises by cutting pay, not employment. This reaction is attributable to the current institutions of the labor market: the complexity of mass layoffs, the low minimum wage and meager unemployment benefits. Nothing has changed here. Secondly, the departure of companies and shuttering of production is a gradual process, which in many respects hasn’t yet translated into mass layoffs. Employees are receiving compensation, many industries (such as AvtoVAZ) are subsidized by the state, in some places workers have been furloughed, in some places the working day has been shortened. Thus, there hasn’t been a big exodus of labor onto the market yet. Thirdly, those who lose their jobs can look for alternatives in the gray or informal sector. It's hard to say what's going on there. But it has always worked like an absorbent sponge. Low unemployment benefits don’t allow people to stay unemployed long, indirectly pushing job seekers there. Fourthly, unemployment is always lower in the summer – even people who have lost their jobs often want to take a break, relax, work in the garden and so on. Their job search starts up in autumn. Fifthly, there is inertia in the economy – let's see what happens by the end of the year. Unemployment may rise, but I still don’t expect a significant uptick.
How has the labor market evolved over the past six months?
Because of the lack of data, it’s still very difficult to assess what happened in the labor market in the second quarter. It can be assumed that there are fewer vacancies and what’s out there is worse. You can draw conclusions for earnings.
Many foreign companies have left Russia – how has this affected employment?
The departure of foreign companies hasn’t immediately affected employment. Many companies left, but for a while they continued to support their workers, paying out some money. Employment has been supported, so it won’t collapse immediately. And then, when people lose their jobs, it doesn’t mean that they immediately become unemployed. They gradually adapt. For example, if IKEA fired its employees, it doesn’t mean that, hypothetically speaking, Perekrestok will immediately hire them. These people either won’t work for some time or they’ll immediately move into semi-formal activity – they’ll go to work as couriers, nurses, nannies and so on. Don’t think that if 100 people are fired, then those 100 will immediately be unemployed.
Plus, there is such a thing as unemployment benefits. The cushion that a person can count on when looking for a job. The softer, more comfortable it is, the longer you can look for a job. And a long job search means an increase in unemployment. And when you have ridiculous benefits that are difficult to get, as, for example, in Russia, you can’t look for a job for a long time, you have to take the first one that comes up. If you have a license and a car, you register with Yandex and go to work as a taxi driver. Or there are the endless Lentas, Magnets, Perekrestoks and other supermarkets that go through a huge number of cashiers, salespeople, merchandisers. There are always opportunities to choose from and make money.
Without Western components and with access to some software blocked, many firms will now have to restructure their operations. How will this affect employees and their productivity?
Negatively. Russian companies will try to somehow replace what they no longer have. For example, German components with Chinese or Turkish ones or something else. Or they’ll make them themselves. For instance, the suppliers of components for Renault have left, but there are companies in Samara Region that previously made things for AvtoVAZ. Now they’ll come out of their “hole” and again offer their products for a simplified Lada. That’s how it’ll be. It’ll be technologically worse, more primitive, lower quality. But this will keep the cart creaking along the long path down.
During the pandemic, the service sector suffered the most: retail, transport, hotels, construction. Which spheres will be the most impacted by the current crisis?
The automotive industry has already suffered the most – it’s gone. Passenger airlines have also suffered – several terminals at Sheremetyevo are closed, Domodedovo and Vnukovo are operating, but at low capacity. Retail has likely also suffered greatly. First and foremost in terms of logistics that had to do with the delivery of goods. It’s hard to say what’s going on with retail chains, but it’s safe to assume that retailers of imported goods have suffered.
On the other hand, replacements can always be found, and in this respect the Russian economy is rather agile. For example, if something broke in the Soviet economy, which was completely state-owned and planned, then everything broke down at that point. And now people who need to survive are adapting, bustling about, inventing something. Many of them are quite clever, adaptive. They think: “We can’t import something from France? We’ll get it from Turkey. Turkey’s not an option, then we’ll get it from somewhere else.” After all, many businessmen, big and small, went through all this in the 90s, they didn’t forget it and didn’t lose the necessary skills. This is one of the advantages of private enterprise.
Negatively. Russian companies will try to somehow replace what they no longer have. For example, German components with Chinese or Turkish ones or something else. Or they’ll make them themselves. For instance, the suppliers of components for Renault have left, but there are companies in Samara Region that previously made things for AvtoVAZ. Now they’ll come out of their “hole” and again offer their products for a simplified Lada. That’s how it’ll be. It’ll be technologically worse, more primitive, lower quality. But this will keep the cart creaking along the long path down.
During the pandemic, the service sector suffered the most: retail, transport, hotels, construction. Which spheres will be the most impacted by the current crisis?
The automotive industry has already suffered the most – it’s gone. Passenger airlines have also suffered – several terminals at Sheremetyevo are closed, Domodedovo and Vnukovo are operating, but at low capacity. Retail has likely also suffered greatly. First and foremost in terms of logistics that had to do with the delivery of goods. It’s hard to say what’s going on with retail chains, but it’s safe to assume that retailers of imported goods have suffered.
On the other hand, replacements can always be found, and in this respect the Russian economy is rather agile. For example, if something broke in the Soviet economy, which was completely state-owned and planned, then everything broke down at that point. And now people who need to survive are adapting, bustling about, inventing something. Many of them are quite clever, adaptive. They think: “We can’t import something from France? We’ll get it from Turkey. Turkey’s not an option, then we’ll get it from somewhere else.” After all, many businessmen, big and small, went through all this in the 90s, they didn’t forget it and didn’t lose the necessary skills. This is one of the advantages of private enterprise.
Soviet workers propaganda in Moscow, 1984. Source: Wiki Commons
Is it possible to compare the pandemic and the current crisis? What was worse?
It’s possible. The pandemic was initially seen as a very short crisis. And although some production was stopped, it was stopped for a short time. Everyone looked at the crisis like: “the acute phase will pass and everything will work again.”
The current crisis means the severing of many economic ties. It looks more like the 1992 crisis after the collapse of the USSR, when the ties between firms located in different regions of the country and in different former Soviet republics actually ceased to exist. This is what’s happening now, only it’s not ties within the country, but between countries, being broken.
This crisis will be longer than the pandemic crisis. A crisis in the labor market was actually felt only in the second quarter of 2020. In the third quarter, it was already less tangible, and in the fourth it was almost gone. But the current crisis is constantly growing. I think that we haven’t yet seen its main effects, they are ahead.
It seems like many people are worried about inflation and the fact that the indexation (if any) of wages isn’t keeping up with it. What are the chances that this could escalate into protests or strikes?
There are two things here. First, can inflation, unemployment – in a word, economic difficulties – spur unrest? The answer is clear: they can. Another question is what forms the discontent can take. For the discontent to take on mass, collective forms, there must be certain conditions. People should be able to organize in some way. Any protest must have a leader. The penalties for protest shouldn’t be too harsh. But in Russia there are no such conditions. Almost the entire opposition has been destroyed, the repression is quite severe. The protests have neither organization nor organizers.
What about the unions?
There are practically no trade unions in Russia, except for the official ones. And the official unions are rubber stamps. They’ll do everything to confine discontent to “the kitchen.”
Russian workers seem to have limited mobility. But in this crisis, some regions will suffer more than others. Will we see a migration of workers within the country because of this?
The notion that the Russian workforce is immobile is, in my view, wrong. Russian workers are very mobile. This can be seen in the labor turnover data (in terms of hirings and separations) and the share of workers less than a year on the job. Meanwhile, generally we get the idea about low interregional mobility from Ministry of Internal Affairs data, which in turn is based on changes of residence. When people move, however, they often don’t make it into the statistics, as far from everyone deregisters in their "native" region and reregisters in their new one, plus they don’t always sell their apartments. It seems to me that we greatly underestimate the scale of interregional mobility. Of course, the mobility of some people is limited: they may have relatives who need care, they may not have the money or health to move. But try to do a renovation in Moscow, find a nanny or a nurse. You’ll encounter migrants not only from other countries, but also from other regions of Russia. The same is true in the sphere of taxis and retail.
Russia is a world leader in terms of the share of people with a higher education. In one of your materials, you noted the problem of “over-education” in the Russian labor market – there are more highly educated people than there are suitable jobs for them. Given that the “quality” of jobs is getting worse, will the problem of “over-education” persist, or will people become less likely to get a higher education before entering the labor market?
The rise in demand for higher education is quite a long track. It’s attributable to both purely economic considerations (higher education provides the highest pickup in earnings; in a word, it pays and pays off) and the fact that higher education is becoming a kind of social norm. When everyone around has it, then not having it becomes a little uncomfortable. And parents with a higher education would hardly want their children to go without it. And the same goes for those who didn’t get a higher education: they say that times were hard, but now they’ve saved up and did everything so that their children graduate from university. And then life changes. But it’s really hard to get rid of such thinking.
Another thing – even when the job doesn’t require higher education, most applicants will still have it. Why would an employer take a person without a higher education if he can get someone with it? That person, from the employer’s point of view, will do better because she’s learned something. Even if she didn’t learn anything, having a higher education suggests that she has some kind of motivation, that she’s better in some senses than those who didn’t try to get it. Thus, the drive to get a higher education – this trend will continue, it’s very difficult to stop.
Graduates who enter the labor market during a crisis face headwinds in terms of both employment prospects and income. What advice would you give to those who are just finishing their studies and going to work?
It's hard to give advice here. Indeed, those who enter the labor market during a recession face lengthy headwinds. We just went through the pandemic crisis, and those who entered the labor market “into corona” ran into big problems. Now there’s a new recession, new problems. Not much advice can be given: try to use all the opportunities available, try to acquire the skills that are in demand. Of course, in any crisis some professions suffer more, some less. You should look at what areas or professions have more opportunities and go there. Retrain, complete your education... Moreover, retraining concerns not only graduates, it concerns everyone. Life is continuous retraining. If a person stops retraining, she “leaves” this life. And the more intense the technological race, the more important it is to quickly retrain, otherwise you’ll very quickly find yourself on the sidelines.
What is the outlook for the labor market?
The answer depends on the time frame. Throughout the rest of the year, little will change fundamentally. The labor market will increasingly become an employer's market and well-paid job opportunities will dry up. Wages won’t rise, and in real terms they’ll go down. In the medium term, a restructuring of employment will play out – toward simplification, primitivization and higher demand for blue instead of white collars. The process will be gradual, but long. At the same time, demand for new professions could emerge. For example, if the car fleet ages and new cars become rare, then old ones need repaired. And the demand for mechanics who can turn old tin cans into working cars could grow. The same is true for airplanes and computers.
You mentioned that the labor market will become an employer's market. What does that mean and what are the implications?
It means that there will be many more jobseekers than vacancies. And employers who are hiring will dictate the terms. If the supply of labor doesn’t decrease and the demand for labor falls, then wages will go down. This is what always happens in a crisis.
And what will happen to the Russian labor market if the hostilities continue for another six months or a year?
In any case, I think that all the trends that we’ve been discussing will continue. I think it’s going to be a very long story. Links have been severed that can’t be restored quickly. Therefore, it doesn’t depend on whether the hostilities end tomorrow, in three months or six months. I think everything will move in the same direction no matter what. Everything’s already in place.
It’s possible. The pandemic was initially seen as a very short crisis. And although some production was stopped, it was stopped for a short time. Everyone looked at the crisis like: “the acute phase will pass and everything will work again.”
The current crisis means the severing of many economic ties. It looks more like the 1992 crisis after the collapse of the USSR, when the ties between firms located in different regions of the country and in different former Soviet republics actually ceased to exist. This is what’s happening now, only it’s not ties within the country, but between countries, being broken.
This crisis will be longer than the pandemic crisis. A crisis in the labor market was actually felt only in the second quarter of 2020. In the third quarter, it was already less tangible, and in the fourth it was almost gone. But the current crisis is constantly growing. I think that we haven’t yet seen its main effects, they are ahead.
It seems like many people are worried about inflation and the fact that the indexation (if any) of wages isn’t keeping up with it. What are the chances that this could escalate into protests or strikes?
There are two things here. First, can inflation, unemployment – in a word, economic difficulties – spur unrest? The answer is clear: they can. Another question is what forms the discontent can take. For the discontent to take on mass, collective forms, there must be certain conditions. People should be able to organize in some way. Any protest must have a leader. The penalties for protest shouldn’t be too harsh. But in Russia there are no such conditions. Almost the entire opposition has been destroyed, the repression is quite severe. The protests have neither organization nor organizers.
What about the unions?
There are practically no trade unions in Russia, except for the official ones. And the official unions are rubber stamps. They’ll do everything to confine discontent to “the kitchen.”
Russian workers seem to have limited mobility. But in this crisis, some regions will suffer more than others. Will we see a migration of workers within the country because of this?
The notion that the Russian workforce is immobile is, in my view, wrong. Russian workers are very mobile. This can be seen in the labor turnover data (in terms of hirings and separations) and the share of workers less than a year on the job. Meanwhile, generally we get the idea about low interregional mobility from Ministry of Internal Affairs data, which in turn is based on changes of residence. When people move, however, they often don’t make it into the statistics, as far from everyone deregisters in their "native" region and reregisters in their new one, plus they don’t always sell their apartments. It seems to me that we greatly underestimate the scale of interregional mobility. Of course, the mobility of some people is limited: they may have relatives who need care, they may not have the money or health to move. But try to do a renovation in Moscow, find a nanny or a nurse. You’ll encounter migrants not only from other countries, but also from other regions of Russia. The same is true in the sphere of taxis and retail.
Russia is a world leader in terms of the share of people with a higher education. In one of your materials, you noted the problem of “over-education” in the Russian labor market – there are more highly educated people than there are suitable jobs for them. Given that the “quality” of jobs is getting worse, will the problem of “over-education” persist, or will people become less likely to get a higher education before entering the labor market?
The rise in demand for higher education is quite a long track. It’s attributable to both purely economic considerations (higher education provides the highest pickup in earnings; in a word, it pays and pays off) and the fact that higher education is becoming a kind of social norm. When everyone around has it, then not having it becomes a little uncomfortable. And parents with a higher education would hardly want their children to go without it. And the same goes for those who didn’t get a higher education: they say that times were hard, but now they’ve saved up and did everything so that their children graduate from university. And then life changes. But it’s really hard to get rid of such thinking.
Another thing – even when the job doesn’t require higher education, most applicants will still have it. Why would an employer take a person without a higher education if he can get someone with it? That person, from the employer’s point of view, will do better because she’s learned something. Even if she didn’t learn anything, having a higher education suggests that she has some kind of motivation, that she’s better in some senses than those who didn’t try to get it. Thus, the drive to get a higher education – this trend will continue, it’s very difficult to stop.
Graduates who enter the labor market during a crisis face headwinds in terms of both employment prospects and income. What advice would you give to those who are just finishing their studies and going to work?
It's hard to give advice here. Indeed, those who enter the labor market during a recession face lengthy headwinds. We just went through the pandemic crisis, and those who entered the labor market “into corona” ran into big problems. Now there’s a new recession, new problems. Not much advice can be given: try to use all the opportunities available, try to acquire the skills that are in demand. Of course, in any crisis some professions suffer more, some less. You should look at what areas or professions have more opportunities and go there. Retrain, complete your education... Moreover, retraining concerns not only graduates, it concerns everyone. Life is continuous retraining. If a person stops retraining, she “leaves” this life. And the more intense the technological race, the more important it is to quickly retrain, otherwise you’ll very quickly find yourself on the sidelines.
What is the outlook for the labor market?
The answer depends on the time frame. Throughout the rest of the year, little will change fundamentally. The labor market will increasingly become an employer's market and well-paid job opportunities will dry up. Wages won’t rise, and in real terms they’ll go down. In the medium term, a restructuring of employment will play out – toward simplification, primitivization and higher demand for blue instead of white collars. The process will be gradual, but long. At the same time, demand for new professions could emerge. For example, if the car fleet ages and new cars become rare, then old ones need repaired. And the demand for mechanics who can turn old tin cans into working cars could grow. The same is true for airplanes and computers.
You mentioned that the labor market will become an employer's market. What does that mean and what are the implications?
It means that there will be many more jobseekers than vacancies. And employers who are hiring will dictate the terms. If the supply of labor doesn’t decrease and the demand for labor falls, then wages will go down. This is what always happens in a crisis.
And what will happen to the Russian labor market if the hostilities continue for another six months or a year?
In any case, I think that all the trends that we’ve been discussing will continue. I think it’s going to be a very long story. Links have been severed that can’t be restored quickly. Therefore, it doesn’t depend on whether the hostilities end tomorrow, in three months or six months. I think everything will move in the same direction no matter what. Everything’s already in place.
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