Unemployed, the working poor and social consequences

1. Unemployed, the working poor and social consequences Jean Victor Gruat, ILO OFFICE IN MOSCOW

2. Structure of presentation • Employment, wages and poverty • Unemployment and living standards of the unemployed • Youth on the labour market • Social transfers

3. Incomes and wages during reforms • Decrease in real income of population • in 2000 to 35.8% of 1990 level • Growth of income differentiation • Differentiationcoefficient during 10 years has risen from 4.5 to 14 • One of the main reasons of these trends is low level of wages • Real wage in 2000 was about 32% of 1990 level

4. Minimum and average wages • Minimum wage has become less than subsistence minimum during reforms years • The level of minimum wage was about 8% subsistence minimum of adult in 1999. It was the lowest level during transition period • 1st quarter of 2001: 12% • Closing in minimum and average wages: decrease in ration of average wage to subsistence minimum from 281% in 1992 to 158% in 1999

5. The working poor • Enlargement of poverty frames: poverty has become a reality for the working population • Share of employees in total poverty was 43% in 1999 • Poverty risk for working population is 46.3% (in average – 50%) • Reasons of poverty of working population: • High dependent ratio (There are more dependents than workers in 60% of poor households with workers) • Low level of wages

6. Low level of wagesand poverty • Wages of 42.3% workers were not more than subsistence minimum of adult in 1999 • Increase of working poor group by entry of highly educated qualified workers from budget sector of economy : • 70% of workers in education, health care, culture have wages less than subsistence minimum

7. Additional factors contributing to the poverty of workers • Non-payments of wages • Growth of wage arrears till the end of 1990s • In 1997 there were non-payments of wages at 41.2% of industrial enterprises, average non-payment period – 10.7 weeks • Improvement in budget sector during last two years, but still bad situation in industry • Arrears are mostly spread among workers with low wages • Payment of wages in-kind

8. Priority fields for reduction of poverty among workers Possible measures under stable economic growth: • Wage growth of budget sector workers by increasing expenses for wages • Introduction of tools for indexation of wages.

9. Priority fields for reduction of poverty among workers (continuation) Measures, possible due to the development of a system of distributive relations: • Expansion of possibilities for establishments of the budget sector to attract additional resources directed to payment for work. • To end uneven financing of enterprises and organizations of the same type from the budget. • Cutting down the number of institutions and enterprises financed by budget resources. • Development of measures promoting legalization of shadow and unofficial earnings. • Strengthening targeting and increase social payments for children.

10. Russian unemployment peculiarities • From 1992 to 2000 unemployment has grown 3 times and reached 8.6 million people in February of 2000 • Differentiation of level of unemployment in regions is about 10 times and keeps growing • Geographic pandemic • Increase in unemployment duration (job seeking period – 6.7 months in 1994, 9.1 – in 2000) • Growth of hidden employment and unemployment • Worsening position of the most productive part of labour force: 64% of unemployed are people between 25 and 49 years old • High level of youth unemployment • Gender aspect of unemployment

11. Unemployment indicators • Formal recognition of varied forms and indexes of unemployment • But in practice level of registered or so-called legal employment serves as main index in analyzing the situation on the labour market and development of state employment programs 1/3 -1/7 of total number of unemployed was registered in 1990s • Total unemployment index should be used to estimate the level and trends of unemployment

12. About half of the registered unemployed obtain minimum unemployment benefit, size of this benefit was 3.5% of subsistence minimum in 2000 Benefits to the rest of unemployed in average are not more than 40% of subsistence minimum More difficult state of unemployed in comparison with employed Ratio of average unemployment benefit to average wage was 32.1% before adoption of amendments to the Law on Employment in 1999, after which it has decreased to 25.5% The unemployed and poverty

13. Priority directions for labour market policy • Maximum use of non-investment factors of economic growth • Development of effective mechanism of active and passive programs financing • Strengthening Institute of Employment Services

14. Priority directions for labour market policy (continued) • Targeted regional policy • Labour Code reform • Reformingsocial security system • Observance of principles of gradual changes and forming of priorities • Establishment of effective system of unemployment payments • Unemployment insurance system may serve as its basis

15. Some aspects of youth unemployment • Correlation with adult unemployment • High level of youth unemployment • Low initial opportunities • Discriminative policy of employers • Limited financial resources of Employment Services Ю low level of professional training and retraining • Training of specialists without taking into account regional labour market demand

16. Reasons of youth vulnerability on the labour market • Substantial decrease of number of jobs due to fall of production • Growth of competition Юhigher demand for qualified workers Юdecrease of competitiveness of youth • More early entrance to labour market due to growth of poverty and social differentiation • High risk to find job in informal sector • Lack of adequate systems of vocational orientation, training and retraining • Privileges for the working youth Юunwillingness of employers to hire young workers • High level of birth rate in 70s-80s has increased number of youth entering labour market in 90s

17. Some indicators of youth unemployment Unemployment duration Level of unemployment - 37.2% Average job seeking period

18. Sources of income for households with unemployed youth • Assistance of relatives • Payment for irregular jobs of family members and the unemployed • Wages of other family members • Unemployment benefit • (under 24 years –19% of family budget) Production and income from land plot

19. Employers’ position on youth employment Reasons of refusal to hire: • Age • No matching specialisation • Low level of qualification • Lack of professional experience

20. Recommendations in employment sphere • Enlargement of formal sector of economy • Involvement of social partners • Stimulation of self-employment and creation of small enterprises

21. Social benefits, payments and privileges • There are 150 types of social benefits, subsidies, privileges for more than 200 categories of the population, which should be financed from the federal budget • Non-budgetary social funds finance payments of some social benefits and subsidies • Regions also provide social benefits and privileges to the various categories of population

22. Principles of providing benefits, subsidies and privileges • Main principle – providing social benefits, subsidies and privileges to categories of people (without means-testing) • Only 3 types of payments stated at the federal level • monthly children benefit, • housing allowance, • state social assistance are provided on the basis of means-testing

23. Coverage • 70% of population of Russia (about 100 mln. people) are eligible to receive social benefits, payments and privileges on the basis of legislation of the Russian Federation. • Number of real recipients of benefits is less than number of formal beneficiaries due to the lack of financing

24. Size of social transfers and benefits in 1999 • Social transfers – pensions, benefits, scholarships, insurance payments: • 381.4 bln. Rb. (8.4% of GDP or 13.7% of monetary income of population) • Welfare benefits • 1.2 % of GDP or 2.0% of monetary income of population • Monthly children benefit: • 6% of subsistence minimum of child • Old-age pension • Minimum - 45% of subsistence minimum of pensioner, average – 70%

25. Lack of financing • More than 15% of GDP is necessary for financing of social benefits, subsidies and privileges stated by the Federal legislation. • According to the international standards this index is low but even this financing is not fulfilled completely.

26. Efficiency of social transfers • Share of social transfers, received by poor families, is about 20-25% of social transfers received by total population • Low level of benefits practically can not contribute to the eradication of poverty: monthly children benefit could decrease poverty deficit in poor families only by 8%

27. Recommendations • Increase of financing of system of social security and reform by: • Optimization of social insurance • Targeting of budget investments • Maximal simplification of procedures • Use of “Social Expenditures Review and Social Budgeting in the Russian Federation” Project for evaluation and monitoring situation in social sphere and rise of efficiency of social budget management

28. ILO Moscow programmes in the poverty eradication sphere «Strategy for assistance in poverty eradication» Project: • Started in autumn 2000 • Complex approach to solving poverty issues • Analytical material will be prepared by June-July 2001.

29. ILO Moscow programmes in the poverty eradication sphere(continuation) Assistance in improvement of targeted social protection system in the Republic of Tatarstan: • started in 2001 г. • Goal – recommendation on targeted social protection and first of all on monthly benefits for children

30. ILO Moscow programme in the poverty eradication sphere(continuation) “Social Responsible Enterprises Restructuring” Project: • Basic idea: improve competitiveness, ensure sustainability, maintain employment in restructuring with social dialogue • Part of anti-poverty strategy • Regional component (Cheboksary) • Collaboration with State Duma

31. ILO Moscow programmes in the employment sphere Vocational training and retraining International Development Centre for Modular Training (Moscow) : • created in 1995 • 1500 training modules • cooperation with 34 modular training centres in Russia, Ukraine, Belarus, Georgia and Uzbekistan • Centre for Modular Technologies in Vocational Training (St-Petersburg) • created in 1995 • 1500 training modules • cooperation with 35 training centres in Sankt-Petersburg http://www.ilo-project.spb.ru

32. ILO Moscow programme in the employment sphere (continuation) Support to small enterprises origination and development programme «Start and improve your business» • started working in the CIS region in 1995 in the Republic of Kazakhstan • in 2000 jointly with UNHCR trained entrepreneurs-trainers in Belgorod, Voronezh and Lipetsk • adaptation for the CIS countries of the universal programme «Know about business» • Small enterprises promotion in Nizhnyi Novgorod

33. ILO Moscow programme in the sphere of social transfers “Social Expenditures Review and Social Budgeting in the Russian Federation” Project: • Started in autumn 2000 • In partnership with the Ministry of Labour and Social Development of the RF, CCEUR, FITUR, other ministries and institutions, UNDP, WB and IMF • Objective – create an effective instrument for effective financial planning in social sector and modeling social budget • Expected result – “social budget” model enabling prognoses of income and expenditure of the social sector in RF (prepared by autumn 2001)