BUSINESS

By Ed Bentley

More than one in 10 of Russia's workforce will be out of work by the end of this year - as its economy shrinks by 4.5 per cent.

That's the stark assessment by the World Bank, which this week said in a report that GDP will decline and 2.7 million more people will lose their jobs.

Unemployment, calculated according to International Labour Organi­sation criteria, reached 6.4 million in February, a hike of more than 50 per cent since May 2008.

And with the economy likely to keep shrinking for some time, many of the unemployed will be facing long periods out of work, said labour market experts.

"The average duration of unemployment will increase in the next two years because the state is unable to create enough jobs," said Konstantin Yanovsky, a senior analyst at the Institute for the Economy in Transition.

The current crisis has drawn parallels to 1998, when industry recovered quickly due to a 70 per cent depreciation of the rouble which boosted exports. But now, with the world economy collapsing, demand from abroad has shrunk, particularly for raw materials, preventing industry from recovering.

"The problem is that the economy isn't generating jobs," said Vladimir Gimpelman, director of the Centre for Labour Research. "Even when the economy was booming, the economy wasn't creating jobs."

Private businesses, particularly small- and medium-sized enterprises, are also struggling to expand and create new employment due to the burden of bureaucracy and corruption, in addition to the financial crisis.

"Even if the economy starts bottoming out, the situation with unemployment will keep deteriorating," said Gimpelman. "The key issue for the labour market is to change the institutional environment to generate new jobs."

Government policy so far has focused on avoiding lay-offs, with companies encouraged to reduce hours and salaries, rather than make redundancies. The FNPR trade union confederation, which is loyal to the Kremlin and United Russia, has opposed redundancies and lobbied for workers to receive at least two-thirds of their salary.

"In the case of [necessary] redundancies, trade unions demand payment of all indemnifications as well as two months' notice," said Alexander Shershukov, FNPR general secretary. "They also demand the state acts to provide retraining and further employment."

The practice of putting employees on forced leave or reduced hours means that the figure of 6.4 million is probably an underestimate, because underemployment of workers does not show up on official statistics.

"Not everybody who is actually unemployed can be formally unemployed," Olga Kuzina, a sociologist at the Higher School of Economics. "Their employers ask them not to come to work and cannot pay them."

Without their salaries, these workers suffer the same problems as the unemployed, but are unable to receive any official support providing retraining or further employment.

"Without redundancies the influence of the crisis will be greater because more people are affected," said Kuzina. "In these circumstances it is impossible to help these people and so, in economic terms, it is less efficient."

The non-payment or late payment of salaries, reminiscent of the 1990s, has also started again. In Rostov 10 miners have gone on strike demanding the payment of three months' wages, Interfax reported.

Many of the families who have seen their incomes vanish or heavily reduced have now been left dangerously close to the government's official poverty line. The World Bank estimates that a further 2.75 million people will fall into poverty in 2009, taking the total up to 15.5 per cent of the population.

"Russian households still have limited assets and financial savings and so their wellbeing is intimately related to one or two of the breadwinners having steady jobs and salaries," said Zeljko Bogetic, the World Bank's chief economist for Russia. "When they lose a job and/or a salary, a typical household becomes particularly vulnerable to being pushed into poverty."

In its report, the World Bank warned that social policy needed to be changed from supporting the financial sector to providing assistance to the poorest groups of society.

"The focus of fiscal policy should shift towards cushioning the impact on the poor and vulnerable," said Bogetic. "That means that a modest, temporary increase in child allowance, unemployment benefits and low-end pensions targeting some of the most vulnerable groups at risk of poverty could provide significant relief to the poor."

Unemployment benefit is currently a maximum of 4,900 roubles ($146) per month - an improvement on benefit levels previously, but still significantly below Western standards.

However, cheaper living costs outside Moscow, along with other benefits, can mean it is just about enough to survive on, experts say - as long as no unexpected expenses arise.

"In some of our regions [unemployment benefit] is enough for living," said Yevgeny Gontmakher, head of social policy at the Russian Academy of Sciences. "With this payment there is sometimes no motivation to find a job and that is why I am against increasing it."

Instead of raising unemployment benefits across the board, Gontmakher suggested the government should target extra payments to those people who needed them most. However, only 2 million of the 6.4 million unemployed are actually registered to receive unemployment benefits, with many of the others turning to the shadow economy.

"If unemployment benefit is in­creased then some people who never worked will come to the labour market," said Gimpelman. "If unemployment benefit is low then the cost of registration may outweigh the benefits."

Although government policy has helped to keep the numbers of jobless down, it has yet to address some of the long term problems leading to unemployment.

The government should "give the skills and education that people lack to the unemployed," said Kuzina. "That will be more efficient than keeping them in the position where they are employed and waiting for the crisis to be over."

In January anti-crisis protests, along with pro-government counter protests, broke out across Russia, but direct action remains rare. However, if the problems of unemployment and poverty are not tackled then experts fear that it could lead to further demonstrations.

Gontmakher laid out a worst-case scenario in an article in Vedomosti business newspaper last November, in which a random town suffered social disorder as a result of local industry's collapse. Due to local government inaction, social tensions grew and industry across the country collapsed, eventually spreading to Moscow.

"There is huge potential for [social unrest]," Gontmakher said by telephone this week. "There have already been protests this year but the second part of this year will be harder."

Although unemployment across the country is expected to reach 12 per cent, many areas, particularly those dependent on a single industry, will see much more acute problems.

"In some monogorods or some regions, unemployment will be 20 per cent to 25 per cent and this will be a good basis for these protests," Gont­makher said.

Currently, the number of those willing to protest remains low with a VTsIOM poll in March finding that only 7 per cent of Russians would attend anti-crisis protests, while a further 16 per cent would support them. In contrast, 11 per cent of respondents said they would attend demonstrations in support of the government's anti-crisis measures.

"Very few people want to protest or think that protests can help them overcome the crisis or change the situation," said Kuzina. "There is no social basis for protests right now."