Labor Market and Social Policy: Peak of political business cycle and “modernization”

Kiryl Haiduk

Summary

In 2012, the Belarusian economy saw a peak of the political business cycle, which is why household incomes increased in real terms. Nevertheless, higher incomes were not enough to encourage labor migrants to return home. In the near future, labor migration alongside the decrease in the working age population will increase the pressure on the single-tier pension system of the country.

Trends:
Demography

In 2012, the decrease in population slowed because of the growing birth rate and a reduction in the death rate. According to Belstat, as of January 1, 2013, the Belarusian population was at 9,463,300 people, which is 1,900 less than on January 1, 2012. Although the number of residents in Belarusian regions decreased in 2012, the city of Minsk saw an increase in population by almost 16,000. Over the last five years, the population of the capital city increased by almost 90,000 people. Birth and death rates were at 12.2 and 13.3 per thousand, respectively, which compares to 11.5 and 14.3 in 2011, respectively, and natural population decline fell to 11,100 people from 25,735 in 2011. In 2012, 115,000 babies were born, up by 5.2% from 2011. Of the total number, 65% are first born children. Infant mortality remains low, at 3.9 per thousand.

At the same time, the working age population keeps decreasing. In 2012 alone, the figure fell by 86,400 people, up from only 19,000 people in 2011. The trend will be very hard to reverse in the near future. It is expected that between 2011 and 2012, the working population may decline by up to 1.5 million people. The share of the working population will keep decreasing as the share of the population older than the working age grows. 1 Experts warn that the ratio of the working population to non-workers may reach 37 to 63 in years to come (currently, the ratio is 48 to 52, respectively). 2

One of the recent trends is the growing number of divorces. In 2012, there were 875 divorces per 1,000 marriages, which compares with only 670 in 2011. Belarus is second only to Russia in Europe by the number of divorces.

Although Belarus officially has a migration surplus, net inflow of migrants is falling. In 2012, the figure reached 9,300 people, which compares to 9,900 people in 2011 and 10,300 people in 2010. At the same time, experts note that unregistered migration flows are ten times above officially reported figures, and it is mostly labor migration from Belarus that is not accounted for. Both skilled and unskilled personnel prefer looking for jobs in neighboring countries, the main reason being the difference in wages (Russian wages are on average 40–50% higher). Since 2011, labor migration to Russia has reached a whole new level because of the reduction in real wages in Belarus. Both blue-collar workers and highly qualified personnel – managers and engineers, as well as medical workers – seek employment in Russia. Outflows of labor resources result in additional pressure on the social security fund, which pays pensions. According to labor market experts, in 2011 alone, 150,000 Belarusians left for Russia. Even if migrants start returning to Belarus, the economy will be unable to provide jobs for all. 3

The authorities seem quite concerned over labor migration tendencies. Economy Minister Mikalai Snapkou has admitted that the problem of workforce outflows was rather serious. It is believed that the problem will be resolved as soon as monthly wages in Belarus reach at least 80% of the Russian level, or about USD 650. 4

Employment and unemployment

In 2012, the number of newly employed personnel was below the number of those who lost their jobs in almost all sectors of the economy. Overall, the employment level in the economy fell by 1.8% to 4,599,600 people. The sectors that “suffered” the most from dismissals are the processing industry and agriculture and forestry with 169,300 workers and 104,940 workers made redundant in 2012. In 2012, the ratio between newly employed and dismissed workers reached 95.2 to 100 (it was 92.8 to 100 in 2011).

Belstat notes a decrease in the number of jobholders in the public sector amid an increase in the number of workers engaged in the private sector. Although official statistics categorizes employees of joint-stock companies with a state shareholding as workers of the “private” sector, these data show that in the period between 2000 and 2012, the number of workers in the public sector was decreasing by 2.5% on average every year, whereas in the “private” sector, it was growing by 2.3% on average annually. In 2012, the share of workers engaged in the public sector decreased to 42.1% (from 43.4% in 2011), while in the “private” sector, it rose to 55.6% (from 54.5% in 2011).

The official unemployment level remained low. On January 1, 2013, there were only 24,900 officially registered unemployed Belarusians in the country, which compares to 28,200 people in early 2012. The unemployment rate therefore reached an all-time low of 0.5% of the workforce, down from 0.6% at the start of 2012. 5

In 2012, 179,600 people were given an official unemployed status, down by 4.7% compared with 2011. The number of applications for assistance in employment also fell, by 7.3% to 290,300, and the number of people in need of employment decreased by 8.1% to 336,200.

In the meantime, the demand for workforce increased: on January 1, 2013, there were 62,000 vacancies (up by 19.9% at the beginning of 2012). The labor market still needs more blue-collar workers than any other category of workers (77.7% of the total number of vacancies).

Belstat conducts quarterly surveys of households, which provide a more realistic picture of the situation in the Belarusian labor market. The data for 2012 have not been published yet, however, experts insist that the unemployment rate may be as high as 5-6% in the country.

As for the private sector, recruiting agencies reported a 14% increase in the number of openings, and in Minsk, the number of vacancies soared by 150% from June 2011 to February 2012. Zdes i seichas consulting agency said with reference to a 2012 survey that employers mostly demand IT specialists and sales managers with work experience, whereas legal experts, economists and HR specialists remain unwanted. 6

Private companies complain about the “quality of personnel,” a problem that stems from the outdated education system. Pensioners account for 33.5% of school and university teachers. Excessive numbers of some types of specialists are attributed to the specific nature of the Belarusian economic model. Alutechgroup of companies conducted an independent labor market research and reported that Belarus has 350,000 accountants for 4.5 million workers, while China has 460,000 accountants for 600 million workers. 7 This phenomenon is due to specific business regulations in Belarus.

For its part, in its country economic memorandum for Belarus the World Bank notes the need to foster the reallocation of labor from less productive to more productive sectors and firms. It is also maintained that excess labor in the economy may amount to as high as 10% of the total number of the employed. 8

In August 2012, the Economy Ministry issued a report saying that more than 200,000 “highly productive” jobs needed to be created in the next few years (about 5% of the workforce), including 56,000 jobs in 2013. It is planned that these new jobs will “additionally generate from 2% to 3% of GDP.” 9

When it comes to the motivation of personnel, in September 2012, HeadHunter rabota.tut.byreported the results of its survey focusing on this issue. Of the total number of the respondents, 27% said that the loyalty to their employer depended on the level of compensation, and 20% said it was important for them whether wages were all officially accounted for or partially paid as cash in envelopes. As for the choice between various jobs with various wages, the respondents said that they would agree to have smaller wages if there was a chance of promotion (22%), if the administration encourages their initiative (20%) and if a special “social package” was included in the contract, covering gym fees, medical insurance, transport fares and warm meals (19%). 10

An important regulatory act adopted at the end of 2012 was Decree No.9 signed on December 7, 2012, which instructed woodworking enterprises to sign new work contracts with their workers with a provision that contracts can be terminated only if the move is initiated by the employer during a period of modernization and implementation of investment projects. Independent trade unions that are not members of the Federation of Trade Unions of Belarus called the Decree a copy of the “Stalin decree of 1940” 11 and called for abolishing the norm. 12

Wages

In 2012, real wages were changing depending on the phase of the political business cycle, as economic authorities were making efforts to boost individual incomes in real terms. Back in 2009, the government voiced its plans to increase the average monthly wage to USD 500. In September 2012, Prime Minister Mikhail Myasnikovich said that the USD 500 target would be achieved at the end of the year, and in one year’s time, i.e. in late 2013, wages would average USD 600 for the economy as a whole and USD 500 for the budget sector. 13 Indeed, in December 2012, the average monthly wage was reported at USD 552, a major increase from USD 343 in January 2012. This sharp increase in wages made Belarus the CIS’s thirdeconomy by the level of wages (after Russia with USD 1,134 and Kazakhstan with USD 670) and first economy by the wage growth rate (almost 22% for the economy and 17.3% for the budget sector).

Inter-industry wage differentials increased to 310% from 220% in 2012 (IT is the most highly-paid sector with an average wage of BYR 9,963,300, and welfare is the lowest-paid sector with only BYR 2,457,400). Regional wage differentials remained unchanged, at 50% (Minsk is the country’s leader with BYR 4,792,800, and Brest Region pays lowest wages, BYR 3,257,500 on average).

In 2012, the country introduced regulatory acts in order to alter the mechanism regulating payments of compensations to employees of commercial organizations. Specifically, such organizations are now entitled to make use of various compensation schemes, including combinations of the unified wage tariff system and flexible wage payment system. According to the Ministry of Labor and Welfare, the number of commercial organizations switching to flexible wages increased 8 times in January-October 2012, from 288, or 7% of the total number, on January 1, to 2,361, or 57.7% of the total number, on November 1, 2012.

The sharp increase in real wages resulted in a larger gap between the real wage and labor productivity, which reached about 10%. In order to narrow the gap, the government planned a wage increase of only 7.1% in real terms in 2013, whereas the productivity gain is expected at 9.3%. It is planned that the average monthly wage in the economy will reach USD 519 (based on an exchange rate of BYR 8,950 to the U.S. dollar). These parameters are calculated based on the planned 8.5% GDP growth rate. However, the forecast by the IPM Research Center indicates that the unfavorable external environment may turn domestic demand into the main growth driver. Since excessive growth stimuli may result in financial shocks, the government may resort to reasonable restrictions. In this case, real wages may rise by only 3.3% in 2013. 14

Pension system

In 2012, the number of pensioners increased by 25,400 people, mostly because of the increase in the number of retirement pensioners. There were 2,512,200 pensioners in Belarus on January 1, 2013, of them 81% of retirement pensioners, 10.6% of recipients of disability pensions, 4.5% – pensions for the loss of a breadwinner, 2.2% recipients of social pensions and 1.3% of recipients of long service pensions.

The increase in real wages became a major factor contributing to the increase in pensions in real terms. Under the applicable legislation, an increase in the average nominal wage by 15% automatically triggers a recalculation of labor pensions. In 2012, the average monthly retirement pension increased by 64.6%, much more than the originally planned 4.7–4.9%. The ratio between the average pension and wage reached 40%. Furthermore, the government introduced monthly targeted extra payments for non-working pensioners aged 75 and more (75% for those aged from 75 to 80 and 100% for those aged 80 and more). Starting October 1, 2012, “bonuses” for long service beyond the retirement age without receiving pensions were boosted.

According to a forecast by the Ministry of Labor and Welfare, there will be 60 pensioners per 100 workers in Belarus in 2015 and up to 67 by 2020, an increase from 57 in 2012. Despite the unfavorable demographic trends, modifications in the pension system do not envision a change to a two-tier system, but mostly include arrangements to encourage a later retirement.

Poverty and the social protection system

According to Household Budget Surveys, in 2012, the poverty level, calculated as the share of the population earning less than the minimum subsistence budget (MSB), amounted to 6.3% (down from 7.3% in 2011). The poverty level was below the average rate in the city of Minsk and Minsk and Hrodna Regions.

The currency crisis of 2011 and inflation hikes that followed did not have a major impact on the structure of household spending. The share of expenditures on food and alcohol increased to 45.6% from 43.5%, while spending on non-foods fell to 37.7% from 38.2%. The comparative rankings of the share of household expenditures on food, alcohol and cigarettes prepared by The Economist places Belarus second in the world after Cameroon. 15 However, the level of spending on food per capita on a weekly basis, at USD 26, puts Belarus close to Hungary (USD 25) and South Korea (USD 29).

When it comes to legislative changes, an important improvement introduced in 2012 was the law On state allowances for families with children (which came into effect on January 1, 2013). The document increases child-care allowances – to 35% of the average wage for a first child, 40% for second and subsequent children and 45% for a disabled child under three years old).

Starting January 1, 2012, allowances for disabled children were raised to 100% of the MSB from 65%, and for children older than three to 50% of MSB from 30%. Overall, in 2012, the average monthly allowance for children under three years of age doubled, and for children older than three rose 3.3 times to BYR 768,000 and BYR 384,000, respectively (BYR 880,000 and BYR 440,000 in December 2012).

In 2012, state targeted social support was provided to 218,900 people, up by 7% compared with 2011). The average amount of state support increased by 110% to BYR 185,000 per recipient, while the lump-sum allowance went up by 160% to BYR 484,400. State expenditures on targeted state support increased by 150%. The main recipients of state support are families with many children and incomplete families with minor children (83.2% of the recipients), as well as lonely pensioners and the disabled (10.2%). On April 1, 2012, the system of allowances was expanded, as food rations for children under two were included, while lower-income households became entitled to both social allowances and food provision (10,000 families benefitted from the new rule).

Furthermore, starting April 1, 2012, lower-income families became entitled to a few types of state targeted support at once. This opportunity was used by 24,400 people (8.7% of recipients of social assistance). Families with many children also received additional support as repayment of concessional home loans. Also, all children younger than three years of age are entitled to free medications (from the approved list of basic medications).

In 2012, the number of disabled people increased by 2.8% (by 14,400) to 522,900 (of them 76,500 category I disabled, 275,200 category II disabled and 145,100 category III disabled). Disabled people account for 5.5% of the total population of Belarus.

The number of lonely old people has been increasing lately. In 2012, they accounted for 6.6% of the total number of elderly people (123,600), of them about 20% require permanent care.

Finally, on January 1, 2013, the law On social services came into effect, introducing the possibility for privately-owned organizations to participate in the system of social services, but only in localities with no state-run organizations to provide such services.

Conclusion

In 2012, the Belarusian economy reached a new peak in the political business cycle, and the economic authorities were trying to boost individual incomes by reaching the USD 500 average monthly wage target. As a result, monthly wages and especially monthly pensions soared in real terms. Apparently, the broadening gap between the increase in real wages and productivity, as well as macroeconomic risks of encouraging internal demand will prompt the economic authorities to restrain further wage increases in 2013. Furthermore, in 2012, additional measures were introduced to provide social support to vulnerable population groups, especially families with many children.

At the same time, the increase in real wages did not encourage labor migrants to come back to Belarus. Migration and deterioration of the demographic situation increase the burden on the pension system; however, the authorities have been postponing pension reforms and instead offer bonuses for those working past retirement age.