Labor Market and Social Policy: Post-crisis recovery amid presidential election
Kiryl Hajduk

Summary

The pressure of the global recession on the Belarusian economy somewhat slackened in 2010. The demand for labor increased, underemployment went down, and wages hiked at the end of the year. Repeating previous years’ trends, the increase in real personal incomes was followed by a reduction as early as January and February. There were no changes in the social security system – reforms were postponed for a year or two. At the same time, the government plans a drop in the number of jobs in the public sector and reductions in subsidies of utility costs.

Tendencies:

1. Reduction in the share of labor force because of demographic reasons and general decline in population;
2. Rise in wages that is not supported by a relevant increase in labor productivity, but based exclusively on targets set in state programs;
3. Stable controllable level of registered unemployment with no structural reforms underway; difficulties with determining the real unemployment rate;
4. The state gradually forsakes its social obligations and tends to pass the responsibility for growth in prosperity on to each citizen.

Demographic indicators and labor market situation

Belarus had 9.508 million inhabitants as of late 2010, down from 9.514 million people in late 20091 . Natural population loss slowed to 0.1% in 2010 from 1.8% in 2009, but the number of deaths rose 1.6%, whereas the number of births went down 1%. The share of able-bodied citizens decreased to 62.7% from 64.8%, and the gap between economically active population (workforce) and the number of able-bodied citizens widened by around 7%, to 1.479 million people from 1.384 million people. The reduction in the share of able-bodied population is mostly due to demographic factors: those who were born during the post-WWII baby boom have now reached retirement age, while those born in the 1990s, during the demographic slump, reached active working age and child-bearing age.

To alleviate the impact of unfavorable demographic factors, Belarus in 2010 worked out the concept of the Program for demographic security, which provides demographic impetuses such as pegging of child care allowances to the average wage of one of the parents and measures to encourage women to give birth to a second and third child. Belarus also plans to introduce additional allowances for multiple-child families, or “maternal capital”.

In 2010, inflows of migrants dropped 15.9% from the 2009 level, to 10,303 people from 12,949 people, and net inflows of migrants made up for 35.3% of natural population loss in 2010, down from 47.4% in 2009. Most of migrants in Belarus come from the CIS, especially from Russia, Ukraine and Kazakhstan, whereas most of migrants leaving this country choose to go to Russia, 73.4% of 6,866 persons last year. Inflows of labor force have been growing stronger in the past few years; however, they do not exceed 0.05% of the population.

In 2010, there were insignificant changes in the employment pattern, which fit perfectly in the general trend of the past decade (the share of workforce employed in the manufacturing sector decreased, whereas employment in the service sector went up). The number of the employed in the industrial sector went down to 25.6% of the total workforce in 2010 from 27.2% in 2009, in agribusiness fell significantly to 9.7% from 12%), whereas the proportion of Belarus’ workforce employed in the construction sector rose to 9.3% from 7%, and in services and public catering to 14.8% from 12% (the number of jobholders in the housing and public utilities sector also increased).

The number of vacancies (officially registered in the job bank of the state employment service) rose to 544,000 from 450,000, most of them being blue-collar workers, who have seen a steadily growing demand for their work. Blue-collar job vacancies accounted for 77.6% of all vacancies in 2010, while in 2009, they made up 73.4%. The territorial imbalance of demand and supply remained unchanged: about a third of all vacancies were registered in the city of Minsk, and the number of vacancies in the capital city was 4.5 times above the number of registered jobless citizens.

Based on the findings of the 2009 population census, the situation is not as favorable as official statistics make it appear. Under the census, in 2009, 5.6% of able-bodied citizens residing in Minsk said they were out of jobs, about 70,000 people altogether, whereas the officially registered unemployment rate stood at 0.3%. As for other regions, only in Minsk Region the number of the unemployed appeared to be below the number of vacancies, and in Brest Region, the numbers were equal; in the other four regions, the number of vacancies is lower than that of jobseekers. The authorities also admitted there was a problem of excessive employment in the public sector. In February 2011, Finance Minister Andrei Kharkovets2 said it was necessary to reduce the number of jobholders in the public sector by 10%-15% (which is the estimated excessive employment) with a view to cutting budget costs by BYR 2 trillion.

Large companies are also suffering from excessive employment. Some 4,500 workers were sacked at Minsk Automobile Plant from December 2009 through December 2010. First Deputy Prime Minister Vladimir Semashko admitted that some other large producers employed excessive workforce as well. On February 3, 2010, about 100 workers of Baranovichy automotive component works went on spontaneous strike seeking higher wages. In response, the administration of the plant said wages could only be raised if around 300 employees were fired3 . Nevertheless, some sectors of economy are still faced with shortages of qualified personnel: the Ministry of Health said it was short of over 4,000 medics and almost 5,000 nurses, whereas around 3,000 medical workers resign every year. Mandatory job assignment upon graduation does not help, because once the obligatory employment term is over, about 30% of young medical workers resign. The most popular reason for giving up jobs is insufficient compensations. In 2010, wages in the healthcare sector averaged USD 330 a month, which compared to USD 440 on average in the economy. To earn more, medical workers tend to work extra time – last year, they worked an average 1.39 of the standard rate.

In 2010, the economy was slowly recovering from the crisis, which is evidenced by falling underemployment rate, including in the industrial sector. Back in 2009, 357,000 workers, or around 10% of the average monthly workforce, were forced to work part time, while a year later the figure dropped to 75,000 people, or 2.3% of the average monthly workforce. The number of workers forced to go on leave (with no pay or with partial pay) fell 22% from the 2009 level, while the total period of leave almost halved. However, we need to take into account the active administrative measures to regulate partial employment. Many enterprises made use of “social” leaves that are initiated by employees themselves instead of regular (forced) leaves, which contributed hugely to the reduction in underemployment figures.

In March, presidential ordinance No. 164 offered employers a chance to have termless labor contracts with workers employed for over five years and having no disciplinary infractions. Employers used to have this right before, but most Belarusian workers are still employed based on fixed-term labor agreements (two-thirds of them are signed for over three years, though). The new norm is a “recommendation” and does not modify the nature of the contractual employment system.

Unemployment

The authorities had expected hikes in unemployment in 2009 and planned an increase in financing of employment promotion programs, including wage earning community services. However, in 2010, the situation proved different. The Ministry of Labor and Social Security tagged the situation with registered unemployment as “stable, manageable and controllable”4 . According to BelStat statistical service, the number of the officially registered unemployed fell 18% to 33,100 people. Unemployment rate fell to 0.7% in 2010, a new record for the past decade (down from 0.9% in 2009). Some of the trends observed in the last few years persisted: the share of unemployed males kept growing (to 47.4% in 2010 from 42.9%), while the share of unemployed females decreased to 52.6% from 57.1%. Moreover, the number of vacancies in employment and social security centers kept growing in 2010 to reach 48,800 as of the end of the year.

Nevertheless, the real situation with unemployment is very hard to assess, because Belarus has never introduced the global practice of assessing unemployment based on interviews of workforce. Including those who stayed on forced leaves (potential and latent unemployed), we have 2.4% for the year 2010. Since the results of interviews in households will be available only in May 2011, we can only quote expert estimates here. Taking into account the dynamics registered in previous years, we believe the real unemployment rate in Belarus stood at 4.6%-4.8% in 2010.

Wages

At the end of 2010, the average monthly wage before taxes rose to a new record high of USD 530 in the U.S. dollar equivalent (around USD 470 in the public sector). The average monthly wage in 2010 reached BYR 1.238 million, or about USD 415, and in the public sector, BYR 983,700, or about USD 330. The year 2010 saw the highest increase in wages in the dollar equivalent in the past seven years. In real terms, the average wage rose 14.9% on the year, and in the public sector, the increase was by 18%.

That fast rise in wages should be attributed not only to the ongoing presidential campaign. The wage targets had originally been set in the Belarusian socioeconomic development program for 2006-2010, and in order to attain those targets, the first grade wage rate was raised thrice in 2010 (whereas in 2009 it remained unchanged): on January 1, it was increased 5.2% to BYR 81,000 from BYR 77,000, on June 1 it rose 11% to BYR 90,000, and on November 1, it further increased 31.1% to BYR 114,000. It was that November push that enabled the government to increase wages in the public sector 30% on average, or by BYR 135,000. Furthermore, on September 1, the government raised the payroll rate for low-wage earners and some categories of social and cultural workers.

Directors of organizations financed from the state budget are instructed to pay increments of 15%-30% of wage rates to qualified specialists.

As for the minimum wage, in was raised twice in 2010, in November, to BYR 400,000 from BYR 258,000, and in December, to BYR 460,000. That was a step ahead from the practice set in 2005, which allowed increasing the minimum wage once a year. However, the gap between the minimum wage and the minimum subsistence level (BYR 274,510 per capita on average and BYR 293,880 per able-bodied citizen, or USD 98) remained.

The increase in wages for low-salaried workers stood behind a reduction in the sector-wise pay differentials, to 3.3 times in late 2010 from 3.6 times in 2009 and 6.7 times in 2000. The traditional leaders in terms of wages are the energy sector, oil-processing industry, pipeline transport and the banking sector. In those four sectors, the average wage had exceeded USD 700 by mid-2010. The chemical and petrochemical industries, metallurgy, the construction sector and state authorities, courts and legal institutions are slightly behind the leaders with wages averaging USD 500 by mid-2010 and even USD 1,000 in some of them by the end of the year.

In 2010, an average wage of USD 500 could be earned by 16 categories of workers with their overall number totaling almost 770,000 people, or around 22.2% of the average number of employed workers. The least-paid sector was social services (where about a third of workers earned less than USD 300 a month). Despite the increase in wages, a Wage Indicator survey conducted in the fourth quarter of 2010 showed that 50.1% of the respondents were dissatisfied with their incomes, of them 23.9% were extremely dissatisfied), whereas only 19.1% were satisfied, and 3.7% were extremely satisfied. At the same time, official statistics often fails to take into account wages in the private sector. According to the Ministry of Taxes and Duties’ estimates, in 2010, compensations paid in the shadow economy amounted to 10% of the country’s official wage-bill, 29.8% of GDP, or about USD 137 million), which resulted in shortages of income tax transfers to the budget of BYR 150-200 billion5 .

As for the private sector, the situation in the city of Minsk differed significantly from elsewhere in Belarus. According to “Zdes i seichas” (Here and Now)6 consulting agency’s labor market survey covering the first half of 2010, wages rose 10% to 20% in U.S. dollar equivalents in the private sector in the capital city owing to increases in additional payments, bonuses and interest payments. According to findings of another study, conducted by Mojazarplata.by, salaries of top executives increased 10.2% on average in real terms; however, they never reached the pre-crisis level reported in 2008.

In Belarusian regions, state officials started demanding that entrepreneurs raise the minimum monthly wage to an equivalent of at least USD 250. They must have been guided by the orders of then Prime Minister Sergey Sidorsky, who instructed trade union leaders in August 2010 to pay at least USD 200 in the public sector. According to co-chairman of the Republic confederation of entrepreneurs, Viktor Margelov7 , for many private firms working in regions it would be a problem. In many smaller settlements entrepreneurs find it hard to pay their employees even USD 200, and wages often stand close to USD 150 a month in both private and state-run enterprises.

The sharp increase in wages was slammed by the IMF, when Resident Representative Natalya Kolyadina said there were no “economic grounds for such a significant increase in compensations”8 . Furthermore, that rise in wages ran counter to the agreements between the IMF and Belarus: it cost the Belarusian economy about BYR 7 trillion and led to an expansion of budget deficit to 3% of GDP.

In June 2010, the government announced a new target for the average wage in the national economy for the period to 2015, at USD 1,000. In his turn, President Alexander Lukashenko pledged that the average wage in Belarus would reach 80% of the compensation level in neighboring European countries in five years’ time.

Social security and pension system

There were no serious modifications in the Belarusian social support system. Subsistence wage per capita increased by BYR 32,980, around USD 11, and child care allowances for children under three years of age were raised by the same amount. On January 1, 2010, child care allowances were made equal to the subsistence wage; however, a Mojazarplata.by survey showed that over half of all parents spend the monthly child allowance in less than a week. In 2010, the average per capita minimum consumer budget for a family of four rose by BYR 71,930, around USD 26.

On May 1, 2010, the number of social and demographic groups with separate per capita minimum consumer budgets decreased to eight from 18. In September, the government revised the consumer goods basket. Since the Ministry of Health revised wholesome food standards, the government had to introduce changes to the grocery basket: some goods were excluded from the consumer goods basket, some were exchanged for others, and the average lifetimes of clothes and underwear were reduced. New items on the list were rentals of sports equipment and acquisition of a daily newspaper, and spending on cosmetics and hairdressing was increased.

In mid-2010, the government announced plans to alter the approach to the calculation of unemployment payments. The concerned ministry had prepared a draft resolution to raise the unemployment benefit to the average subsistence wage; however, it will take a year or two to make the final decision. At the same time, President Lukashenko said during the VI congress of the Trade Unions Federation that there were plans to gradually “squeeze” the unemployment benefit”9 , because there were more vacancies than job seekers. Also, it was mentioned at the congress that Belarus would increase the number of jobs at least 30% in the five years to come and “radically” increase labor productivity.

In 2010, Belarus adopted the Strategy for energy development until 2020, which envisages an increase in utility tariffs closer to cost recovery levels – from around 25% in 2010 to 34% in 2011. In 2011, households will be paying 100% of costs for natural gas used for cooking and in 2014, the entire cost of natural gas used for heating. A similar approach will be applied to electricity and thermal energy. The housing and utility services system will therefore break even in the next four years. This move may also affect lower-income households, because in 2010, cashless subsidies to lower-income households were replaced by targeted support. That support is definitely lower than the sums provided through subsidies, though.

In 2010, the total volume of targeted social support went up 20.9% on the year to BYR 50.8 billion, or USD 17 million, because of the increase in overall payment of lump-sum social allowances (by BYR 3 billion) and introduction of the social allowance to pay for rehabilitation equipment. The average allowance totaled BYR 51,200 per beneficiary, and the lump-sum allowance amounted to BYR 176,100. For over 70% of recipients, allowances were calculated six months in advance.

Also in 2010, Belarus completed the State program for prevention of disability and rehabilitation of the disabled for 2006-2010. During those five years, primary disablement rate decreased to 33.4 per 10,000 people from 41.32 in 2005. In 2010, the number of people with disabilities decreased 0.5% on the year. In 2010, a new type of social allowance was introduced, namely, the allowance to pay for rehabilitation equipment. Some 15,200 people were paid the new allowance last year, around BYR 552,000 per person.

In 2010, Belarus opened 32 new social service offices (to bring the total number to 815) and 60 new social stations (the total number reached 603). Social service centers had around 1.7 million people in their registration books in 2010. The rise in the average wage last year brought about an increase in pensioners’ incomes (minimum labor and social pensions also increased because of the growing per capita subsistence wage). Pensions were raised thrice in 2010 – in January, August and November, while in 2009, they were only increased once, in November. Last year, monthly retirement pensions averaged BYR 612,276, or about USD 205.

Social pensions were recalculated four times in 2010, in February, May, August and November. In November 2010, a presidential ordinance introduced extra monthly payments of BYR 40,000 in addition to social pensions provided to children with disabilities aged under 18, disabled citizens of the I, II and III disability groups and children who have lost a family provider. As of late 2010, Belarus had 2,468,900 pensioners, around 26% of the total population. The average pension reached BYR 584,700, about USD 196; retirement pensions averaged BYR 612,100, disability pensions BYR 532,700, survivors’ pensions BYR 356,400, and social pensions BYR 244,300.

In late 2010, the authorities announced plans to introduce conventional contribution pension systems starting 2012. It will be based on the Swedish model (Sweden also started reforming its pension system, having only the distribution system). The demand for a contribution pension model is quite strong: based on questionnaires10 , over 40% of Belarusians are ready to make additional savings, and 12.5% are already saving to add to future pensions.

Conclusion: challenges of the year 2011

The election year is over, but the Belarusian economy is still faced with many unresolved problems. From the look of it, real wages will likely decrease in 2011, and faster increase in consumer prices will become one reason for it. Lower wages will enable the authorities to put off ruble devaluation, which is the Sword of Damocles for the Belarusian economy with its substantial current account deficit. Arrangements to contain further rise in real wages, which is not matched with a corresponding increase in labor productivity, will contribute to Belarusian producers’ cost-cutting efforts.

Another problem the authorities need to address is excessive employment. Redundancies are planned in the public sector in 2011 in order to keep the average wage level sufficiently high. The situation with employment will largely depend on privatization progress – if the administration of the country agrees to privatize large enterprises, a decline in jobs may follow, however, it will affect only bigger towns, where labor markets are capable of absorbing released workers.

As for the reform of the social security system, it is contingent on the general economic situation in the country. Because the authorities pursue the policy to promote employment and subsidize loss-makers, there will be no drastic changes in the social security sector, for example, new measures to provide more support to the unemployed are highly unlikely. In broader terms, as long as the government makes economic growth, the burden of the current account deficit and support for a stable ruble exchange rate its key priorities, the social security system reform will remain a secondary objective.