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THE OPERATION OF THE LABOR MARKET

There are no clear and simple indicators of either labor market flexibility or the efficiency with which the market allocates and reallocates labor. Consequently, the same statistical record may be interpreted differently by different economists—and this has certainly happened in Russia. For example, despite rising unemployment, there continue to be substantial levels of new hires in many sectors. Layard (1995a) and others have interpreted this as a sign of increased flexibility; Nuti (1996a) has dismissed it as no more than "churning" (see also Layard and Richter, 1995). It is my view that the figures cited below show the Russian economy has been exposed to a series of significant shocks. While the labor market has demonstrated substantial flexibility in the way it has absorbed these shocks, it still suffers from rigidities. Also, the institutional framework and the policies of the government continue to impose considerable hardships on individual families.

Changes in the composition of the labor force in Russia are reported in Table 9-2. The table shows that the economically active population has declined by about 2.5 million since the collapse of the Soviet Union. About a fifth of this decline can be attributed to a reduction in the total population; the remainder is due to changes in the population of working age and to the withdrawal of those who either do not wish to work or have become discouraged in the search for employment. Over the same period, employment has fallen by about 5 million, and unemployment (based on International Labor Organization [ILO] definitions) has risen by about 2.5 million. In 1995, the unemployment rate in Russia was 8.2 percent. Given the scale of the collapse in aggregate output and the extent of the shocks to which the economy had been exposed in the preceding 5 years, this rate is quite modest.14Table 9-2 also contains an estimate of unemployment in March 1996, which suggests that the increase in unemployment has leveled off, at least for the moment. Finally, Table 9-2 shows that, based on ILO definitions, women account for some 45 percent of total unemployment (it should be noted that they never accounted for more than half of total employment).

Table 9-2 also provides information on registered unemployment and on the numbers receiving unemployment benefits. These figures show that in 1992, the register contained approximately a one-seventh of total unemployment; by 1996, coverage had improved substantially, but the register still contained only about two-fifths of those classified as unemployed according to ILO definitions. In 1992, about two-thirds of the registered unemployed were in receipt of unemployment benefits. In 1995, the proportion had risen to almost 90 percent. Table 9-2 provides some further information on the composition of registered unemployment.

14  

Unemployment remains relatively modest even when some allowance is made for those workers who are on enforced and unpaid leave. For more details, see Nuti (1996a:45).



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