Thursday, June 21, 2007

Skilled labour In Russia

Bloomberg today had this:

Russia's annual inflation rate rose in May to the highest in four months, as a new law on foreign workers boosted prices of fruits and vegetables.

The inflation rate jumped to 7.8 percent from 7.6 percent in April, the Moscow-based Federal Statistics Service said in an e- mailed statement today.

Russia, the world's 10th biggest economy, passed new restrictions this year for foreign employees working in the country's booming retail industry. The government limited the number of trading places given to non-Russians, which boosted food prices and created inflationary pressures, economists said.

Foreign workers could only hold 40 percent of all jobs in the nation's markets beginning Jan. 1 and the blanket ban took effect April 1. The ban on foreign workers was authorized by a government resolution on Dec. 15, after race riots erupted in the northern town of Kondopoga after Chechens killed two Slavic men in a street fight.

Russia needs migrants to boost its labor force, John Litwack, the World Bank's chief economist in Moscow, said last month. Here is part of one of John Litwack's reports:


Considering relatively high wage costs in Russia compared to most other emerging markets, economic growth and competitiveness depend critically on a sufficient supply of highly-skilled and productive workers. In this regard, Russia faces serious problems in both demography and adequate training. In the absence of an acceleration of external migration to Russia, the working age population is due to decline over the medium term (See RER 11). This fact, combined with remaining inefficiencies in the territorial allocation of domestic labor, imply that both external and internal migration will become increasingly critical to Russia’s economic prospects. Results from the ICA survey confirm that many Russian enterprises are already experiencing shortages of skilled labor. Among investment climate constraints, larger Russian manufacturing enterprises rank the importance of “lack of skilled and qualified workforce” only behind taxation (which firms in almost every country rank as a primary constraint). In the survey, twice as many enterprises (27 percent) complained about being understaffed, as opposed to overstaffed (13 percent). Of the firms reporting understaffing, 72 percent complained in particular about a lack of workers with needed skills in the local labor market. Many complaints were also made about wage competition (41 percent), high labor turnover (30 percent), and competition from high labor demand on local markets (23 percent). The overall picture is consistent with one of a significant shortage of qualified labor.

The full report can be found here.

This section in the first Chapter is also interesting:

RER 11 emphasized Russia’s growing needs in both external and internal migration for sustaining rapid growth over the medium and longer term. For external migration, it recommended measures to liberalize and simplify the formal regime in order to bring a large part of the current massive informal migration into the legal sphere. The government has proposed a package of measures for 2007 that is broadly consistent with this overall goal. The liberalization of the migration regime, together with better legal protection of the rights of registered migrants, is a planned part of this package. In its current form, however, new regulations may very well have a net negative effect on migration flows. New measures promise to introduce quotas on migrants that, if enforced, would greatly decrease the number of migrant workers in Russia, as well as regulations that forbid non-citizens to work in open markets. More frequent crackdowns on illegally employed migrants and deportations have become more common. A more hostile and restrictive environment for migrants could have negative consequences for labor supply in Russia. Western European countries face similar conflicting problems of a need for migrant workers and social tensions surrounded mass migration into the country. It should be noted that Russia’s needs in migration are even greater than those of Western Europe.

and this chapter in RER11

Both external immigration and internal migration are crucial for economic growth and welfare in Russia. The country is in the middle of a severe demographic crisis. Ageing and depopulation will most likely continue for decades. In the near future, Russia will also face a particular shortage of working age population. To compensate for this, Russia would need an annual inflow of 1 million immigrants, which is three times as the average official annual flowover the last 15 years, and five times the official flowin recent years. Fortunately, there is a huge potential migrant pool of millions of skilled Russian-speaking residents in former Soviet countries. A legacy of the Soviet period is an irrational geographic allocation of labor and a shortage of larger cities that could be the focal point for diversified growth and development. Social welfare and economic development in Russia depend on fluid and substantial internal migration flows. Policies related to international and internal migration deserve serious attention.

While the population in Russia has been gradually falling since 1992, the decline
in working age population will be especially severe after 2007, especially in central regions, as a long-termconsequence of birth rate behavior in 1980s.10 In order to fully compensate for this drop, there would need to be an annual inflow of about 1 million working age migrants, a number which is three times the average net inflow in the years between the Censuses of 1989 and 2002.

Although Russia’s demographic problems are more serious than those in the European Union, there has been no consistent policy to attract foreign labor, especially high-skilled workers. Instead, the regulatory framework in recent years has become increasingly restrictive towards immigrants. As these regulations are not perfectly enforced and there is no visa regime within the FSU, immigration flows have nevertheless been quite substantial, especially migration from Central Asia (Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan, and Kyrgyzstan) and the Slavic CIS countries (Belarus, Ukraine, and Moldova). The returns to migration fromthese countries remain large. Although undocumented labor flows are not directly observable, data on remittances can be used as s a proxy. Even though the balanceof- payments-based IMF data most likely underestimate the magnitude of remittances, they are still very large, especially for the poorest former Soviet countries (Figure 13). The pattern in Figure 3.1 is consistent with the view that CIS-Russia migration is driven primarily by huge income differentials.

As for the case of international migration, official data underestimate the extent of internal migration flows in Russia. But a numbers of studies have examined the question of internal migration that use a combination of official data, census data, and survey data. On the one hand, internal migration flows in Russia do appear rational in their response to differences in economic conditions. The main trend has been a substantial flow of migrants from colder and more isolated regions to cities in warmer regions. The latest Census revealed that a number of warmer European regions experienced population growth of over 10 percent during 1999-2002, while quite a few Northern and Eastern regions experienced population declines of the same magnitude or greater.17 Economic factors such as real incomes, unemployment, and public goods provision appear to affect migration in an intuitive way. On the other hand, interregional migration flows appear to be rather slow by international standards, and have apparently not picked up in recent years in response to greater regional differences in wages and standard of living.

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