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Non-standard crisis requires non-standard measures. About a third of all jobs in the country are at risk, and the main task in the labor market is to enable those who have lost their jobs and income to quickly return to paid work after quarantines.
Vladimir Gimpelson
The opinions published on the Econs.online website may not coincide with the views of the website’s editors and do not express the position of the Bank of Russia.
A new “actor” appeared on the labor market, the coronavirus, which is invisible to the naked eye. In a matter of days, he substantially altered the economies of all the leading countries. Instead of cooperating, a necessary ingredient in economic activity, he forced everyone to “social distance”, which leads to a recession and threatens the destruction of millions of jobs. Unfortunately, an alternative to such treatment is not visible and we need to think about how to mitigate its economic consequences.
The coronavirus did not come forever, and now it is gone – what remains? Many experts have already begun to actively discuss how life after coronavirus might look like. But there are long-term prospects, and there are short- and medium-term ones. The strategy and tactics of overcoming mass self-isolation require detailed consideration now. Although we will be able to fully assess the consequences only upon completion of quarantines, many problems are obvious today and measures must be taken today too.
Scale of problems
The crisis spreads unevenly by region and type of activity. Someone may even win something, such as food retail with delivery or technology companies that provide remote work. Such, however, are few. All types of commercial services (non-food trade, hotels and restaurants, passenger transport, recreation, culture, sports, tourism, etc.) are at obvious risk of a temporary stop due to consumer self-isolation. They account for about a third of all employment in the country as a whole. But part of industry and construction along the chain will not avoid a strong blow.
The non-standard nature of this crisis requires non-standard measures. The main task in the labor market is to enable those who have lost their jobs and income to survive this crisis and then quickly return to paid work. It is advisable to the one that was before the crisis. The mass destruction of specific human capital, which was created by years of labor and investment, cannot be allowed. A quick subsequent recovery is possible only on the basis of the physical and human capital that already exists.
This means that the potential of the existing business must be preserved at all costs so that it can return to normal functioning as soon as the epidemiological restrictions are lifted. If this business disappears / goes bankrupt / liquidates, then the subsequent recovery will be much harder and then mass and long-term unemployment can become a sad and long-lasting reality. Therefore, helping business, we help people.
Past Crises
Each new crisis is different from the previous one. However, this does not mean that past experience does not teach anything. Russia survived a series of severe crises (1992, 1994, 1998, 2009, 2015), while avoiding high unemployment. And those jumps that took place turned out to be moderate and short-lived. What helped then and is it applicable today?
With all the previous troubles, the flexibility of the Russian labor market helped to curb unemployment. This is a special flexibility – a kind of “flexibility on the contrary”, when companies are not allowed to reduce their employment, but are not prevented from lowering wages. During the “dashing” 90th administrative leave and reduction of working time at the initiative of the employer, delayed salaries allowed to avoid layoffs. Labor costs after each shock fell by about a third. On the one hand, this shifted all costs to workers, but on the other, it allowed minimizing layoffs, gaining time to create new employment. At the same time, large enterprises received various kinds of support from the state: subsidies, tax and other benefits. Not everything was honest and fair, but mass unemployment was avoided. In 2009 and 2015 there were no salary debts at all, and administrative leave became a rarity. Nevertheless, the flexibility of wages due to the manipulation of premiums and bonuses, which make up the variable part, was generally preserved.
Many of those who lost their jobs in large enterprises gradually moved to the segment of low-paid jobs – in the profession of sellers, drivers, security guards, in the informal sector. The last one has to be thanked special – he gave millions of people jobs and income. This redistribution replaced the meager unemployment benefits and supported a generally high level of general employment.
Can we use this recipe today? It seems to me that yes, but only in part. Our past experience suggests that in times of crisis wage flexibility is a major advantage and must be maintained. In this situation, struggling with flexibility means struggling with jobs. Workers are not interested in the bankruptcy of their employers and would prefer some loss in earnings to a complete loss of work. The ability to flexibly manage work time in such extreme conditions helps to retain employees and avoid layoffs. All experts say that it is important to keep workers connected with their employers during the crisis.
Another market
On the other hand, the structure of employment has changed dramatically in recent decades. In the 1990s, most worked in large and medium-sized enterprises, for which the quantitative adaptation of jobs is tightly regulated by the state. At the same time, they have more space for salary maneuver than small businesses. Currently, about 32 million people are employed in the public sector, as well as in all large and medium-sized enterprises of the country, of which half are state employees. Not all of them have a cloudless life, but in state-owned companies and state employees, salaries will be paid in any case.
And where are the remaining 40 million? These are individual entrepreneurs and those who work for them, employees of small enterprises, as well as those who are called self-employed, including those working informally. The labor activity of many of them is associated with the provision of the very services that we, “self-insulating,” today cannot physically consume. Such a small and microscopic business has a margin of safety. Closing for a week or two, he risks never opening again. However, no administrative restrictions on layoffs work here. All this means that job cuts can be huge.
Lines of defense
What to do? It seems to me that there are two lines of defense and it is necessary to use both.
The first is to support the income of those who have lost their jobs or income (imagine: a restaurant is temporarily closed, no one was fired, but there is no salary). People should be able to survive this difficult time.
The second is the support of a business that, through no fault of its own, is completely stopped. This business will be extremely needed and especially important when the epidemic is over. Not only his services will be needed, but also his salaries and taxes. If in past crises the main drop was in industry and construction, now it is in the services sector.
The size, speed and coverage of the support are crucial. Firstly, no one should be lost: freelancers and self-employed are also our citizens and no less than others may need help. Secondly, it is not enough to have resources – you must have technological tools to bring this help to everyone, simply and quickly. Do not forget that the position in employment (the size of the enterprise, type of labor relationship, self-employed or not) varies greatly. At the same time, our labor legislation is absolutely not adapted to such a situation. The question arises: what tools are there?
Support for those who have lost their jobs and income.
The loss of work and income means that there is nothing to eat and nothing to feed the children. Savings, if any, will be enough for many for a short while. The most obvious support tool is unemployment benefits administered by the employment service. However, these services, firstly, are institutionally and resource weak: after transferring them completely to regional subordination and after many years of extremely low registered unemployment, they ceased to be a significant player in the labor market and are unlikely to cope with the flow of applications. Secondly, the benefits themselves are very small in size – now the maximum is 12,130 rubles, and the minimum is 1,500 rubles. Many categories of citizens can only claim the minimum benefit, the amount of which discourages contacting the employment service: low unemployment in recent years is largely due to the size of benefits, because job loss people preferred any available, including informal, employment for support.
The Moscow city and regional authorities recently decided to increase unemployment benefits ( up to 19500 rubles in Moscow and 15000 rubles in the Moscow region ), but access to them also depends on a number of conditions. The support of various groups of self-employed, including individual entrepreneurs, is a more difficult problem: all of them can only rely on the minimum allowance of 1,500 rubles.
Another group in need of support includes those who are not fired but sent on vacation without pay. That is, there is formal employment, but no income. Do they deserve help? In my opinion, of course. Migrants – internal and external, who have lost their jobs and are unable to return home, also need help.
Some countries – for example, the USA – are ready to give out money to a rather wide category of their citizens and do it quickly. The vast majority of taxpayers will receive federal assistance in full ($ 1,200 for each with an annual income of less than $ 75,000, plus $ 500 per child; those who earned more than $ 75,000 last year will receive less, more than $ 99,000 will not receive payments). More importantly, a package of assistance to small and medium-sized businesses has been adopted which is rightly considered the foundation of the American economy and political stability. Of course, all this may not be very effective and not very fair, because nevertheless not all recipients of such transfers are in dire need of it. However, a more targeted, targeted approach suggests that we can quickly identify everyone who really needs help. And if we can’t? Then the targeted approach is neither effective nor fair.
Business support.
A particular problem is the rescue of medium, small and micro-businesses. It seems to me that this is a fundamental thing. Its destruction will complicate the subsequent recovery of the economy (employment and income) and threatens high and long-term unemployment. If the state is known to large companies (maybe?) And how and how to help, then supporting this heterogeneous population is a much more difficult task. A set of potential measures is widely discussed; it includes tax holidays, interest-free loans, reduction and deferral of rental payments, etc. A business that has lost turnover cannot pay salaries, rents, taxes, or interest on loans. Then the state should look for ways to at least partially cover or write off these expenses. Take the path of paying part of the salary to wage earners if employers agree not to fire them.
The question arises: how much is salvation and at whose expense? It is expensive, but there is only one account here – the state. In the USA, the amount of urgent and unconditional aid is only 5.5% of GDP, in Western Europe it is less, but it also goes to the percentage of GDP. As for the full package of measures, including, in addition to direct payments, also deferrals of various kinds of obligatory payments and state guarantees to maintain liquidity, the amounts are already measured in tens of percent of GDP . These are preliminary estimates, and the scale of assistance may even increase.
The Russian government has reserves in the form of the National Welfare Fund, the size of which is more than 7% of GDP , which is much more than the average direct fiscal stimulus (support payments) of the USA and European countries. The NWF was created as an insurance fund for a rainy day. This day has come. There are no such reserves in the regional budgets, and attempts to solve the problem at the expense of the population or at the expense of drowning business will not help and will only undermine the economy and trust in the state for years to come.
Vladimir Gimpelson, Director of the Center for Labor Studies, HSE
The article was originally published on Economic Conversation.
Views in this article are author’s own and do not necessary reflect CGS policy.
