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. Last Updated: 07/27/2016

Unpaid Workers 'Unemployed'

For some reason, the issue of reducing the delays in the payment of wages has suddenly risen to the top of President Boris Yeltsin's political agenda. This is strange because there is no reason to believe that the problem has gotten any worse than it was two or three years ago.


Obviously, Yeltsin has decided to address the issue for political reasons. He is looking for a simple explanation for the poor performance of Our Home Is Russia at the elections. He wants a problem that he can blame on the now disgraced Chubais. He is trying to find a feel-good, quick-fix issue for his own election campaign.


With characteristic simplicity, Yeltsin outlined his analysis. "We have the money. It is just disorganization," he said. With his equally characteristic emphatic hand gestures, Yeltsin outlined his solution: the creation of a huge reserve fund to pay off any wages that are overdue, plus sackings for ministers who are delaying wages.


Yeltsin is right in at least one respect. The fact that Russian wages often do not get paid on time has been one of the most bizarre aspects of this country's bizarre economy. Unfortunately, Yeltsin's simplistic statements will do little to change the problem.


According to Izvestia, on Jan. 1, the total of overdue wages in key sectors like manufacturing, construction, transport and agriculture was 13.4 trillion rubles, or about $2.8 billion. A third of that was more than two months overdue. The average Russian worker is owed about 529,000 rubles by his employer, equal to about 78 percent of the average monthly wage.


Yeltsin's initiatives apparently relate mostly to the delays in wages to workers in the budget sector: public servants, teachers, doctors and also the coal industry and agriculture where government subsidies account for a large share of revenue.


Yeltsin is perhaps being a little less than honest when he says that lack of money is not the reason why these workers are not being paid. It is true that the government raised more revenue than it expected in 1995 and so money should be available to pay wages. On the other hand, the government also spent a huge amount extra on the war in Chechnya.


Yeltsin prefers to blame the delays on the laziness or corruption of a few bureaucrats. This explanation has the virtue of being partly true. With interest rates of 100 percent, bureaucrats at various levels have a huge incentive to delay paying out wages. Delays of a month can generate returns of 10 percent which can be diverted to whatever purpose the bureaucrats decide.


Yeltsin's solution is to sack a few top officials. He does not, however, want to take structural measures, like instituting basic auditing procedures to follow funds.


Audits would obviously be much more efficient in keeping track of payment delays than the crazy idea of a free-floating reserve fund. But in a politically sensitive election year, Yeltsin does not want to take any intrusive measures that would annoy powerful bureaucrats or regional power brokers.


Moreover, Yeltsin's analysis ignores the crucial fact that health and education wages are paid for not by the federal government but by the regions. In the lead-up to last December's elections, President Yeltsin magnanimously awarded school teachers and doctors huge pay rises, knowing full well that the money would have to be found at the regional level.


But the ability of regional governments to pay varies. If the government wants to dictate a centralized education and health policy, it should also be willing to pay for it or at least negotiate with the regions.


In fact, the government has almost no practical contact with the regions on these issues. Perhaps that would be a good solution to the problem, but it is all a bit complicated for Yeltsin's approach.


Of course, to give Yeltsin his due, the government is not responsible for most of the unpaid wages. The vast bulk of unpaid wages are owed by private firms that are outside the budget sector.


Some argue that the government is partly at fault. The state places orders for military equipment or whatnot and then defaults, upsetting financial planning among private firms.


But the main reason that Russian factory directors do not pay wages on time is that they do not have to. As managers, they are in an enviable position. In all but a few industries, trade unions lack the power to force bosses to pay wages. If factory directors want to cut costs, they simply stop paying their work force.


The theoretical wages of most employees are just a business form of public relations. Bosses will announce salary rises to win sympathy, for example, when they want the support of workers against outside shareholders.


But when it comes to real wages, they will delay payment to maximize profits. Low-skilled, redundant workers face long salary delays. Specialists with high-value skills usually keep receiving wages on time.


In fact, delays in the payment of wages are just a sublimated sign of the level of hidden unemployment. In any other country, factories facing a crisis would sack workers. In Russia, they retain the workers but do not pay their wages.


Many economists say that this is not a bad solution since it creates a flexible labor market and the unemployed retain the feeling that they still have a place in society. Otherwise, they might be on the streets. Complaints by workers about unpaid wages would in any other country be complaints about unemployment.


But the only real way to eliminate delayed wages in private firms is to create open unemployment. This is perhaps not part of Yeltsin's program.


Alternatively, Yeltsin could target industrial growth which would generate real employment. But Yeltsin says that will have to wait until the second half of the year.





Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce