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. Last Updated: 07/27/2016

Layoffs, Pay Cuts Cast Shadow on Steel City

ReutersWorkers at a labor exchange in Novokuznetsk. Companies in the city are cutting employees' salaries and work weeks.
NOVOKUZNETSK, Kemerovo Region -- The working week, like the winter days in this Siberian city, has become shorter since the global financial crisis paralyzed its heavy industry. Paychecks have been cut by a third or more.

Novokuznetsk's half a million residents, over 60 percent of whom depend on the steel, coal and aluminum industries, dare not contemplate the alternative -- mass layoffs -- as they struggle to repay bank loans taken out in more prosperous times.

"If nothing changes, we will come up against more serious consequences in February or March," said Alla Semyonova, director of the city's employment center. "People have not yet fully grasped what is happening here."

Novokuznetsk, 3,000 kilometers and four time zones east of Moscow, was booming when demand for steel produced by its two giant mills reached record highs early this year. The sudden reversal in the world economy has hit hard.

Yevgeny Sobolev, head of the city's labor inspectorate, said up to 80 percent of the city's employed were now working a four-day week. "This should mean a decrease of one-fifth in salaries, but they are being cut by 50 or 60 percent," he said.

Outside his office, disgruntled employees, mostly from the service sector, queued to voice their complaints.


Denis Sinyakov / Reuters
The interior of the Novokuznetsk Iron and Steel Works, which employs 8,000.
Billboards and local radio stations advertise 40 percent discounts on furniture and shops offer half-price jackets and boots. A loaf of bread, however, costs 4 rubles more than before the crisis, said retired steel worker Anatoly Karpetsky.

"I'm a pensioner. I've been wearing the same pair of boots for 10 years. But I need to buy groceries every day," Karpetsky, 82, said as he trudged through the snow with a shopping bag.

Prime Minister Vladimir Putin built his popularity during his time as president on a decade of economic growth fueled by high oil and commodity prices. The financial crisis poses the first test of his ability to handle leaner times.

Putin has told employers across Russia not to cut jobs "without extreme need." In Novokuznetsk, mass layoffs have so far been avoided.

The city's main employer is Evraz Group, the steel maker part-owned by billionaire Roman Abramovich. Its giant Novokuznetsk steel complex, around which the city grew in the 1930s, has cut output by 20 percent from pre-crisis levels.

Alexei Yurev, the plant's general director, said his 8,000 employees had accepted a one-third reduction in wages and most were working a four-day week. Inside the plant, sparks still fly as red-hot rails are cut to supply 70 percent of Russia's needs.

"Most importantly, in the three months we have been feeling the crisis, we have managed to retain our entire workforce," Yurev said. "We have 10,500 [retired ex-workers], substantially more than we have workers, and we also haven't cut their social programs."

But he added: "We can't be completely certain everything will remain as now."


Denis Sinyakov / Reuters
A stray dog standing outside of the Novokuznetsk Iron and Steel Works.
Residents are also more exposed to debt risk, having taken mortgages and loans to buy cars and household goods. About 2,500 employees of the Novokuznetsk steel plant had bank debts adding up to over 600 million rubles ($21 million), a trade union survey showed.

Unemployment levels in Novokuznetsk, known as Stalinsk until 1961, have remained practically unchanged at 2,500 this year. This is due to large companies choosing to cut wages and working hours rather than lay off employees, Semyonova said.

The employment center's aim, she said, was to limit the number of jobless at 1.5 percent next year compared with a traditional level of 0.7percent to 0.9 percent, among the region's lowest.

"The Russian mentality favors stability. It's better in such conditions to accept a shorter working week. When the link (with the employer) is severed, the risk of discontent grows," Semyonova said.

Small, private businesses and companies servicing the city's main employers were the first victims of the crisis. Nikolai Dantsov, a coal miner, left his job in September when the director of his private company stopped paying his wages.

"There's no need for coal," he said, shrugging as he joined the morning queues at the employment center. Managerial vacancies promise monthly salaries from 10,000 rubles, below the city average of around 18,000 rubles ($650).

This crisis is different, say local officials, to those of the 1990s. Russia is now tied more closely to the global economy and the growth of large corporations has curbed the creative, and sometimes criminal, methods used to survive a decade ago.

The city's administration, like many across the country, has set up an anti-crisis center to monitor labor practices and field calls from concerned or angry employees.

"The crisis of the 1990s was linked to our change of government. The negatives were a consequence of perestroika. Today, we are up against an economic crisis born of capitalism," said Sergei Zykov, Novokuznetsk's 52-year-old deputy mayor.

Lyudmila Morozova, deputy chairman of the Kuznetsk metal workers' trade union, said labor unrest could not be ruled out if local authorities fail to provide sufficient protection and restart programs for unemployed workers.

"People with nowhere else to go will head for the street. When it comes to protecting yourself, anything is possible," she said.

"The biggest loss is the loss of faith in what will happen tomorrow."