Labor Market Reforms in Russia

Labor Market Reforms in Russia was adopted to remove the deformity in the labor market and to stop its segmentation.

Reasons behind the labor market reform:

1. Discrimination in the wage rates of the laborers of same caliber.
2. The labor market was getting segmented.
3. Job security of the laborers was not present.
4. Dualism in the labor market, that is, different rules for the regular and contractual employees.
5. Provision for long term employment was not enough, so production couldn’t reach up to the expected target.
6. Labors had been trained for only one type of job. Therefore, when the labors were not required in that particular job, they were not in a position to switch to another job.

Reform Measures:

1. Efficiency of the workers: One of the aim of the labor market reform was to increase the efficiency of the workers which will lead to better utilization of labor force. It was clear that, to build an efficient labor market, the rate of employment has to be increased. Efficient laborers were required to attain a flexible labor market. Labor market reform measures were taken keeping in mind the fact that the labor contracts should be formed clearly and unambiguously.
2. Inequality in wages: The educated laborers were paid more than the less educated laborers and this inequality in wages was increasing. So changing the wage structure was one of the important measures of the labor market reform in Russia.
3. Firing Cost and Workers’ Turnover: One negative aspect of labor market flexibility was that, the investments in the workers’ skills declined. If the company doesn’t make a long term contract with the employees then, the estimated return from the on job training will not be possible to achieve. Therefore, if the employer fires the employee or the employee quits from the job, then the total investment on the training by the company will be in vain. So firing cost and workers’ turnover were also taken care of under the reform measures.
4. Unemployment Insurance: Through this scheme, the public sector will be able to provide more efficient workers with a benefit which compensates a fraction of wage lost due to unemployment for some time.

Effects of Labor Market Reform:

1. Labor mobility increased a lot during the first five years of reform starting from 1991.
2. The rate of employment increased by 2%.
3. The transition of the labor market in the year of 1998 – 2000 became more prominent than that of 1996 – 98.