Economic Transformation and Employment in Central Asia

Economic Transformation and
Employment in Central Asia
RECEIVED
4 OCT 1994
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Economic Transformation and
Employment in Central Asia
EDITED BY
Per Ronnas and
Orjan Sjoberg
International Labour Office •» Ankara
Copyright © International Labour Organization 1994
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ISBN 92-2-109592-4
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Printed in Turkey
Preface
The development of representative democracies and the introduction of a
market based economy in the newly independent republics of Central Asia is
inevitably a difficult process. There is a growing awareness that this process
of transformation requires appropriate policies to mitigate social hardship for
the populations concerned. The ILO has always emphasized that the social
dimension of the economic reforms should be taken fully into account. This
means that the introduction of market mechanisms has to be combined with
the establishment of effective institutions and measures for labour market
policies, labour relations and social protection.
One of the key elements to promote the development of a socially oriented
market economy is the sharing of experience among the countries in
transition and their international partners, such as the ILO.
Therefore the ILO associated itself wholeheartedly with die initiative of the
Ministry of Labour and Social Security of Turkey to convene a Conference
of Central Asian Labour Ministers in Ankara in May 1993. The Conference,
which brought together the Labour Ministers of uiese countries for the first
time since their independence, was honoured by the presence of the Acting
Prime Minister of Turkey, who made the opening statement.
The ILO provided technical assistance to the Conference and submitted
papers on labour market policies and problems of tripartism in the Central
Asian republics.
These papers, together with articles on the problems related to the
transition to market economies in Central Asia, are published in this book
with a view to disseminating the findings of die Conference to a wider public
and to draw the attention to the serious labour market problems with which
these countries are and will be confronted.
The final communiqud of the Conference calls, inter alia on the ILO to
"support effectively, with means and methods appropriate to regional and
IV
national realities, ...these countries undergoing a transition process towards
democracy and a market economy'. It is this challenge which the ILO has
endeavoured to meet on the basis of its principles and mandate and with the
aim of furthering social justice everywhere in the world.
A sincere word of thanks is due to the Minister of Labour and Social
Security of Turkey, Mr. Mehmet Mogultay, who took the initiative of
convening the Conference of Central Asian Labour Ministers.
The present publication has been produced by the Active Labour Market
Policies Branch of the ILO and is published with the assistance of the ILO
Office in Ankara.
Oscar de Vries Reilingh,
Director,
Regional Office for Europe.
1
Contents
Preface
1
2
iii
The Transition from Central Planning to the Market:
The Record, Per Ronnds and Orjan Sjoberg
De-Linking the Externally Planned Economies, Per Ronnds
and Orjan Sjoberg
1
15
3
Background Information on Population, Economic Developments, Labour Markets and Employment, Alexander Samorodov 23
4
Unemployment, Labour Market Policies and Social
Protection: A Synopsis, Alexander Samorodov et. al.
5
6
45
Problems of Establishing Tripartism, International Labour
Office
67
Labour Markets in the Central Asian Republics: Issues and
Policy Implications, Peter Duiker
77
7
A Policy Agenda, Per Ronnds and Orjan Sjoberg
8
The Road Ahead: A Comment, William Clatanoff
Appendix One:
95
105
Concluding Statement by the Ministers of
Labour of the Central Asian Republics
115
Appendix Two:
List of Participants
119
Appendix Three:
Statistical Tables
127
1
The Transition from Central Planning
to the Market: The Record
Per Ronnas and Orjan Sjoberg
Under the system of central planning employment was largely divorced
from economic performance. At the enterprise level soft budget constraints
ensured that the link was virtually non-existent as labour was allocated to
enterprises according to the priority given the type of production pursued
rather dian efficiency and economic performance. With budget constraints
for capital investments - especially in non-priority sectors - usually being
somewhat harder, many enterprises also found it expedient to substitute
labour for capital. Thus, for individual enterprises labour was a scarce
resource to be hoarded and accumulated in as large numbers as possible to
permit future growth. The same mode of thinking prevailed at the macro
level. The inefficient economy had a seemingly insatiable demand for labour
as well as for capital and other resources. Labour was primarily perceived as
a scarce resource imposing constraints on a strategy for economic growth
which, despite rhetoric to the contrary, by and large depended on mobilizing
more inputs to produce more outputs. With the shift to a market economy the
rules of the game change fundamentally as employment becomes directly
linked to economic performance at the enterprise level and, by implication,
at the aggregate national level. Experiences from East Central Europe
indicate clearly that it takes a long time before the full implications of this
fundamental change in the rules of the game dawn upon policy-makers and
planners in the countries concerned as well as on overseas expertise called in
to provide advice and guidance.
The newly independent states in Central Asia1 are in many ways today in a
2
more precarious situation than the countries in East Central Europe were
after the soft revolutions in 1989. Driven to independence by the force of
circumstances rather than through own initiative they are ill-prepared to face
the dual challenge of transformation from centrally planned economies to
market economies and from integrated parts of a larger economy to economic
sovereignty. Young and rapidly growing labour forces combined with a high
population pressure on land and a generally precarious state of agriculture
render crucial importance to the employment aspects of the overall economic
transformation processes. For policy-makers steeped in the traditions of
central planning this presents a major challenge. They have the potential
advantage of being able to draw on the considerable experience and
knowledge accumulated on the problems of transformation from centrally
planned to market economies in other countries over the past few years, but
diey can ill afford to repeat the mistakes made elsewhere.
The newly independent states in Central Asia face a twofold transition from centrally planned to market economies and from regions integrated in a
larger country to independent states - which will inevitably result in
fundamental changes in the economic and social structure of these countries.
It is yet much too early and there are far too many uncertain factors involved
for predictions on the precise nature of these changes. However, sufficient
knowledge has now been accumulated from the experiences of the economies
in East Central Europe and elsewhere, notably China and Vietnam, for
drawing some general conclusions which, when combined with more specific
information about the characteristics of die Central Asian countries, provide
a reasonable basis for identification of the main issues and problems ahead.
Among the salient features of the transition process the following deserve to
be noted as having particular relevance for employment and income
generation and policy-making in mis field.2
For a number of reasons, the transition inevitably results in a weakening of
the state. Firstly, the transition invariably erodes the state finances. This is
because old sources of incomes, primarily enterprise profits and implicit
sales taxes in the centrally determined price system, decrease abruptly before
new sources of revenues are opened up through the development of a tax
system more adapted to a market economy.3 Secondly, the administrative
capacity and capability of the state machinery is weakened by the shift from
3
direct central planning to indicative planning and the use of new and
unfamiliar tools for policy making and policy implementation in an overall
environment over which the state has largely lost control and can no longer
expect direct and predictable responses to policy measures. This problem has
an important organizational aspect. The previous system was strictly
hierarchical and top-heavy, organized along sectoral lines with a virtual
absence of horizontal links, particularly at the lower levels of the hierarchy.
The result was a situation which can perhaps best be described as sectoral
autarky. Another consequence of the top-heavy system was limited room for
manoeuvre and decision making at the lower/regional/municipal levels and
an accompanying limited capability and competence for independent action.
Thirdly, there is a severe lack of reliable information and statistics. The
problem is partly inherited from the past when a policy of secrecy prevented
the development of information channels and there often were strong
incentives to give misleading information and distort statistics. The transition
to a more market oriented economy calls for the development of an entirely
new system for collection of statistical information and also, often, for new
types of statistics. Meanwhile, policy makers and planners lack the
information base at a time when it is more needed than ever. Lastly, the
collapse of the socialist ideology and the accompanying centrally planned
economic system has inevitably had a demoralizing effect on the cadres
staffing the bureaucracy. There is an obvious danger that a feeling of
despondency and impotence may come to prevail at a time when the demands
on the state for flexibility and innovativeness have become much greater than
in the past. In the case of the newly independent states in Central Asia the
previously subservient status and lack of a full-fledged and sovereign state
apparatus can only compound me weaknesses of the state. A main conclusion
must be that institution building and enhancing the institutional capacity for
policy formulation and implementation must be accorded importance in
technical assistance.
Active labour market policies are only developed gradually and after some
delay. This has been a salient feature in all transition economies, with the
possible exception of China and Vietnam where concern about poverty
alleviation was a contributing factor to the reform process as such. The often
slow response to the emerging employment problems can readily be
4
explained as a consequence of the onslaught of a wide range of more acute
problems and the limited capability of the state to tackle these problems.
However, there are also more fundamental explanations. Under the
previous regime, development objectives were typically stated in terms of
physical output, while labour was seen as a scarce resource and a constraint
to the attainment of the production targets. In sharp contrast to the situation
in most developed and developing market economies, full, though
inefficient, utilization of the labour force was more or less taken for granted
and there is no tradition of focusing development planning on the objective
of employment and income generation. Even in a country like Hungary,
which has been comparatively exposed to the market economies in Western
Europe, the preparedness to effectively deal with the emerging employment
problems has been little.4 Furthermore, the experience from the transition
economies in East Central Europe reveal a considerable time lag before the
disruption of the economic system and decline in output is reflected in falling
levels of employment. Growth of unemployment has generally been slower
than might have been expected,5 thus luring policy-makers and planners into
a false sense of lack of urgency. Romania provides a telling example in this
respect. Despite a fall of GNP by 20 per cent and of industrial production by
40. per cent in 1990 and 1991, open unemployment was still no more than 3
per cent, though increasing by the end of 1991.6 A main reason behind the
delayed effect on employment of economic decline is that continued soft
budget constraints and lack of effective competition have made it possible for
enterprises to retain surplus labour. Work sharing, reduced work hours and
temporary layoffs are often resorted to in order to avoid outright dismissals.
In some instances there are also reasons to expect faulty statistics. While the
delayed employment effects of economic restructuring and decline may buy
policy-makers valuable time, there is a severe risk that it results in an
unwarranted sense of relief that the problem of unemployment will prove to
be less than initially anticipated. This is clearly an illusion as the lag in the
employment response to the changing economic conditions does not imply
that employment effects will somehow be avoided, but merely that the
bottom has not yet been reached and that there is still a long way to go
before the full effects are felt.
When the governments react to the emerging employment problems it has
5
initially been in the form of passive labour market policies, such as schemes
for unemployment benefits and other types of protection against loss of
income.7 This is obviously the easiest type of response, and as such may be
explained by the lack of tradition and experience in the field of employment
and labour market policies, but it is inadequate and likely to rapidly become
unsustainable for cost reasons.
Privatization has proved to be a protracted and technically difficult process.
A number of technical solutions have been tried with varying degrees of
success and the late starters have today a considerable body of knowledge to
draw upon.8 Privatization has often been portrayed as a key aspect of the
economic transition. However, although divestiture of state enterprises and
other assets is important as it ensures the institutional separation of the
economy from the polity, privatization is no guarantee for resolving the
economic woes associated with the centrally planned economic system. It is
useful to make a distinction between privatization of enterprises on the one
hand and marketization and commercialisation on the other. From the point
of view of transition to a market economy, what matters is the enforcement
of unambiguous property rights (e.g., through privatization) and the
subjecting of enterprises to the competitive pressures of markets (i.e.,
marketization). This implies basically a rupture of both the vertical links
between state enterprises and their superior ministries and horizontal links
between the enterprises and local authorities. Enterprises must be given
complete responsibility for the management of their own affairs including,
most importantly, responsibility for the economic results of its activities.
Subsidies and reliance on the state as a lender of last resort in case of
financial difficulties must be brought to a definite and unambiguous end in
order to impose hard budget constraints on the enterprises and complete
accountability through commercialization of their operations.
While the necessity of marketization of enterprises is universally
recognized, it has proved difficult to implement in practice. A major problem
is the lack of alternative suppliers and buyers and the ensuing dependence of
enterprises on each other. To illuminate this problem the economy of the
former Soviet Union has been likened to an assembly line.9 Just as closure of
one work station along the assembly line will affect all other work stations,
bankruptcy of one enterprise will disrupt production in many other
6
enterprises. The result is accumulation of inter-enterprise debts and
continued soft budget constraints. Another problem is 'technological
pluralism',10 or the considerable technological diversity usually to be found
in manufacturing plants in the formerly centrally planned economies. Under
the previous economic system new technologies were added to, but did not
replace, old ones. As a consequence technologies vary widely both within
and between enterprises, as do efficiency, labour productivity and product
quality. Under such circumstances imposition of hard budget constraints may
in many instances be tantamount to a death warrant. Additionally, acute
financial difficulties is not necessarily an indication of lack of long term
viability and closure of enterprises in the wake of imposition of hard budget
constraints may therefore result in unnecessary waste of productive
capacities. The lack of efficient markets lends further support to this
argument. In the absence of an independent and competent system for credit
appraisal judgments must necessarily remain arbitrary. Lastly, social
considerations are an important deterrent to the commercialization and
marketization of enterprises as large scale redundancies and unemployment
inevitably follows in its trail. Most enterprises suffer from considerable overstaffing and even if bankruptcies are averted, the need to increase cost
efficiency will in most instances necessitate reductions in the labour force.
Slow commercialization and marketization of enterprises is the main reason
for the relatively modest unemployment effects of the economic contraction.
However, while it provides a respite, it does not offer any long term
solution.
Another universal experience is that markets take a long time to develop, in
particular in countries that are shielded from the effects of foreign trade. In
the absence of competition the price elasticity of the supply of many goods
remains low. Lack of alternative suppliers and poor information channels
easily result in monopolistic abuses in the wake of price liberalizations. A
related problem is the difficulty to assess production costs in a situation of
extreme technological plurality. While capital and labour markets often
emerge early, often at the very instant the old economic system gives way,
they take a particularly long time to develop into full-fledged markets.
Neither can be expected to develop spontaneously, except in a highly
rudimentary form, and as both are instrumental to economic growth and
7
employment and income generation active government policies in these fields
are required.
The need for fundamental economic restructuring has, if anything, proved
to be even greater than previously expected. The past development strategy
and economic system created highly dysfunctional economic structures.
While the individual countries display different needs of economic
restructuring, these differences are largely variations around the same theme
and it is quite possible to make a number of generalizations. Firstly, all the
former socialist countries have a bias towards heavy industry in their
economic structure as a result of the emphasis under the previous
development strategy on producer goods industry as a spearhead of economic
development and modernization. Thus, they are left with a bloated heavy
industry which, as a result of the priority in terms of allocation of production
factors that it enjoyed in the past, typically also suffers from particularly
pronounced over-staffing. The emphasis on physical production and the
division of the economy into a productive and a non-productive sphere
during the socialist period resulted in an underdevelopment of most services.
Generally speaking, the share of the labour force in the industry is ten to
twenty percentage units higher than in market economies at corresponding
levels of development.''
Under the past economic system these sectoral priorities were also
reflected in the wage structure. Beyond the general practice of 'determination
of wages from the residual left by accumulation',12 tariff rates, based on skill
classification and production norms, tended to be biased in favour of not
only the 'productive sphere' (as opposed to the non-productive sectors,
including services), but also in favour of the heavy end of manufacturing. As
a consequence the supply of many services is not only under-dimensioned,
but also of poor quality. Although this state of affairs would seem to reflect
the existence of a rather substantial wage spread, it was partly off-set by two
countervailing tendencies. Firstly, for egalitarian and other ideological
reasons, attempts were made to keep money wages within a radier narrow
range (both wage drift and non-wage benefits, however, worked to the
advantage of those in priority sectors). Secondly, reclassification of skill
grades were often made, so as to enable employers to pay higher wages
should labour supply at the official rate fall short of actual demand. In rum,
8
the discretionary nature of such measures conspired with the importance of
non-wage benefits and the narrow range of cash remuneration to reduce
labour mobility. By and large it is fair to say that the wage structure
displayed considerable rigidities and that in the absence of any genuine
mechanisms for wage bargaining the links between demand and supply of
labour on the one hand and the wage structure on the other hand were poorly
developed. Remnants of these rigidities remain an important obstacle to
smoothly functioning labour markets.
The former socialist countries also display an exaggerated bias towards
large scale enterprises and a severe lack of small and medium sized economic
units.13 The emphasis on large scale enterprises was ostensibly due to a belief
in economies of scale, but is more likely to have been conditioned by the
limited capacity at the central level to monitor and plan a large number of
units. Largely as a result of very high inter-enterprise transaction costs under
the previous system, the degree of specialization at the enterprise level is
very low. Most enterprises produce a large variety of goods and services that
are often seemingly unrelated to their main line of production. Under the
centrally planned economic system, such diversification made good sense as
a means of achieving internal flexibility and lessening the dependence on
highly arbitrary supplies of outside services and goods. However, as the
economies shift towards a market economy, the lack of internal specialization
within enterprises becomes a handicap. More often than not the production
of the subsidiary or supplementary goods and services is costly and
inefficient. It detracts resources from the main line of production, prevents
economies of scale and is likely to have an overall negative effect on the
viability of the enterprises. A complicating factor in this regard is that the
degree of mechanization tends to be much higher in the main line of
production than in the auxiliary and ancillary activities.
Comprehensive restructuring of the economies will have obvious and farreaching effects on employment. Restructuring results, within a relatively
short period of time, in severe mismatches in the supply and demand
structure of labour which puts unreasonable strain on the nascent labour
markets. Increases in the overall unemployment are paralleled by severe
shortages of critical skills, which appear already at an early stage of the
transition. To give but one example, there is typically a surplus of engineers
9
and several other related professional skills, while there is be a shortage of
competence in almost all fields of economics and business administration and
in the legal professions. To make matters worse, labour mobility - both
occupational and geographical - tends to be low. The reasons are severalfold.
Some are related to an inappropriate structure of incentives and may fairly
easily be remedied, although the deterring impact of a poor supply of food
products in urban areas on rural-urban migration may prove less easy to
redress. More fundamental reasons behind low geographical mobility include
the existence of administrative restrictions facing those wanting to change
domicile, the lack of a housing market and the continued importance of an
extensive network of informal contacts, while a main reason behind the low
occupational mobility is the narrow educational profile of much of the labour
force as a consequence of past policies of favouring skill related over general
education.
The bias towards large scale enterprises has left most regions and towns
with an extremely narrow and lopsided economic base. In fact, many towns
are best characterized as 'company towns' as their economy rests on (and
falls with) one or two large enterprises. In most of the Central Asian
republics this problem is aggravated by a poorly developed urban network
and poor economic and physical infrastructure outside the main city, or
cities. The previous reliance on vertical chains of command imply that
horizontal contacts and linkages, vital to regional economic revival, need to
be developed from scratch. The regional aspects of the economic
restructuring and transition must therefore be given close attention, as the
closure of individual enterprises may have devastating effects on local
economies and non-farm employment opportunities. This is particularly
important, as democratization and decentralization of decision making have
given local authorities a totally new and much more powerful mandate.
However, the local administrative apparatuses, which in the past were mere
extended arms of the central authorities, are ill-equipped to tackle the
daunting regional development problems.
In the wake of the sweeping economic reforms, most of the formerly
socialist countries have seen a rapid increase in small scale entrepreneurship.
Because of the more lenient attitudes of their respective governments during
the years leading up to 1989, Poland and Hungary had a head start in this
10
respect, and the establishment and expansion of private businesses quickly
got under way there. 14 But even where prospective entrepreneurs were not
encouraged in this manner the private sector is flourishing and small scale
enterprises are mushrooming. Thus, two years after the revolution Romania
boasted over 300,000 new private enterprises and an Albanian organization
for entrepreneurs claims a membership of over 20,000. 15 While this is
obviously very encouraging for a variety of reasons, not least that of
employment and income generation, it should be seen as an opportunity for
active policy making and assistance rather than as an excuse for
complacency. The process of 'privatization from below' is impressive in
terms of numbers of enterprises rather than in terms of production or
employment. The vast majority of the new enterprises are extremely small
and tend to suffer from a lack of capital, know how, supply sources and
market outlets. They are heavily concentrated to certain types of services,
while the establishment of new enterprises in the manufacturing sector has
been slow. The scant statistical data available also indicate high turnover
rates.
The small scale of the enterprises implies that they generate primarily selfemployment and very little wage employment. As such they do not provide a
ready solution for absorbing the increasing ranks of unemployed. There is
nothing to suggest that unemployed industrial workers are particularly suited
for self-employment and as entrepreneurs. Indeed, a recent study of
Hungary 16 revealed that only 8 per cent of the new entrepreneurs had a
background as previously unemployed. On the contrary, empirical evidence
from other countries suggests that rather specific skills and personal
characteristics are required to become a successful entrepreneur, quite apart
from the fact that it requires access to capital, inputs, markets and so forth.17
Hence, the main challenge and potential lies in fostering the growth of the
new enterprises rather than in their multiplication. Only through growth will
they be able to assume an important role as instruments for employment and
income generation and make a contribution towards rectifying the lopsided
and unbalanced economic structure. Thus, favourable conditions for growth
of small enterprises need to be created. The Central Asian republics may here
benefit from the experiences of other countries in transition, not least China
and Vietnam, but also Poland and Hungary. A conducive political climate
11
and institutional setting, including an adequate framework of economic
legislation and efficient law enforcement, and efficient markets for capital
and labour are essential conditions.18 Experience from China strongly
suggest that fostering of linkages between the nascent small scale sector and
the established large scale enterprises may be a key factor,19 as has also been
observed with respect to, for instance, Czechoslovakia.20 This would seem to
be of particular relevance to the Central Asian republics where the incipient
disturbance of trade with the rest of the former Soviet Union has created an
urgent need for new backward and forward linkages for existing enterprises.
Provision of physical premises, technical assistance and extension services
would also seem to be highly needed.21
The severe dislocation of trade and economic contacts resulting from the
breakdown of the Soviet Union must also be taken into consideration. For
the countries in East Central Europe and Vietnam the effects were felt with
full force in 1991. Two main conclusions may be drawn from their
experiences. Firstly, that the effect on the domestic economies are likely to
be both abrupt and devastating. Thus, the sharp decline in industrial
production in Romania in the second half of 1991 by some 22 per cent can
largely be attributed to an acute energy shortage following a disruption of
deliveries from the Soviet Union.22 Similar effects were, to a varying degree,
registered in the other countries. Secondly, the recovery of the domestic
economies and compensation of trade losses through reorientation of trade
has in several of die countries been surprisingly rapid. This is. particularly
the case in Vietnam, where a complete reorientation of trade patterns has
been achieved in a very short period of time and the dislocative effects on the
economy would seem to have been overcome after only a year. Though less
dramatic, the adaptation of the countries in East Central Europe also provide
reason for cautious optimism. However, there is nothing automatic about the
recovery and any terms-of-trade losses from a shift to world market prices
are likely to become permanent. The disruption of trade may both act as a
catalyst to reform, by speeding up reform measures and forcing enterprises
out into the cold, and make it more difficult. In particular, it makes it
difficult to impose hard budget constraints on enterprises as enterprises with
sound long term development perspective may face acute difficulties due to
temporary shortages of energy or inputs or loss of markets.
12
Lastly, it may be noted that countries that have opted for swift
comprehensive reforms and adjustment have been relatively more successful
than those which have taken a more gradual and partial approach.23 The
contrasting cases of Vietnam and Poland on die one hand and Russia and
Romania on the other are persuasive illustrations of this. The strategy
adopted by Vietnam would seem to be of particular interest, as the transition
in Vietnam has been both swift and highly successful and has confuted odds
which initially seemed rather poor. However, in reality the choice is
obviously not so straight forward. The discussion above provides ample
illustration of the difficulties of achieving a rapid transition, at the same time
as external factors and the force of circumstances may necessitate
improvisations which imply a risk that strategies become reactive rather than
proactive.
Notes
1 Central Asia is here understood to comprise Kazakhstan, Kyrgyzstan, Tajikistan,
Turkmenistan and Uzbekistan.
2 This is, not the place for any exhaustive analysis of the characteristics of neither
central planning nor the transition process. This has been done elsewhere, see for
example Jinos Kornai, The Socialist System: The political economy of communism
(Princeton, NJ: Princeton University Press, 1992), and Anders Aslund, Postcommunist Economic Revolutions: How big a bang? (Washington, DC: Center for
Strategic and International Studies, 1992), respectively.
3 One of the reasons for the relative success of the efforts of fellow Soviet successor state Estonia to move to financial and monetary stability has been its ability to
simultaneously 'nationalise' and 'modernise' its system of taxation, processes that
were in fact well under way prior to the achievement of full independence; see Ardo
H. Hansson, Tranforming an Economy while Building a Nation: The case of Estonia
(Working paper, 62. Stockholm: Stockholm Institute of East European Economics,
1992), p. 6.
4 Economic Transformation and Employment in Hungary (Geneva: ILO, 1992).
5 Tito Boeri and Mark Keese, 'From labour shortage to labour shedding: Labour
markets in Central and Eastern Europe', Communist Economies and Economic
Transformation, Vol. 4, no. 3 (1992), pp. 373-394, esp. 384.
6 Buletin statistic de informare publico, 1991:12 and 1992:1; Romania Libera, 29
13
January 1992. By November 1992 the unemployment rate had increased to 9.1 per
cent (Buletin statistic de informare publico, 1992:11).
7 OECD Employment Outlook, July 1992 (Paris: OECD, 1992), pp. 258-263.
8 For a review of individual country experiences, see, e.g., Irena Grosfeld and
Paul Hare, 'Privatization in Hungary, Poland and Czechoslovakia', European
Economy, Special Edition No. 2 (1991), pp. 129-156; Morris Bornstein, 'Privatisation in Eastern Europe', Communist Economies and Economic Transformation, Vol.
4, no. 3 (1992), pp. 283-320; and E.S. Savas, 'Privatization in post-socialist
countries', Public Administration Review, Vol. 52, no. 6 (1992), pp. 573-581.
9 Axel Leijonhufvud, 'Problems of socialist transformation: Kazakhstan 1991',
paper presented at the Arne Ryde Symposium 'Transition Problems' at Rungsted
Kyst, Denmark, 11-12 June 1992.
10 Alin Teodorescu, 'The future of a failure: the Romanian economy', in Orjan
Sjoberg and Michael L. Wyzan (eds.), Economic Change in the Balkan States:
Albania, Bulgaria, Romania and Yugoslavia (London: Pinter, 1991), pp. 69-82, at p.
75.
11 OECD Employment Outlook, July 1991 (Paris: OECD, 1991), pp. 17-19.
12 Silvana Malle, Employment Planning in the Soviet Union (Basingstoke: Macmillan, 1990), p. 228.
13 OECD Employment Outlook, July 1991, p. 19.
14 Simon Johnson, 'Private business in Eastern Europe', paper prepared for the
'NBER conference on the Economic Transformation of Eastern Europe', Cambridge, MA, 26-29 February 1992.
15 Buletin statistic de informare publico, 1991:12, and Qirjako Noti, personal communication, 18 April 1992, respectively.
16 Economic Transformation, p. 33.
17 Per Ronnas, Employment Generation through Private Entrepreneurship in Vietnam (New Delhi: ILO-ARTEP/SIDA, 1992).
18 Ronnas, Employment Generation.
19 Per Ronnas and Orjan Sjoberg, 'Township enterprises: A part of the world or a
world apart?', paper prepared for the '3rd European Conference on Agricultural and
Rural Development in China', 15-18 April 1993, SchloB Rauischholzhausen, Gieflen,
Germany.
20 Gerald A. McDermott and Michal Mejstrik, 'The role of small firms in the
industrial development and transformation of Czechoslovakia', Small Business
Economics, Vol. 4, no. 3 (1992), pp. 179-200.
21 Ronnas, Employment Generation.
22 Social and Economic Standing of Romania in the Year 1991 (Bucharest:
National Commission for Statistics, 1992), pp. 6-7.
23 E.g., Aslund, Post-communist Economic Revolutions.
2
De-Linking the Externally
Planned Economies
Per Rounds and Orjan Sjoberg
The institutional and economic setting in Central Asia displays many of the
same inherited features as that of East Central Europe and the other former
constituent republics of the now defunct Soviet Union. To a considerable
extent Central Asia also shares with them die agenda for change, now diat
central planning has been given up. It is nevertheless important to recognize
the existence of dissimilar features, some of them singular to the Central
Asian republics. These unique features do not detract from the argument that
the state finds itself weakened because of the political and economic
processes unleashed by the collapse of Soviet hegemony and central
planning. Rather, the case can be made that these peculiarities weaken the
state further still, thereby eroding its capacity for making positive
contributions to reform.
Firstly, as Martha Brill Olcott has observed, '[f]ew peoples of the world
have ever been forced to become independent nations. Yet this is precisely
what happened to the five Central Asian republics after Russia, Belarus and
Ukraine - the three original signatories of the USSR's founding 1922
constitution - met in Minsk on December 8, 1991, and created a new
Commonwealth of Independent States (CIS).'1 The Central Asian republics
thus faced the choice of full independence or becoming members of the new
Commonwealth and as 'Central Asia's leaders knew that the mere act of
declaring independence would resolve few of dieir economic or political
problems',2 the latter alternative appeared to have considerable merit.
Secondly, although difficult in practice, it is useful to distinguish between
16
the effects of economic transformation and nation building.3 With no recent
history of independence, the Central Asian republics are in a quite different
position as compared to those former republics of the Soviet Union that have
the cause of re-establishing their sovereignty to rally around, the difference
being larger still as compared to the countries of East Central Europe which
never had to give up their formal independence in the first place. While the
latter group of countries can, by and large, focus their attention and efforts
on economic reform, the Central Asian republics have also to consider the
demands of nation building. These demands may, but need not, require
similar sets of policy action.
Thirdly, being an integral part of a larger political entity, Central Asia has
been strongly influenced by that entity. In particular, two characteristics
which follow from the fact that Central Asia was integrated into the centrally
planned economy of the Soviet Union deserve to be singled out. Firstly,
central planning authority vested with the all-union Gosplan effectively
removed a sizable portion of economic activities in the region from the
control of republican and local authorities in Central Asia. Secondly, and as
a corollary, central planning made it possible to impose on Central Asia a
measure of regional specialization without therefore necessarily taking
comparative advantage into account.4 Combined these two strands worked to
turn the Central Asian republics into suppliers of raw materials (fossil fuels,
minerals and cash crops), with little domestic processing, premature resource
depletion and environmental degradation as major consequences. In
particular, in agriculture regional specialization implied a substitution of cash
crop mono-culture (cotton) for diversification and food production, diereby
increasing the dependence on food imports.
It has been argued that the above described situation amounted to no less
than an outright colonial pattern,5 and that the Central Asian republics are
now entering a phase of 'decolonialization'. While suggestive, this
characterization conceals a number of peculiarities, such as the role of
transfers from the all-union budget in favour of Central Asian republics.
Above all, and despite the removal of direct control from a geographically
distant centre, it conceals the fact that the transition from central planning to
a market economy, a process which runs in parallel to the de-linking of the
'externally planned' economy, erodes the capacity of the state to act
17
autonomously. Central Asia and the other former republics of the Soviet
Union are in a more precarious position than the former centrally planned
economies of East Central and South Eastern Europe, as the latter have
entered the process of economic transition with full-fledged (though often
inadequate) state administrations in place. 6 Taken as a whole, the above
features constitute an important backdrop to the transition as such and are
therefore worth looking into in greater detail.
The high degree of integration of the Central Asian countries with the rest
of the former Soviet Union and their extreme trade dependence on Russia
and the other CIS member states renders paramount importance to the issue
of dislocation of trade and economic contacts. The extremely serious effects
of trade dislocations are further underscored by the poorly diversified
vertical linkages and die high dependence of enterprises on a small number of
suppliers and buyers. To pursue the parallel widi the assembly line,7 it is as
though the line would be cut off between the various work stations.
Although it is beyond the scope of the present study to examine in depth
the consequences of the dislocation of trade within the former Soviet Union,
it is clearly a factor of utmost importance to the development of the
economies in Central Asia. It must therefore be a major consideration in
policy making. At first glance the more pronounced integration into, and
hence dependence on, the all-union economy and the limited capacity to
compensate for any negative effects of such a disruption of trade would seem
to put Central Asia in a much worse position than the former East and
Central Europe Comecon members were.
A closer examination of the effects of the adjustment of the terms of trade
of individual CIS member states shows a rather mixed pattern. Preliminary
calculations made by the World Bank suggest that energy exporters among
the republics of tiie former Soviet Union stand to gain from the introduction
of world market prices; in Central Asia, this includes Turkmenistan and
Kazakhstan.8 Exporters of other raw materials such as precious metals and
minerals may also be expected to gain, although to a lesser extent.
Furthermore, republics running deficits in their trade with other republics
(such as Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan), may find that
the loss of inter-republic transfers is more of a shock to their economies than
the adjustment of their terms of trade. Nevertheless, in countries dependent
18
on imports of fossil fuels, the impact of these changes will be most severely
felt in energy intensive industries, and governments may therefore find a
need to identify means whereby the impact can be reduced in die short term.
In the medium and long term, however, there is no viable option but to
realign die operations of those enterprises severely hit by the adjustment in
die terms of trade.
However, this worst case scenario has not yet materialized. Two
circumstances appear to explain why this is the case. Firstly, the
reorientation has not been as swift as was the case with intra-Comecon trade.
Indeed, Central Asian leaders have been careful not to immediately severe
economic ties with the fellow members of the CIS, the reason being the acute
awareness of Central Asian economic vulnerability.9 Secondly, the trade
pattern between Russia and Central Asia is dissimilar to the intra-Comecon
trade in as much as it is not one of Russia exporting unprocessed raw
materials, and receiving manufactured goods in return. Russian-Central
Asian trade comprises flows of raw materials from Central Asia and with
manufactured goods being exported from the centre. This might in die past
have reduced any positive impact of receiving subsidized Russian fuels and
ores, but makes local industry less exposed today. Furthermore, it implies
that gains are to be made, should the Central Asian republics find buyers
willing to pay world market prices rather than the low procurement prices
obtained in intra-Soviet trade.
The fact that the policy of regional specialization pursued in the former
Soviet Union has left the Central Asian countries extremely trade dependent
and with lopsided economic structures implies that, irrespective of the
political philosophy of the future governments in Central Asia,
diversification of the economic structure and increased self-sufficiency will
inevitably be a main objective of the economic strategy. Economic
diversification and a higher degree of processing of domestic raw materials
will also provide the main context and area for future entrepreneurial
development and employment and income generation. A tentative conclusion
would therefore be that in die long term the de-linking from the economy of
the former Soviet Union may well be advantageous from die point of view of
employment generation. However, a rapid and uncontrolled disruption of
diis link would more likely than not wreck havoc on these economies and
19
result in mass unemployment and economic misery.
All told, a swift reorientation of trade away from the CIS countries, as
witnessed for instance in Estonia and Latvia, seems unlikely. Unlike these
Baltic countries, the Central Asian republics are distant from the main world
markets and lack natural alternative trading partners, at least in the short run.
The geographical layout of existing physical infrastructure will also continue
to favour trade relations with CIS members for the foreseeable future. In
particular, railways and pipelines are predominantly oriented towards Russia,
and it will be some time before alternative routes are opened up. Therefore, a
geographical restructuring of trade patterns is likely to be gradual and the
Central Asian countries will no doubt remain heavily dependent on trade
with Russia and other CIS members for some time. The low level of
complementarity between the Central Asian republics (except for fossil fuels)
will continue to reduce the scope for intra-regional trade. By implication,
economic recovery will be heavily dependent on the fortunes Russia and its
economy. The only thing which might distort this picture would be increases
in exports of energy and other raw materials. A caveat therefore needs to be
introduced for Kazakhstan and Turkmenistan.
On a more positive note, it should also be clearly recognized that
independence has given the Central Asian republics much more power than
they had in the past to shape their own destinies. The governments now have
in their hands a whole gamut of policy instruments, which were previously
denied them. Most important of these are no doubt the possibility to pursue
independent macro-economic policies. Macro-economic stability provides an
indispensable base for successful economic reforms. With the introduction of
national currencies and establishment of national financial and other
economic institutions the individual governments have in dieir power to
pursue policies for achieving such stability. Through a combination of fiscal
and monetary policy the governments can influence the relative prices of
capital and labour and bring them better in tune with relative factor
endowment in each individual republic. In view of the long tradition of
extremely capital intensive development policies this is not a trivial issue.
Combined with skillful trade and exchange rate policies a sound macroeconomic base for employment-based development can be created. From the
point of view of both short and long term employment and income
20
generation, the possibility to pursue independent policies in the fields of
education, training, regional and industrial development is also of
inestimable potential value.
There are also strong reasons to believe that the possibilities for
undertaking forceful and successful economic and institutional reforms are
enhanced, making the transition towards a market economy a somewhat more
manageable task. Firstly, the relatively greater homogeneity of the individual
republics, as compared to the former Soviet Union, makes it possible to
tailor make policies to fit the particular circumstances in the individual
republics. Secondly, the creation of the necessary institutional framework for
a market economy is likely to be more easily achieved on the small level of
an individual republic than on a larger level. Thirdly, it may be argued that
the gains from independence in terms of socio-economic and cultural
homogeneity and proximity between policy-makers and 'grassroots' may
make consensus-building easier and facilitate the task of creating the
necessary popular support for the reform policies.
By way of summing up, it may thus be argued that the 'de-linking of the
externally planned economies' and independence has created vastly improved
possibilities as well as challenges for effective policy-making at the national
level. In its turn, assisting the individual governments in the region to live
up to this task presents a challenge to international organizations, such as the
International Labour Organization, that are committed to assisting the
Central Asian republics in various fields.
Notes
1 Martha Brill Olcott, 'Central Asia's catapult to independence', Foreign Affairs,
Vol. 71, no. 3 (1992/93), pp. 108-130, quotation from p. 108.
2 Ibid., p. 114.
3 As convincingly argued by Ardo Hansson, Transforming an Economy while
Building a Nation: The case of Estonia (Working Paper, 62. Stockholm: Stockholm
21
Institute of East European Economics, 1992), p. 13.
4 Basing himself on oblast level per capita investment data for the period 19561985, Ronald D. Liebowitz, 'Soviet geographical imbalances and Soviet Central
Asia', in Robert Lewis (ed.), Geographic Perspectives on Soviet Central Asia
(London: Routledge, 1992), pp. 101-131, at p. 116, concludes that 'it appears as if
Soviet investment practice has been geared more toward developing the economic
capacity of Central Asia to meet the needs of the national economy than with
developing and equalizing the productive capacities and socioeconomic conditions of
the southern tier.'
5 E.g., Martin C. Spechler, 'Regional development in the USSR, 1958-78', in
Soviet Economy in a Time of Change: A compendium of papers submitted to the Joint
Economic Committee of the Congress of the United States, Vol. 1 (Washington, DC:
US Government Printing Office, 1979), pp. 141-163, labelling the phenomenon 'welfare colonialism' (p. 145); Michael Rywkin, Moscow's Muslim Challenge: Soviet
Central Asia (Armonk, NY: M.E. Sharpe, 1990, rev. ed.), speaking of, for instance,
'colonial conquest' (p. 18) and approvingly quoting Spechler (p. 56); Leslie Dienes,
Soviet Asia: Economic development and national policy choices (Boulder, CO: Westview, 1987), p. 6, who contends that Central Asia is a '"plantation economy" in its
relationship to the metropolis [i.e., Moscow]'; and Liebowitz, 'Soviet geographical
imbalances', pp. 119-122, who adopts the term 'internal colonialism' originally
coined by Michael Hechter, Internal Colonialism: The Celtic Fringe in British
national development (London: Routledge & Kegan Paul, 1975).
6 For useful distinctions in this regard, see Hansson, Transforming an Economy.
7 Chapter 1.
8 David G. Tarr, How Moving to World Prices Affects the Terms of Trade in 15
Countries of the Former Soviet Union. (Policy Research Working Papers, WPS 1074.
Washington, DC: Country Economics Department, The World Bank, 1993).
9 Olcott, 'Central Asia's catapult', pp. 115-118.
3
Background Information on
Population, Economic Developments,
Labour Markets and Employment
Alexander Samorodov
This chapter does not contain any in-depth analysis of the population and
economic issues of the employment situation in the Central Asian republics.
Rather it is a summary of relevant information and stylized facts. Within
each section the significant points and key issues are highlighted. It was
produced to serve as a source of background information for the participants
in the meeting of Labour Ministries of the Central Asian republics in
Ankara, 29-30 May, 1993, coming from other parts of the world. For the
Ministers themselves, as well as for their staff, it was designed to serve as a
source of information on countries other man their own.
The Setting
The Central Asian republics, comprising Kazakhstan, Kyrgyzstan,
Tajikistan, Turkmenistan and Uzbekistan, cover an area of more than 3.9
million square kilometres and constitute an important part of Eurasia,
bordering Russia, China, Afghanistan and Iran. They are all landlocked,
although two of them - Turkmenistan and Uzbekistan ~ have access to the
inland Caspian Sea. The ethnic composition of the region as a whole as well
24
as of the constituent republics is highly heterogeneous. By most criteria the
Central Asian republics can be ranked as developing countries. The region is
richly endowed with mineral resources, in particular hydrocarbon, but these
resources are not evenly spread. Deserts and arid regions make up a large
part of the territory of me Central Asian republics and agriculture and food
production is severely constrained by the availability and quality of water.
Many parts of the region face acute ecological problems. The transition to a
market-oriented economy poses a great challenge and a difficult task, not
least because the Central Asian republics for many decades were integral
parts of the centrally planned economy of the former Soviet Union.
Kazakhstan. With a total area of 2,717,300 square kilometers and a
population of 16.9 million people, Kazakhstan ranks among the largest
republics of the former Soviet Union. It comprises 12 per cent of the total
land area of the former Soviet Union and 35 per cent of its arable land. The
capital is Alma Ata. The natural resources include oil, bauxite, coal, gold,
iron ore and natural gas. The country has experienced rapid urbanization and
a consequent growth of the urban population since the 1950s. The ethnic
composition of the population of Kazakhstan is complex, with more man 100
ethnic groups. The two largest are Kazakhs and Russians. The share of the
Kazakhs in the total population has grown constantly in the past few decades
and is currently receiving a further impetus as ethnic Kazakhs have started to
return from China and Mongolia, where more man a million Kazakhs have
been living.
Kyrgyzstan has a total area of 198,500 square kilometres and a population
of 4.4 million. The capital in Bishkek. The country is mountainous and many
parts of it are not amenable to cultivation. Livestock breeding and wool
production dominate the economy, although industry, such as engineering
and modern electronics, has also been developed. The country has very close
economic links wiui Russia. Birth rates are somewhat lower man in most of
the other Central Asian republics, but still ramer high, not least among the
ethnic Kyrghyzians. Approximately half of the population in Kyrgyzstan are
ethnic Kyrghyzians, a quarter are Russians and some 12 per cent are Uzbeks.
Tajikistan is the smallest of the Central Asian republics with a total area of
143,100 square kilometres and a population of 5.4 million. The capital is
25
Dushanbe. Agriculture has been diversified to include, in particular,
production of jute, silk and cotton. However, the country is dependent on
basic food imports and the prospects for sustainable development seem rather
poor at present. Some 80 per cent of the population are Tajiks, followed by
Uzbeks and Russians. Birth rates are very high. In 1979 about half of the
families in Tajikistan consisted of six members or more. Urbanization has led
to an increase in the number of cities and towns from seven in 1939 to 18 in
1983 and industrialization has resulted in the emergence of industrial workers
and employees. Yet, Tajikistan remains the least urbanized of all the
republics of the former Soviet Union. For climatic reasons the population has
historically settled in oases and in valleys and is therefore very unevenly
spread across the country.
Turkmenistan is the second largest, but least populated, of the Central
Asian republics, with a total area of 488,100 square kilometres and a
population of a mere 3.7 million. The very low population density is due to
natural conditions. Deserts make up much of the country. The capital is
Ashkhabad. The rest of the urban network is primarily made up of small
towns located near deposits of mineral wealth and along die main arteries of
transportation. The country is a large exporter of natural gas and oil. The
bulk of the population is made up by Turkmens and more than 90 per cent of
all the Turkmens in the former Soviet Union live in Turkmenistan.
Uzbekistan is the most populous of the Central Asian republics, widi a total
population of 21 million and an area of 447,400 square kilometres. This
gives Uzbekistan the highest population density among the Central Asian
republics, with roughly 40 inhabitants per square kilometre. Arable land
makes up no more than nine per cent of the total area of the country, and is
largely devoted to cotton production. Hence, the country depends on food
imports. The majority of the population are Uzbeks. Russians constitute the
largest ethnic minority, accounting for approximately ten per cent of the total
population. The share of Uzbeks in the total population is growing as a result
of high birth rates.
The Central Asian republics cover an area of more than 3.9 million
square kilometres.
26
The Central Asian republics are all land-locked.
The population is ethnically and culturally mixed.
The natural resources are very unevenly spread.
Large parts of the region is made up of deserts.
The Population
The Central Asian republics are home to some 55 million people. The
largest ethnic groups in the region as a whole are Uzbeks, Russians and
Kazakhs. Despite considerable urbanization since the 1950s, the majority of
the people in Central Asia still live in rural areas. Kazakhstan is the only
Central Asian Republic with more than half of the population in urban areas.
Population growth rates are high, both relative to the other republics of the
former Soviet Union and in absolute terms. As a result of the high growrn
rates the population of the region doubled between 1959 and 1989 and, given
current trends and the lack of family planning programmes, is forecast to
double again by the year 2025. Kyrgyzstan, Tajikistan, Turkmenistan and
Uzbekistan registered the highest population growth rates of all the republics
in the former Soviet Union during the decade between the 1979 and 1989
population censuses. The figure for Kazakhstan was considerably lower, but
still above the average for the union. However, the population growth rates
have declined considerably since the 1950s; from 3.1 to 0.6 in Kazakhstan,
from 3.3 to 1.3 in Kyrgyzstan and from 3.5 to 1.9 in Uzbekistan.1 The
decline in the past few years has primarily been due to net migration losses,
although natural population growth rates have also fallen. Natural growth is
sole main factor behind die population increase as international migration
(including migration to other CIS republics) is now negative. Life expectancy
ranges from 68.8 years (Kazakhstan and Kyrgyzstan) to 69.6 years
(Tajikistan), which corresponds roughly to the average of the former Soviet
27
Union as a whole. The life expectancy for women is on average six to seven
years longer than for men.
Due to the high birth rates, the share of youths in the population is high.
The percentage of the population below working age ranges from 33 per cent
in Kazakhstan to no less than 45 per cent in Tajikistan.2 By comparison, less
than a quarter of the population in Russia is below working age. As a
consequence, the labour markets in the Central Asian republics are under
constant demographic pressure. However, with approximately half of the
population in working age and high participation rates of the working age
population (viz. 86.7 per cent in Turkmenistan and 87.5 per cent in
Uzbekistan), the dependency ratios are still quite favourable. The proportion
of the population above working age is quite small; ranging from 7.5 to 11.3
per cent as against 18.7 per cent in Russia.
A total population of 55 million.
High rates of population growth in four of the republics (Kyrgyzstan,
Tajikistan, Turkmenistan and Uzbekistan) and moderate population
growth in Kazakhstan.
A large proportion of youth in the population.
Life expectancy under 70 years.
Participation rates of the working age population about 86 to 87 per
cent.
Less than half the population in urban, except in Kazakhstan.
No family planning programmes.
28
Population Migration
The pattern of inter-republican migration has changed in the past decade. In
the 1960s and 1970s the Central Asian republics attracted large numbers of
immigrants from the other Soviet republics. These were primarily highly
qualified workers, who were sent by the Soviet Government to help in the
industrialization of the Central Asian republics. In die late the 1970s and
early 1980s the migration pattern reversed and ethnic Slav workers started to
leave the Central Asian republics. All in all, the Central Asian republics
registered a net out migration of some 850,000 people between 1979 and
1989.
Migration to other republics among the native population of Central Asia
has been very limited. Their spatial mobility tends to be low, something
which is often ascribed to their devotion to the native land. The rather small
number of workers who might nevertheless be prepared migrate to work
abroad would probably orient themselves towards the affluent Arab countries
rather than to Europe. In one republic — Kyrgyzstan ~ the Government is
actively encouraging young workers to go abroad for training and work.
Net out-migration from the region, and intensified internal mobility and
migration from rural to urban areas.
Skilled workers leaving the Central Asian republics.
Economic Development
The Central Asian republics have undergone a transition from
predominantly agrarian to relatively industrialized nations. However, in line
with the industrial development patterns in the rest of the former Soviet
Union, the emphasis has been on heavy industry and industrial engineering
rather than on light and consumer industry. The services sectors are also
underdeveloped. Since all the Central Asian republics were part of the Soviet
29
Union until late 1991, the dependence on links with die odier republics of
die former Soviet Union is great. The importance of these links are further
emphasized by die geographical position of the Central Asian republics and
the legacies from die command economy, where all enterprises in industry
and agriculture were part of a unified centrally planned economic system.
Under this system the inter-dependence of enterprises — which today often
are located in different republics — was very high as there were few
alternative sources of supplies or outlets for outputs. This dependence on the
other republics of the former USSR are now gradually being overcome.
Prior to embarking on the transition to a market-oriented economy, the
Central Asian republics registered a stable growth in national income, even if
negative per capita growdi rates were sometimes recorded. Still, the Central
Asian republics had die lowest per capita GNP and productivity levels in the
USSR. In agriculture they specialized on cotton production and grain
cultivation. All of the Central Asia republics, except Kazakhstan, depended
of food imports. Following the proclamation of independence, the Central
Asian republics have tried to lessen their dependence on cotton production in
order to improve the food supply.
The transition to a market-oriented economic system and the near
breakdown of inter-republican economic linkages have resulted in falls in the
GNP and in industrial output in the Central Asian republics. Between
January to August 1991 and the same period in 1992 the GNP fell by 20.3
per cent in Kazakhstan, 20.5 per cent in Uzbekistan and 25.2 per cent in
Kyrgyzstan. The smallest fall in GNP, 10.5 per cent, was registered in
Turkmenistan. In most of the republics output fell in both industry and
agriculture. Only Kazakhstan recorded an increase in agricultural output.
Inflation started to develop rapidly after the liberalization of prices and
although industrial enterprises in 1992 reported a nominal growth of profits,
this did not improve their financial situation, since it was counter-weighted
by inflationary factors such as higher costs of supplies, higher wages and
additional expenditure on social security. For instance, wholesale prices of
industrial output in Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan
increased by 3.7 to 4.1 times. Enterprises began experiencing difficulties in
settling debts. As a consequence, inter-enterprise arrears accumulated
quickly, reaching billions of rubles. Under these conditions barter trade
30
started to proliferate, being considered a more reliable mode of transaction
than settling accounts through banks.
Most of the Central Asian republics have a negative trade balance with the
rest of the former Soviet Union, notably with Russia on whom they depend
for much of their supplies. It is expected that the eventual construction of die
new Transasian railway will help to change die pattern of external trade of
the Central Asian republics and encourage trade with neighbouring countries,
e.g. China, Iran, Iraq, as well as with Turkey. Pan-Asian integration trends
were recently manifested as the Central Asian republics joined the Islamic
Regional Union, founded by Iran, Pakistan and Turkey.
The Soviet Union was a closed economy. Following its disintegration, the
individual republics have become open economies since trade between the
republics is now considered external trade. As a result, these new republics
are in fact more actively engaging in foreign trade than, for example, the
countries of the European Union. Another aspect of the externalization of
previously internal trade is a shift to world market prices in the trade
between the republics. It has been estimated that the shift to world market
prices is beneficial to Turkmenistan, while all the other Central Asian
republics will suffer deteriorating terms of trade and an 'oil price shock'.
Privatization is an integral part of the transition process. In the Central
Asian republics it began in the services sectors. More recently, privatization
of housing and of factories has also started. It is hoped that a privatization of
the housing stock will make die work force more mobile, since workers will
be able to change residence more easily when moving to new jobs. However,
caution is exercised in the privatization of land, since arable land has always
been scarce in the region. Nevertheless, land is being distributed to farmers
free of charge.
A fall in GNP in 1992 of approximately 20 per cent.
Greater dependence on mutual trade within the CIS areas.
An 'oil shock' if energy prices reach world levels.
Dependency on food imports.
31
Developments in thefieldof regional integration.
The Employment Situation
Despite the economic slump and the fall in GNP in the Central Asian
republics, employment remained stable in 1991, largely due to the policy of
state enterprises to protect the work force and maintain employment levels.
Total employment remained virtually constant or even registered a slight
increase in 1991. Only in 1992 did unemployment start to increase notably.
It should be recalled that, historically, employment generation has always
been one of the main problems in the Central Asian republics because of the
strong supply pressure on die labour market due to demographic factors. A
distinct feature of the employment situation is the high proportion of workers
in agriculture. For example, no less than 42 per cent of the wage labour
force in Tajikistan is employed in this field. Similarly high percentages are
registered Turkmenistan and Uzbekistan (41 and 38 respectively in 1987).3
Among the Central Asian republics only Kazakhstan has a larger share of the
labour force in industry dian in agriculture. The share of the indigenous
population in the work force varies considerably from one republic to
another, e.g. from 33 per cent in Kazakhstan to 61 per cent in Uzbekistan.4
Indigenous workers predominate entirely in agriculture, whereas many
European workers are still employed in industry. For instance, Kazakhs
make up a mere 21 per cent of the industrial work force in Kazakhstan. Apart
from agriculture, indigenous workers are also well represented in
administration, education and in the Arts. However, the share of indigenous
workers in the industrial sector will undoubtedly and without exception
increase in the coming years.
Until recently the wage labour force in all the Central Asian republics were
almost entirely employed in the state sector, as there was no other sector
represented. As the transition towards a market-oriented economy gain pace,
32
employment in production and services cooperatives and in the private
sector, as well as self-employment, is becoming increasingly important.
Enterprises operated on the basis of leases and joint stock companies are
gaining ground at the expense of the state sector. It is estimated that up to 20
per cent of the wage labour force is now employed outside the state sector.
The employment issues in the rural areas deserve special attention, since
the rural population has doubled in the past 30 years, which has caused
serious employment problems. As a result of the young population structure
in rural areas, the share of the population not yet in the active age groups is
very high in die rural areas, while no more than half of the population are in
the active age groups. Hence, the rural labour markets will be under severe
supply pressure in the years to come.
The sharp falls in GNP have not resulted in commensurate increases in
unemployment.
Employment in the state sector is shrinking.
Employment problems are especially acute in the rural areas.
Almost half of the employed are in agriculture.
In 1992 open unemployment emerged and has since accelerated.
Unemployment
In recent years the labour force has grown much faster than the population
as a whole in the Central Asian republics. Employment creation has lagged
behind demand, despite continued 'soft budget constraints' and the associated
hoarding of labour. Furthermore, as the financial support from Moscow
ceased, the possibilities for economic development and employment creation
diminished further. Falling output and the worsening ecological situation in
33
rural areas, as a result of over-irrigation and excessive water intake from the
few available rivers, will no doubt hamper rural economic development and
employment creation. The situation looks even gloomier when one takes into
account the negative aspects of a doubling of the population early next
century. This will inevitably lead to both open and hidden unemployment.
Although unemployment has always existed in the Central Asian republics
it was not admitted officially until the National Employment Acts, which
recognized unemployment as a legitimate activity, were adopted in 1990 and
1991. By definition, workers who have lost their jobs for reasons beyond
their control, are available for work, have registered themselves with the
employment service, but have not been offered suitable work by this service,
are considered to be unemployed. However, empirical evidence shows that
only a small portion of the workers apply to the employment service when
they become unemployed (about 18-26 per cent in the case of Kazakhstan).
Therefore, the data on unemployment supplied by the employment services,
which typically are the only source of such information, cannot be
considered as fully reliable.
At the present, the rise of unemployment in the Central Asian republics is a
result of several factors. Most important of these would seem to be the
disruption of the commercial ties between enterprises in the republics of the
former Soviet Union. Other factors affecting the unemployment are die pace
of privatization and introduction of real market conditions, the environmental
degradation and the efficiency with which labour authorities in the countries
adjust to the situation by taking corrective and preventive measures and by
providing assistance to redundant workers to reintegrate them back into
work. On the even of the transition, unemployment in the Central Asian
republics could be estimated at 2.3 to 3.2 per cent, if unemployment is
measured in terms of workers interviewed by the employment services.
According to the statistics from the employment services mere were in
1991, alongside rising unemployment, still a large number of vacancies in
the Central Asian republics. However, while vacancies were primarily in
blue collar occupations, for heavy manual jobs amongst others, those laid
were mainly white collar workers. In Kyrgyzstan, 82 per cent of the
vacancies were for lowly paid manual jobs, whereas the job seekers were
often people with high education and mostly women. Thus, mismatches
34
between supply and demand made it difficult to fill vacant positions. Still,
the availability of vacancies helped to ease the unemployment problem
during the initial period of recession and transition.
Youths are disproportionately represented among the unemployed. For
instance, in some areas of Kazakhstan, they make up 50 to 70 per cent of the
unemployed. In other regions of Kazakhstan the share of persons with higher
education among the unemployed is as high as 90 per cent. Occasionally,
high rates of unemployment develop in pockets. Particularly affected are
small towns were the economy is dominated by one or two enterprises and
were there are few alternative sources of employment. Cities and towns
dependent defense industries are cases in point.
Unemployment started to develop rapidly in 1992. For example, in
Kyrgyzstan in grew eleven-fold from January to November 1992, albeit from
a very small base. In Kazakhstan it grew five-fold during the first five
months of 1992. However, the official figures on unemployment are
somewhat misleading since in 1992 the countries had not yet switched to
international standards of reporting on unemployment. Thus, the data need to
be closely examined to ensure that they do not include women on maternity
leave or at home bringing up children and workers on short time working or
on enforced breaks or holidays. Officially, the employment rate in
Kyrgyzstan was a meagre 0.07 per cent of the labour force in November
1992, whereas the number of 'redundant' workers at the same time stood at 5
per cent of the population. According to official data supplied by the
Minstries of Labour in the region, unemployment was even estimated to be
as high as 8.3 if figures on 'hidden' unemployment were included.
The avalanche of work stoppages in enterprises due to interruptions and
broken supply lines intensified in the autumn of 1992. For example, by
September 1992 some 920 enterprises in Kyrgyzstan had announced plans to
cut the work force. Forecasts for 1993 have suggested an increase in
unemployment to 110,000 or more, depending on the scenario of economic
development.
It deserves to be reiterated that in 1992 the main culprit behind
unemployment was still the disruption of the economic links between
enterprises, which also explains why enterprises endeavoured to keep their
workers, albeit on a shorter working week or on leave widi partial or no pay,
35
in expectation of an easing of this problem. For instance, in Kazakhstan in
the summer of 1992, some 130 enterprises temporarily closed down, causing
some 10,000 to be sent on leave without pay, while an additional 3,000
enterprises operated at less than full capacity. A decision by the Central
Asian republics to establish a common market for goods to foster a
replacement of the trade ties with Russia by trade among themselves might
be considered a wise step in combating this specific type of unemployment.
The development of unemployment has also resulted in the appearance of a
'gray' or illegal labour market, in which redundant workers are hired on a
daily basis. Such workers are most frequently employed in private housing
construction and are paid in cash and provided with free meals. Usually,
private employers pick up workers at the doorstep of the labour exchanges
and take them for work on a daily basis. The labour authorities estimate that
as much as 10 per cent of the unemployed workers participate in such
'shadow' schemes.
Poverty has recently started to proliferate in the Central Asian republics, as
a phenomenon closely related to unemployment. The unemployment situation
is especially difficult in the rural areas due to rural overpopulation and high
rates of labour supply. Low territorial mobility of the rural population
worsens the problem. The authorities in the agricultural settlements are
facing the dilemma of either sharing the work around with low productivity
as a result or providing productive employment to some at the cost of high
levels of open unemployment.
There are large numbers of women, youths and highly educated among
the unemployed.
So far, the disruption of the economic links between enterprises has
been the main reason behind the rising unemployment.
There are structural mismatches between the supply and demand for
labour.
A further deterioration in the labour markets may be expected as a
result of the economic reforms.
36
Social Safety Nets for Redundant Workers
According to the labour regulations in most of the Central Asia Republics,
workers must be given two months advance notice in case they are laid off
and are entitled to a severance payment amounting to three months' wages by
the releasing enterprise. When recognized unemployed, workers are paid
unemployment benefits for a period of six months, usually at a replacement
rate of 50 per cent, which is adjusted for the number of dependents.
However, in some cases unemployment benefits are at the subsistence level,
or even below.
So far, a large proportion of the workers have found new jobs in the course
of the first months of redundancy. Only a very small fraction of the workers
have remained unemployed for more than six months.
If a worker rejects two (in certain cases one) offer of a suitable job, he or
she becomes disqualified for unemployment benefits, or the level of the
benefit is reduced by 50 per cent. Retraining, with a stipend hot lower than
the minimum wage, may be offered to those for whom no suitable job can be
found by the employment service.
The Employment Funds or the Funds for Employment Promotion, which
are responsible for dispersing the unemployment benefits and for financing
retraining, became operational in 1991. These funds are primarily funded
through a percentage fee on the wage bills of enterprises, which so far has
not exceeded three per cent, as well as through grants and via the budget of
the local authorities.
37
Special Groups of Workers
Women
Altogether 51 per cent of the population in the Central Asian republics are
women. However, the share of women in the labour force is lower than in
the former Soviet Union as a whole; averaging 38 to 49 per cent as against
51 per cent. The comparatively lower participation rate of women in the
labour force is due to several factors, including: a high rate of child care due
to high birth rates and long periods spent on maternity leave; tradition, not
least in rural areas; and inadequate employment opportunities, which in
particular affect women. Although lower than in the other CIS republics, the
share of women in the work force has increased considerably since the
1950s. However, the transition induced unemployment has particularly
affected women, who on average make up 70 per cent of the unemployed.
The problems of women have several aspects. The first consists of those
related to their family role, in particular as mothers of, more often than not,
many children. In the Central Asian republics maternity is regarded as a
social function. Women are protected by the provisions of the ILO
Convention No. 103, concerning maternity leave protection.
The second aspect concerns specificities of the utilization of female labour.
The lack of economic growth reduces the possibilities to absorb women into
employment. The time has probably come for positive action ,in favour of
women, on top and above the measures mentioned above, because of their
marginalization in the labour market during the transition period. Women are
now the last to be hired and the first to be fired.
With regard to entrepreneurship development among women, the success
stories so far are exceptions rather than a rule. Furthermore, the future
development of the female employment situation in Central Asia will be
affected by the type of society which will finally be installed in these newly
independent countries; in particular if they will be secular or Muslim states,
since the Muslim faith is currently witnessing a rebirth in Central Asia.
There is a high proportion of women in the workforce and in training.
38
Women are becoming marginalized as a result of the transition to a
market-oriented economy.
There is a need for positive discrimination in favour of women.
Youth
A specific feature of the Central Asian republics is the large supply of
young workers in the labour market. Difficulties in finding jobs for the
young and in providing initial training force considerable numbers of young
people onto the open labour market. It is becoming increasingly difficult for
school leavers to find employment. While in 1988 a mere 20 youths per
10,000 in the USSR were neither studying nor working, these proportions
were 160 per 10,000 in Turkmenistan and 190 per 10,000 in Tajikistan.
Presently, the level of unemployment among the young is growing, both
relatively and absolutely, as a consequence of the transition to a marketoriented economy and the recession. In certain regions of Kazakhstan the
proportion of youths in the total number of unemployed totals 61 to 69 per
cent. In Tajikistan, the age group 18 to 24 accounts for a third of the
unemployment, while the age group 25 to 29 make up 20 per cent of the
unemployed.
Youths graduating from secondary vocational schools oriented towards
agricultural technologies have special difficulties in finding employment. In
some republics, such as Uzbekistan, cotton provides at present work for
some 30 per cent of the rural population. Consequently, employment
opportunities for rural youths depend to a great extend on cotton production
rather than on its processing, which was planned to take place elsewhere in
the USSR.
At the same time there are also problems with finding jobs in industry in
urban areas. Only ten per cent of the young entrants into the labour market
obtain jobs in the industrial sector. In Uzbekistan only 68 per cent of the new
entrants to the labour market are provided with either employment or
training. For the urban areas this proportion is 86 per cent and for rural areas
47 per cent.
39
However, in spite of the growth of unemployment, some advanced
industries in the Central Asian republics continue to experience a shortage of
labour widi specialized skills. This underlines the importance of appropriate
training. A partial solution to the youth employment problem in Central Asia
might be to extend the years in formal education and training, thus delaying
uieir entrance into the labour market.
The young are also marginalized in the transition process.
School leavers in search of theirfirstjob face special difficulties.
Jobs in agricultural depend largely on cotton production.
There is a need to enhance training of the young in skills required by
the market.
Labour Market Policies
The Institutional and Legislative Framework
As part of the economic reform programmes and in view of the imminence
of unemployment the Governments of the Central Asian republics have
enacted special legislation conducive to the creation of labour markets in
recognition of the fact that improved efficiency of production will result in
unemployment during the period of transition. Most important has been the
adoption of the employment ects. These state for the first time that
unemployment is a legal activity and provide for measures to combat it. In
addition they provide protection for unemployed workers in the form of
unemployment benefits and provision of job counselling and retraining. The
employment acts have institutionalized employment services, employment
funds (or funds for employment promotion) and tripartism, although not
always with employers and workers on an equal footing.
In some of the countries the employment acts were adopted in early 1991
40
when these countries were still part of the USSR. Subsequently, these acts
have been altered or amended, e.g. in Kazakhstan, to better suit the new
realities brought about by the transition to a market oriented economy.
Hence, the process of drafting the national employment legislation has not
yet been completed. The employment funds are also financing special public
works, jointly with the local authorities.
Simultaneously with the establishment of the employment funds, reforms of
the social security systems have been institutionalized. These reforms
separate, where feasible, the pensions funds from the budget and transfer the
responsibility for sick leave insurances from the trade unions to the State.
Apart from the unemployment insurance, which is paid from the
employment funds, there exist different benefits paid in respect of children,'
for mothers on maternity leave and others. These benefits range between one
half of the minimum wage and the average wage.
Labour inspections, usually an organic part of the employment services,
monitor the compliance of the employers to the new legislation regarding
conditions of work.
Adoption of national employment acts.
Establishment of employment services and employment funds.
Emerging tripartism.
Creation of social safety nets.
Labour inspections.
Policies and Programmes
Following the adoption of die Employment Acts, the Governments of the
Central Asian republics started setting up new employment services where
such had not existed and modernizing existing ones. As part of this process
they have been equipped with modern computer facilities. However, the
41
employment services still use card systems to keep track of unemployed and
as a consequence the process of job matching, as well as that of paying
unemployment benefits, is not very efficient. At present, the employment
services have outlets in all cities, large towns and regions. The organization
of training and retraining of redundant workers as well as enhancement of the
training of the young in employable skills is being pursued alongside the
other tasks of the employment services.
So far the employment services have managed to cope with redundancies,
but the question is still open if they will be able to deal with much larger
volumes of unemployed if it should come to massive layoffs as a
consequence of privatization of state enterprises and elimination of 'soft
budget constraints'.
The use of special public works as an active labour market measure is a
novelty in the Central Asian republics. In Kazakhstan it was foreseen to
engage 58,000 out of a total expected number of 330,000 unemployed in
1992 in such works. Special public works usually include activities such as
care of elderly, equipping houses with modern amenities, maintenance of
parks, repair works, harvesting and loading/unloading operations. The local
employment centres, assisted by the local governments, play a leading role in
the organization of special public works.
Another aspect of the new employment policies concerns facilitating the
territorial mobility of workers from regions with high rates of unemployment
to areas where there is a demand for labour. However, this is not an easy
task because of the low predisposition of the rural population to move and
the practical difficulties facing the potential migrant. The shortage of housing
is a major constraint and in some instances the system of residence permits —
propiska — also creates an obstacle to mobility. The situation is expected to
improve with the creation of a housing market.
In some cases, training in managerial and other skills required in a market
economy has been organized with very good results. Vocational guidance
and counselling services are also being provided to job seekers in the
employment centres, which inter alia facilitates the selection of the
appropriate candidates for specific types of training.
42
Main Conclusions
Not least the demographic situation is highly similar in the Central Asian
republics. High rates of population growth result in high levels of labour
supply and large numbers of young workers in the labour force, while on the
demand side falling output and growing external trade imbalances lead to
redundancies. The degradation of the environment is undermining the
employment creating capacity of agriculture.
The economic crisis and decline in production resulting from the transition
reached serious proportions in 1992 and 1993. This development was
primarily due to the abrupt discontinuation of central planning in 1991 and
the disruption of the trade ties between the republics. In the absence of an
effective replacement of the previous trading partners, this had damaging
consequences for employment at the enterprise level. Hence, the main reason
for the rising unemployment in 1991 was the disruption of economic ties.
The growth of unemployment has not bottomed out yet, since privatization
and the introduction of real market relations has so far not touched the larger
parts of the industrial sector, not even in the countries where the reforms are
most advanced.
Unemployment affects mainly the young (whose position in the labour
market has become precarious), women, especially with small children, and
workers above the age of 50. However, distortions and ambiguities in the
assessments of the true number of unemployed workers and lack of
alternative assessments call for the enhancement of labour market
information systems, including unemployment statistics.
Even given the current difficulties of slump and fall in industrial output,
there are possibilities for alleviating unemployment and for employment and
income generation for the needy in Central Asia. Taking into account the low
mobility of the population and cultural traditions which are very strong and
differ from those elsewhere in the former USSR, jobs should be moved to
people, especially in rural areas, and not vice versa. This calls for the
development of rural non-farm employment, which should be labour
intensive rather than capital intensive. New entrepreneurs should play a
major role in job creation at a time when the state sector is diminishing as a
43
result of privatization. Under such circumstances special attention should be
paid to the development of local labour market programmes.
Possibilities to open up new land and increase irrigation have more or less
been exhausted, but prospects seem to be much better for the development of
services and processing industries in rural areas. Most of the population in
the Central Asian republics live in rural settlements. Encouraging
entrepreneurs to establish new enterprises in such settlements can create jobs
for the local population and combat poverty. According to some calculations,
the development of the services sectors could provide for 350,000 to 400,000
new jobs in Tajikistan alone. Such jobs, if part time or done in the home,
could help local women with children, since some 40 per cent of the
unemployed in this country reportedly are mothers with children.
Employment services offered to workers should be enhanced, possibly as a
first priority. Such enhancement should include computer assisted job
matching and unemployment benefit payments. The same pertains to labour
market information systems, which need to be enhanced in order to be in a
position to give appropriate signals to policy makers, job seekers and
employers.
Creation of social safety nets should take into account proper monetary and
taxation policies as the state budgets are already overstretched, since the
domestic tax bases have been reduced during the transition and the share of
the non-working population to be supported is already high and increasing.
Notes
1
2
3
4
See Appendix 3, table 3.
See Appendix 3, table 4.
See Appendix 3, table 7.
See Appendix 3, table 8.
4
Unemployment, Labour Market Policies
and Social Protection: A Synopsis
Alexander Samorodov et. al.1
An examination of the issues of unemployment, labour market policies and
social protection in the Central Asian republics needs to be done against the
backdrop of the dismal performances of the economies of these republics in
the past few years. Although modest economic growth was registered in the
1980s, at least up to 1988, subsequent retrogression has resulted in a return
in the level of economic activity to that of the late 1970s or earlier.1 In most
of the republics the absolute decline in national income started already in
1990 and has since accelerated sharply. Since 1991 all the Central Asian
republics, except Turkmenistan and possibly Uzbekistan, have registered a
decline in national income in excess of 20 per cent. In per capita terms the
recent decline comes out even more dramatically. This sharp economic
decline can primarily be attributed to the disruption of inter-enterprise
linkages and the disappearance of long-established markets in the wake of the
1
The synopsis was prepared by Alexander Samodorov and Per Ronnas on basis of
five unpublished country studies and a general background paper produced in
anticipation of the conference ('Salient Features of Country Developments Kazakhstan' by T. Behgametov; 'Employment and Formation of a Labour Market in
the Republic of Kyrgyzstan' by V. Roumyantsev; 'A Report on Tajikistan' by Sh.
Zukhurov; 'Transition and Employment Policies in Uzbekistan' by R. Shadiev; and
'Employment and Economic Transformation in Central Asia' by Per Ronnas & Orjan
Sjoberg).
46
collapse of central planning and of the Soviet Union as an economic unit and
may therefore be seen as a discrete one-time decline in response to an
externally induced shock with little or no value as a basis for forecasts for the
future. However, it does underscore the need for forceful restructuring and
reorientation of the economies. As the transition to a market economy has
only just commenced, the overall economic effects of this transition have yet
to be felt. This process, too, will inevitably take its toll in terms falling
output and declining economic activity as enterprises are forced to adjust to
increasingly hard budget constraints. The magnitude and duration of the net
economic costs of the transition will primarily be determined by the abilities
of the economies and societies to adjust, to mobilize the latent potential for
entrepreneurship and to exploit the opportunities for new employment and
income generating activities that are opening up. The generation of new
employment through the establishment and growth of new enterprises will
therefore become a key indicator.
The employment aspects of the economic transition assume a special
importance in view of the strong supply pressure on the labour markets. The
sustained high rates of natural increase have resulted in broad-based
population pyramids indicating that there will be a rapid increase in the
working age population at least over the short and medium term. Tentative
calculations suggest that the working age population will increase by more
than three per cent per year throughout the 1990s in Tajikistan,
Turkmenistan and Uzbekistan and by almost as much in Kyrgyzstan.2 Only
Kazakhstan may be expected to register a growth rate of the working age
population of less than two per cent. The fact that much of the increase will
take place in rural areas offers little consolation as the potentials for using
agriculture as an employment buffer are in most of the countries virtually
non-existant.
However, this rather gloomy picture needs to be modified by a few positive
features. Firstly, the industrial structure of the labour force suggests that the
economic transition may be somewhat less painful than in the heavily
47
industrialised formerly socialist countries in the western parts of the former
Soviet Union and in East Central Europe. The Central Asian republics have
retained a large proportion of their labour force in agriculture, while the
share of the labour force in industry typically does not exceed 25 per cent.
This may prove fortunate in as much as the costs in terms of losses of
production and employment of the restructuring of the industrial sector are
likely to prove much higher than in agriculture. However, the past policy
emphasizing capital intensive agriculture deserves to be reviewed, in
particular with regard to cotton production. There is evidence that the drive
to mechanize cotton production has not paid off in terms of lower costs of
production and that it may have been detrimental to quality.3 Most of the
Central Asian republics are abundant in labour, but short of capital, and
economic policies, not least in the field of agriculture, need to reflect this in
order to bring capital intensity better in tune with the relative factor
endowments. Such a shift would increase cost efficiency and competitiveness
as well as promote employment generation.
The services sectors are underdeveloped in all the Central Asian republics
and hold out hopes for future employment and income generations. Some
services can be expected to develop through spontaneous developments in the
private sector, while others will require substantial investments in training
and education.
A second feature which brightens the otherwise rather gloomy picture is the
evidence of increasing private entrepreneurship and of increasing labour
mobility. Such evidence is still very patchy, but nevertheless suggestive.
Thus, in Kazakhstan some 13,000 small scale enterprises with a total labour
force of 200,000 had been registed by mid-1992, and the geographical
mobility of labour has visibly increased.4 Kyrgyzstan, too, has recorded an
encouraging growth of small-scale enterprises in the private sector.
The economic decline has not yet resulted in any commensurate increase in
open unemployment, but has primarily been translated into sharp falls in
labour productivity and, to a lesser extent, in incomes. The reasons behind
this would appear to be twofold. Firstly, managers and workers identify the
decline in production as a consequence of the disruption of backward and
forward linkages and thus, rightly or wrongly, as a temporary phenomenon.
Secondly, continued soft budget constraints makes it possible for enterprises
48
to maintain a larger work force than they presently need in anticipation of a
brighter future. However, there is a general awareness that while this
development may provide employment planners with a certain breathing
space, it does not present a viable solution. Work sharing is no substitute for
employment generation and sooner or later the levels of employment will
need to adjust to the levels of economic activity. This makes a review of the
development of unemployment, labour market policies and policies for social
protection, to which the paper now turns, especially pertinent.
Unemployment
Although there has always been unemployment in the Central Asian
republics it was not admitted officially until the National Employment Acts,
recognizing unemployment as a legitimate 'activity', were adopted, in most
cases in 1991.
By definition, workers who have lost their job for reasons beyond their
control, are available for work, and have registered with the employment
service, but have not been offered any suitable job by it, are considered to be
unemployed. However, empirical evidence shows that only a small
proportion of the unemployed register with the employment'service; e.g. 18
to 26 per cent in the case of Kazakhstan.5 The figures on unemployment
supplied by the employment services, which currently is the only source of
such statistics, are likely to severely understate the actual numbers.
On the eve of the transition, estimates of unemployment based on
information from the employment services ranged from 2.3 to 3.2 per cent.
However, according to other sources of data unemployment was much higher
and stood close to seven per cent in Uzbekistan, five per cent in Kazakhstan
and even twelve per cent in Tajikistan.6
In Kazakhstan, the first legally unemployed were registered in July, 1991,
when the 'Law on Employment of me Population' went into force. As per
article 5 of this law, citizens who '... through reasons beyond their control
49
have no wage or salary (income from work), who are registered with the
employment service as seeking work, able bodied and prepared to resume
work, and who were not offered a suitable job by the above service ...' can
be recognized as unemployed. In the second quarter of 1991 4,000
unemployed were registered on the basis of this definition. By November,
1992, the number of registered unemployed had increased to 63,000. The
social safety net for the unemployed comprises unemployment benefits,
grants when in training, and paid public works programmes. Unemployed
workers are also entitled to a grant upon the expiration of the entitlement to
employment benefits. Unemployment insurances are allowed, but not widely
used.7
The rate of unemployment benefits for persons seeking a job for the first
time is set at a level corresponding to 75-100 per cent of the minimum wage
and is paid for thirteen calender weeks. The replacement rate for others is 50
per cent of the previous wage and is paid for a period of 26 weeks or 36
weeks in the case of workers who are about to retire.8
The entire country has by now been affected by unemployment, but small
and medium sized towns with an economic base dominated by one or two
enterprises have been worst affected. Unemployment is caused by and takes
the form of retrenchment of workers, youth unemployment, self-employment
on household plots9 and resettlement of ethnic Kazakh workers from abroad.
Even short term forecasts of the development of unemployment are difficult
to make, as different scenarios may be identified. Should the 1992 situation
of soft budget constraints remain unemployment in 1993 might be confined
to 2.6 to 3.4 per cent of the labour force, or 200,000 to 250,000. However,
in a situation of continued privatization, sustained inflation, retention of
former credit and tax policies, and an expected continued fall in production,
unemployment might reach 350,000 to 400,000, that is 4.7 to 5.4 per cent of
the labour force. Should the reforms assume a more radical course, with tight
anti-inflationary monetary policies, accelerated privatization and attraction of
foreign capital, unemployment might reach 700,000 to 800,000, or 9.4 to
10.8 per cent of the labour force.10 A 'middle of the road' scenario appears
to be the most likely. The Ministry of Labour of Kazakhstan has taken the
position that measures to artificially support full employment should be of a
restricted nature in order not to contradict anti-inflationary policies and the
50
task of creating an effective labour market.
Rural areas account for about 56 per cent of the unemployment, while 44
per cent of the unemployed are found in the urban areas The unemployed
come both from the sphere of material production (43 per cent) and from the
services sectors (42 per cent). Earlier hopes that the services sectors would
absorb redundant workers from the sphere of material production have not
materialized. On the contrary, the services sectors themselves have started to
shed labour. This is particularly evident in the regions of Semipalitinsk,
Pavlodar, Southern Kazakhstan and Atyraus.
One third of the unemployed have involuntarily lost their job as a result of
job reductions, a quarter of the unemployed have quitted work voluntarily or
were dismissed for breach of discipline. Some 15 per cent of the unemployed
are new entrants into the labour force or were previously working on the
household plot.
No less than 70 per cent of the unemployed are women. The vast majority
of them (84 per cent) belong to the active age groups and 29 per cent of them
are under the age of 29. However, the structure of the unemployed by sex,
age and education varies greatly by region. In some regions, like Karaganda,
Western Kazakhsatan, Mangystau and Akmolinsk, women account for 80 to
90 per cent of the unemployed. Some 57 per cent of the female unemployed
live in urban areas, 69 per cent are married, 40 per cent have secondary
education and 30 per cent higher education, and 42 per cent have a length of
service of ten years or more.
The increase in unemployment in 1992 took place against the backdrop of a
falling number of vacancies. Still the number of vacancies exceeded in 1992
the number of unemployed. However, this does not mean that the
unemployment problem can easily be solved. There are regional mismatches
in the supply and demand for labour. Workers are retrenched in one place
whereas they are needed elsewhere. There are also occupational mismatches.
Unfortunately there is as yet no effective system for collecting information
on reductions in the number of jobs at die enterprise level. In order to gain
some information in this field the Ministry of Labour conducted a survey of
some 455 industrial establishments in eight regions of the country in the
second half of 1992. The survey revealed that only 20 per cent of the
managers considered that manpower problems at the enterprise was a greater
51
cause of concern than other problems. However, the survey showed that
conditions for production were far from ideal. The most severe problem
concerned the supply of components and spare parts. Only four per cent of
the enterprises had enough raw material and half of the surveyed enterprises
had worn out equipment. As a consequence, the work load decreases. Only
21 per cent of the industrial enterprises and 16 per cent of enterprises in the
transportation sector operated at 90 to 100 per cent of its capacity. It is
against this background that the unemployment forecasts should be seen.
Only half of the managers of the surveyed enterprises reported that they
would manage to preserve the existing jobs, and a mere 11 per cent expected
to hire new labour. One of ten enterprises were going to curtail production
and, as a consequence, shed labour. All in all, some 40 per cent of the
enterprises felt that they might have to reduce the number of employees.
Every sixth enterprise was planning to cut employment by as much as 40 to
50 per cent.
In Kyrgyzstan, the Law on Employment of the Population defines
unemployment as follows: 'Citizens are recognized as unemployed if they are
able bodied and in active age, if they have been made unemployed through
reasons beyond their control, if they are duly registered with the employment
service, are looking for a job, are prepared to resume work, and if they have
not received any offer of a suitable job from the employment service'. In
case the employment service is not in a position to offer a worker a suitable
job, the worker is to be offered retraining or training.11 In 1991 and early
1992 there were still no more than 1,400 registered unemployed workers.
The standard unemployment benefit is 50 per cent of the previous wage
(calculated as the average for the three preceding months), with the provision
that it must not be lower than the minimum wage and not higher than the
average wage in the economy. However, first time job seekers, who are
recognized as unemployed, are entitled to an unemployment benefit
corresponding to 75 per cent of the minimum wage. Long term unemployed
(with more than one year of unemployment) are entitled to 75 to 100 per cent
of the minimum wage, depending on their qualifications. The average period
of unemployment in 1992 was 10.3 weeks in rural areas and 9.7 weeks in
urban areas.
52
As in Kazakhstan, the number of vacancies in Kyrgyzstan in 1992 exceeded
the number of unemployed. In November 1992 there was a total of 6,620
vacancies as against 1,384 unemployed.12 However, matching supply and
demand is difficult as 82 per cent of the vacancies were for low paid manual
jobs, while most of the job seekers are women and often have high
education.
Among the Central Asian republics, Tajikistan is probably worst affected
by unemployment. Civil conflict and unrest has greatly added to
unemployment in this country. According to official information, as much as
one third of the rural population was unemployed in early 1993. Besides,
some 50,000 highly qualified specialists have left the country to escape the
civil war, as a consequence production in either stopped altogether or been
brought to a near halt in many establishments, with resultant
unemployment.13
Turkmenistan stands out as a country where the problem of unemployment
is relatively less severe. By the end of 1991 there were only 38,000 officially
reported unemployed. The conditions in this country are however specific. It
is probably the only country where workers are given two months of paid
summer holiday.14
The situation in Uzbekistan has developed much along the same lines as in
Kazakhstan and Kyrgyzstan. Forecasts for 1993 suggested that there would
be at least some 110,000 unemployed in Uzbekistan. However, by November
1992 there were only 5,200 receivers of unemployment benefits, which must
be considered very few for a country with a labour force of ten million.
However, it should be recalled that in 1992 privatization and the introduction
of a market economy were not the main reasons behind the rising
unemployment. It was mainly the disruption of economic links between
enterprises that caused the growth of unemployment. This explains the desire
of enterprises at the time to retain their workers, albeit on a shorter working
week or on leave with partial or even no pay, in expectation of improved
market conditions.
In Uzbekistan workers who have declined two offers of a suitable job has
53
his/her unemployment status revoked for thirty days, where after they have
to register anew with the employment service. Jobs which correspond to the
workers' skills or require retraining are considered as suitable. For first time
suitable jobs for job seekers may include those for which no skills are
required and may also include short term placements. However, a job is not
considered suitable if it is in an area where living conditions are inferior to
those the worker presently have, would involve excessive travel time, or
offer remuneration and working conditions below the average level
prevailing in the area. Solid family reasons may also be an acceptable excuse
for declining a job offer.15
To sum up the main general features, it should be noted that unemployment
in the Central Asian republics started to grow rapidly in 1992. For example,
in Kyrgyzstan it increased eleven fold from January to November 1992,
albeit from a very small base. In Kazakhstan unemployment increased five
fold during the first five months of 1992.16 However, a caveat needs to be
introduced as the official figures on unemployment are misleading since the
Central Asian republics had not yet switched to international standards of
reporting unemployment by 1992. Thus, in using these figures one must
make sure that they do not include women on maternity leave or bringing up
children or workers on reduced working time or temporarily sent home. The
discrepancies in the available statistics are large. For example, while the
official unemployment rate in Kyrgyzstan by November, 1992, was a meagre
0.07 per cent of the labour force, the number of 'redundant' workers at the
same time was stated to be five per cent of the population. Unemployment
was even estimated to stand at as much as 8.3 per cent if the number of
'hidden' unemployed were included.17
As a result of the poorly diversified economic base and predominance of a
few large enterprises in many towns, unemployment in the Central Asian
republics often develop in 'pockets'. Small towns where there might only be
one or two enterprises and no alternative sources of employment are
particularly affected. The situation is especially difficult in cities and towns
which used to depend on defense production, which now needs to be
converted, or in those affected by broken economic ties. A case in point is a
sugar processing factory in Kyrgyzstan, which depended on sugar imported
54
from Cuba. When the supplies from Cuba stopped, the factory faced severe
problems.
The avalanche of work stoppages in enterprises due to interruptions and
broken supplies intensified by the autumn of 1992. For example, by
September 1992, some 920 enterprises in Kyrgyzstan announced plans to cut
the workforce.18
The development of unemployment in the Central Asian republics has also
given a strong push to the appearance of a 'gray' or illegal labour market in
which redundant workers are hired on a day by day basis. Such workers
usually find work in private housing construction, are paid in cash, and
provided with free meals for the work performed. Private employers often
pick up workers at the doors of the labour exchanges and take them to work
on a daily basis.
Recent poverty in the Central Asian republics is strongly linked to
unemployment. An especially difficult situation with regard to
unemployment in some of the countries is developing in the rural areas, as a
consequence of rural overpopulation and large numbers of surplus labour.
Low territorial mobility of the rural population and a propensity to stay
within the local ethnic borders aggravate the problem. The local authorities
in agricultural settlements face the hypothetical dilemma of either providing
low productivity work for all or productive employment for some, but
accompanied by high levels of unemployment.
By way of conclusion, it may be said that by 1993 unemployment had not
yet reached its peak in the Central Asian republics. Continued government
subsidies helped to keep unemployment under control in all the countries
concerned. The future development of unemployment is obviously difficult
to foresee. Very much depends on if the development of labour markets will
be influenced by large scale privatization and corresponding restructuring, as
well as if the enterprises in the region will be able to find alternative sources
of supplies and marketing, including export markets, to keep up production.
55
Employment and Labour Market Policies
The transition to a market-oriented economy calls for a complete revision
of the existing employment policies and for the creation of an absolutely new
employment model. The transition implies 'a volt face' for labour market and
employment policies, that is a shift from a situation of labour shortage to one
of labour surplus, as large scale shedding of labour takes place. So how do
the countries adjust?
In Kazakhstan, the Government has sought to establish 'an employment
policy, with periodic employment programmes, at different levels, including
the national and local ones'. 19 The main idea is to intervene in the labour
market through training and retraining, organization of special public works,
assistance in employment creation and entrepreneurship development for
women and the youth in particular, and assisting the handicapped to find
work. According the principles embodied into the State Programme for
Employment Promotion and Reduction of Unemployment, labour market
policies in Kazakhstan in the period 1993 - 1995 will specifically focus on:
-
controlling the supply and demand for manpower;
upgrading manpower;
encouraging territorial and vocational labour mobility;
controlling employment in the zones of ecological disaster, and;
assisting the vulnerable groups of workers.
Preferences has been given to such a principle as 'priority of working life'
the design of the labour market policies in Kazakhstan. However, it would
appear that a consistent implementation of the 'priority of working life'
principle would not be altogether consistent with the market oriented
reforms, since the days of administrative coercion of workers are gone.
However, if 'priority to working life' is interpreted as full and productive
employment, this would be a totally different matter.
The policies of the Government of Kazakhstan also foresee direct
employment creation in small enterprises, assigning job quotas to vulnerable
56
population groups with the backstopping of the employment fund.
Along' with these measures to create new employment, measures were also
taken to forestall the development of unemployment in specific industrial
branches, such as the defense sector. In 1992, the Ministry of Labour
decided to finance the retraining of workers in the defense sector enterprises
under conversion, which face difficulties. It helped to take preemptive
measures for some 7,000 to 10,000 highly specialized workers who were at
risk to loose their jobs, and to protect the other unqualified 100,000 workers.
The Government of Kazakhstan also helped the enterprises of the Society of
the Deaf and the Blind of Kazakhstan by providing jobs for some 2,000 to
3,000 handicapped workers. Furthermore, some 20,000 jobs were created for
immigrants to the country ~ mainly ethnic Kazakhs ~ to help them to
integrate into society. The vulnerable groups in the labour market are
considered to be single parents and mothers with many children under the
age of 16, persons having to support at least two dependents, invalids (with
third degree invalidity), workers approaching retirement age, demobilized
soldiers, Afghan war veterans, former delinquents, and refugees.
In Kyrgyzstan the above Law on Employment of the Population provides
the legal prerequisites for new employment and labour market policies. The
basic philosophy of the new approach is to create conditions of equal
opportunity and treatment for workers in the labour market and possibilities
to freely choose employment, irrespective of sex, religion, age, political
views, nationality and social status. The State Employment Service, with 15
officers per 100,000 inhabitants, has been charged with implementing the
law. In its operations it is paying special attention to regions with a surplus
of labour and to vulnerable groups in the labour market which have
difficulties in obtaining employment on their own.
A special 'Programme on Employment of the Population' was adopted in
the republic for the years 1992 - 1993. This programme was a path-finding
event since social partners participated in its design on a tripartite basis for
the first time, as opposed to what has been the case in other Central Asian
republics where tripartism is weaker. The current state of the labour market
as well as forecasts of the labour force growth were taken into account in the
elaboration of the programme. The programme also takes into account die
57
specific conditions of various social, age and demographic groups in
different regions of the country on the basis of qualitative and quantitative
assessments, as well as trends in population growth.
The programme includes sections on 'priority tasks', such as: creating
conditions for productive and freely chosen employment, training and
retraining for retrenched workers, reintegration of workers into the labour
process, hiring, internal labour migration and temporary migration of
workers abroad and social protection of workers, in particular women,
youths, aged workers, pensioners, invalids, former delinquents and
demobilized soldiers.
The programme singles out regions for priority development, where the
emphasis of labour market policies is specifically placed on employment
creation. Enterprises in these regions are accorded special tax concessions
and may enjoy other benefits and immunities.
According the programme, enterprises with more than one hundred
workers are required to reserve job quotas for special groups of workers. The
size of these quotas is determined on an annual basis in collaboration with
the local authorities. The quotas must not exceed five per cent of the total
work force. However, if workers belonging to the designated special groups
make up 30 per cent or more of the total work force of an enterprise, the
enterprise becomes eligible for special tax concessions. If members of such
groups account for more than half of the work force the enterprises are
relieved from paying taxes and making contributions to the state budget. As
of 1992, job quotas numbered in total 21,000 workers.20
In Tajikistan, as in the other republics, annual national and regional
employment programmes are being elaborated. These programmes contain
detailed employment policies for the transition period. The policies include,
among other things, special public works. The main activities for special
public works are harvesting, environmental cleaning, seasonal post-harvest
agricultural work etc.
The Government of Tajikistan is also taking measures to reduce the labour
supply. These include, amongst others, early retirement of long term
unemployed (who may retire one year prior to the standard retirement age).
Short time working has also been introduced, and work in the home is being
58
encouraged. Short time work involved some 5,000 workers in 1993, half of
them in industry and some 20 per cent in education. At the beginning of
1993 some 7,000 workers worked at home, mainly for local industries. By
law, women are entitled to 1.5 year of paid, and 2.5 years of unpaid, leave
to take care of children. As a result, some 300,000 to 360,000 women are on
maternity leave at any point in time. Distribution of land parcels for
individual farming also serves to relieve the pressure on die supply side.
Training is organized in order to reintegrate workers. Workers' upgrading
consists of on-the-job training, training in state establishments and short term
training courses for self-employment.21
In Uzbekistan the Government has focussed on setting up a labour market.
In order to increase labour mobility, administrative restrictions on the
freedom to move, both within and beyond the republic, and on choice of
employment have been lifted. Employers, irrespective of ownership form,
have been granted the freedom of hiring and firing. The restrictions
concerning maximum wages and salaries have also been lifted and income
policies will henceforth rely on the tax system. The Government of
Uzbekistan has also proceeded with a number of other measures aimed at
improving the efficiency of the labour market, such as:
- establishment of a network of labour exchanges;
- creation of data banks on vacancies and job seekers;
- employment programmes targeting on labour surplus regions;
- launching research on the national labour markets, and;
- introducing an unemployment insurance scheme.
Social Safety Nets
The Central Asian republics inherited a very ramified system of social
protection from the USSR. There exist, as a rule, the following types of
payments under different social protection schemes:
59
-
state,'age and invalidity related pensions;
state pensions in cases of loss of bread winner;
benefits in case of temporary loss of ability to work, including traumas at
the work place and occupation related diseases;
benefits for taking care of the sick and invalids
maternity benefits and child allowances;
benefits for burial services;
unemployment benefits;
subsidized or free stay in rest homes and sanatoria for workers;
employment insurance schemes, and;
paid sick leave.
Payments are effected from the state insurance funds, which typically
comprise the state social security fund and, more recently, the employment
fund. Contributions to the funds are made by enterprises of various
ownership forms, collective farms, cooperatives and self-employed workers.
However, the systems of social protection currently used in the Central Asian
republics have drawbacks and are not suited for a market economy. In the
opinion of Kazakh experts they have four major weaknesses.22
First, the social support measures embrace the entire population and are
loosely targeted, whereas at the early stages of the transition only about a
third of the population require social support.
Second, the 'charity' like social protection has become an intolerable
burden to the State at a time when government revenues are falling. The
result is a vicious circle, where the State keeps increasing taxation in order to
cover the costs of social protection, the enterprises respond by raising prices,
which further depresses the standard of living of the population.
Third, the current system of benefits is very complex and huge. It has no
provisions for inflation, and hence requires repeated adjustments which leads
to delays in payments and to discontent among those who are negatively
affected.
Fourth, the current system increases inequality in incomes among the
population and thus serves to further divide the society into the rich and the
poor. Benefits which are not adjusted for inflation only serve to proliferate
60
poverty, whereas the rich avoid depreciation of capital by investing in
businesses.
The Ministry of Labour of Kazakhstan, for instance, is of the opinion that
it is possible to overcome the problems by shifting to targeting social support
at vulnerable groups. However, in the absence of a system for income
declaration and no other data base on incomes, and with no sound and
accepted poverty criterion or, for that matter, statistical information on
marginal groups in the society, such a shift is not altogether straight forward.
The Government of Kyrgyzstan, too, considers that the sphere of social
protection requires a complete restructuring, for much the same reasons.
First, the state budget will only be balanced with considerable difficulty in
the near future. This inevitably means reduced allocations for social
protection as compared to the situation prior to independence. Indeed, the
share of the state budget earmarked for social protection has already fallen
from 29 per cent in 1991 to 16 per cent in 1992.23
Second, the economic reforms will result in considerable unemployment, at
least until economic growth takes off. Estimates by international experts
suggest that unemployment may reach 200,000 to 250,000 by the middle of
the 1990s.
Third, the emerging poverty needs special attention. Under die previous
communist system incomes were distributed more or less evenly among the
population, although the productivity and the rate of investment in the
economy were low. In the short term some groups of the population with low
incomes may be particularly severely affected. Such groups at risk include
those living in slums, those which already have low incomes, those with
limited capacity to work, members of large households and unskilled
workers.
Under socialism social protection of die population was also considered by
many tantamount to charity. It concerned such measures as taking care of
orphans, the aged, the sick, invalids etc. However, along with the transition
to a market-oriented economy the situation has changed and some groups are
being marginalized. These groups typically include long term unemployed
whose entitlement to unemployment benefits have expired, large families
with low aggregate income, and retired people with insufficient number of
years of service to qualify for full pensions. It should also be borne in mind
61
that 'perestroika' and 'marketization' of the economy have led to much
greater differentiation in incomes, thus widening the gap between the rich
and the poor.
Following the liberalization of prices, impoverishment was certain to grow
and the issue of providing social support to the needy attained highest
priority. Pensions and family allowances could no longer provide for a
family budget above the minimum consumption basket.
Hence, there is a need for a new approach which focuses on die poor. With
this in mind, the Ministry of Labour and Social Protection of Kyrgyzstan,
for instance, has adopted a decree on 'Mechanisms of Targeted Social
Support for the Most Vulnerable Groups of the Population in the Republic'
(November 4, 1992). This comprises measures to determine the poverty line,
divide the population among different groups according to the criteria
chosen, provide support to the most vulnerable groups, and establish sources
for financing such programmes. In the elaboration of the decree, due heed
was taken of me fact that the Government did not have at its disposal the
necessary means to fully implement what was initially planned. Besides,
surveys have revealed that 25 to 30 per cent of the incomes of workers,
collective farmers, and pensioners is derived from work on the personal
household plot, work at home, individual business and from dividends on
securities. Thus workers have alternative sources of income.24
The poverty line was determined at a subsistence level providing for a
minimum basket of food and social services, and enabling a worker to
perform work. More specifically, the subsistence level is determined on the
basis of die required calorie intake and the cost of tfie corresponding food
items, the cost of required other goods and medicine, housing costs,
transport costs and taxes and levies. However, the ravaging inflation renders
a somewhat fluid nature to the subsistence level.
In line with this methodology, the subsistence level on the basis of a
consumer basket is calculated separately for each socio-demographic group;
able-bodied workers, pensioners and invalids, students and trainees. The
subsistence level determined in this way is considered to be the poverty line.
Household incomes are reviewed periodically against the changing poverty,
separately for each group. The results are used to determine concrete modes
of social protection of workers.
62
In Tajikistan the development of poverty and die level of pauperization of
the population is determined on the basis of aggregate income statistics
generated dirough household surveys. Surveys of family budgets are made
for two main groups; (i) workers and employees and (ii) collective farmers.
In addition, the standard of living of young workers and their families is
studied every third year. The poverty line is based on the value of a
minimum consumption basket. However, the law on the minimum
consumption basket has not yet been adopted. Hence, Uiere are no official
statistics on the subject, but only official estimates.
In 1990 the minimum consumption basket was valued at 98 rubles. More
than two thirds of the population was assessed to live below this line,
including 45 per cent with an income of no more than 75 rubles per month.
At the present, based on the rate of inflation and other indicators on, in
particular, the growth of nominal incomes, it may be estimated that 85 per
cent of the population lives below the poverty line.25
A law on indexation of workers' incomes has been drafted in that country,
but is not yet adopted as the country cannot yet afford such a measure.
Wages and salaries of workers, as well as pensions and benefits in respect of
children, are reviewed periodically on die basis of presidential decrees.
Students at vocational secondary schools (with a curriculum of more than
ten months) are provided with free board and uniforms. Besides, they are
paid a grant amounting to 35 per cent of the minimum wage. Students at
polytechnical schools and secondary special vocational schools (with a
curriculum of more than ten months) enjoy grants amounting to 70 per cent
of the minimum wage, while students at higher institutions of learning
receive stipends at the rate of 80 per cent of the minimum wage. These rates
are increased for well performing students. However, training in some
occupations, e.g. drivers and bookkeepers, is not free.
All citizens have a right to free medical services, including treatment in
hospitals. Sick leave is paid depending on the length of service and is linked
to trade union membership. Medicine is free of charge for patients interned
in hospitals, but not for odiers. War veterans enjoy special benefits.
An important feature of the social policies in Tajikistan is the
unemployment benefit system introduced in January 1992. Such benefits are
63
paid to registered unemployed for a period not exceeding six months at a
general replacement rate of 50 per cent. However, currently benefits are paid
at the rate of die minimum wage due to a general budget constraint.
Pensions are paid in accordance with an old law dating back to the Soviet
period on pensions for aged citizens, invalids and persons without income
(orphans and persons not eligible for an age related pension). Pensions are
calculated at the rate of 55 per cent of the work income and arc adjusted for
the lengm of service exceeding 25 years for men and 20 years for women, on
the condition that the increment does not exceed 20 per cent of a nominal
pension value. The minimum pension equals the minimum wage.
However, due to current budget constraints, die President of die Republic
has overruled die 55 per cent rule. As of January 1992 the old age pension is
set at par witii the minimum wage, plus a one per cent increment for every
year of service in excess of die 25/20 years stipulated for men/women, up to
a maximum of 20 per cent. Still, some benefits for war veterans have been
kept in full.
Following a presidential decree of December 29, 1992, working mothers
with a length of service not less than one year are eligible for child
allowances at a rate of 60 per cent of die minimum wage. Similar allowances
are paid for children of servicemen, children under tutelage, children of
single mothers who are themselves former orphans, and children up to the
age of 16 afflicted with HIV or AIDS. Allowances at the rate of 50 per cent
of the minimum wage are paid to single mothers of children in the age group
6 to 16 (18 in die case the students not receiving grants), and to children
whose parent avoids contributing allowances to the children following
separation. Non-working modiers, and mothers with less man one years of
service are eligible for a child allowance amounting to 45 per cent of the
minimum wage until the child reaches the age of 18 mondis.
There is also a system of one time payments. Thus, a payment amounting
to three times the minimum wage is made on die occasion of the birth of the
first child into a family. The birth of a second child carries an entitlement to
a grant amounting to twice the minimum wage, while the grant associated
widi die birth of a third child amounts to the equivalent of one minimum
wage.
64
In Uzbekistan the Government initially rejected the 'shock therapy recipe'
and opted for a 'soft' transition to a market-oriented economy. As a
consequence, the basic elements of the old 'Soviet' social protection system
have been preserved. It concerns first of all health care and education, which
continues to be free to workers and their families members. The State has
clearly aimed at preserving the earlier levels of consumption in an effort to
maintain the purchasing power of the population through regular revisions of
the minimum wage and salary levels, grants and pensions. This has led to a
need to revise these levels at least four times a year in order to keep up with
inflation. Food was rationed and sold against coupons or vouchers, and the
population obtained meat and meat products, rice, bread and other basic food
products at fixed prices. The State continued to subsidize food although this
was becoming increasingly difficult.
Since large families are common in rural areas the Government has
introduced privileged treatment, inter alia with regard to taxation, for those
with three dependents or more. These privileges are also extended to widows
and widowers not in receipt of pensions for the loss of bread winners and to
one of the parents bringing up invalid children in need of constant care.
Other benefits have also been introduced, such as supply of gasoline at fixed
prices, not least to pensioners.
Contrary to the case of Kazakhstan and Kyrghyzstan, the policy in
Uzbekistan was during the early phase of the transition to web as wide a
social safety net as possible with a view to encompass the entire population.
However, the apparent advantage of this approach is turning into a
disadvantage as the resources at the disposal of the Government are not
limitless.
The policies and procedures for protecting displaced labour are quite
similar in the Central Asian republics as they build on die former Soviet
model. According to the labour regulations in most of the Central Asian
republics, workers are given two to three months advance notice of layoff
and are paid two months severance pay by the releasing enterprise. When the
two months have lapsed, the worker have to register with an employment
service. Upon this registration the enterprise pays him/her a third and last
monthly installment, provided that the worker is still without a job. After
that, the worker is paid an unemployment benefit for a period of six months
65
or until he finds a new job, usually at a rate corresponding to 50 per cent of
his preVious wage (adjusted for the number of dependents).26 However, in
some cases unemployment benefits is at the subsistence level or even lower.
For instance, in the case of new entrants to the labour market.
Draft laws on bankruptcies are currently under consideration in several
Central Asian republics. Once these laws have been adopted, the three
months rule for the severance payments will surely no longer be observed
since a bankrupt enterprise will not be in a position to provide workers with
such treatment. The displaced labour will have to be directly referred to me
labour exchanges.
So far, a large proportion of the workers find new jobs in the course of the
first months of unemployment. Hence, they never become officially
unemployed. Only a small fraction of the workers remain unemployed for
longer than six months. This is in contrast to the situation in Western
Europe, where long term unemployed make up 40 to 50 per cent of the total
unemployment.
Hence, a rise in the unemployment in the transition period, albeit initially
on a moderate scale, and especially the impact of the high rate of inflation on
the workers' purchasing power, have made the authorities in the countries
concerned reconsider the attitude towards the existing schemes of social
protection. This is leading to the establishment of safety nets more in tune
with the conditions in a market economy.
Notes
1 See Appendix 3, table 6.
2 See Appendix 3, table 5.
3 Gregory Gleason, 'Marketization and migration: The Politics of cotton in Central
Asia', Journal of Soviet Nationalities, Vol. 1, no. 2 (1990), pp. 66-98.
4 T. Behgametov, op. cit.
5 T. Ibid.
6 Background Information on Population, Economic Developments, Labour
Markets and Employment, (ILO, Active Labour Market Policies Branch, 1993) p.
11.
7 T. Behgametov, op. cit.
66
8 'The Law of the Kazakh SSR on Employment of the Population', Articles 31-32,
Collection of Normative Acts on the Law of the Kazakh SSR on Employment and
Population (Alma Ata: Ministry of Labour, 1992).
9 Self-employed workers are deducted as "not in official employment'.
10 T. Behgametov, op. cit.
11 The Law on Employment of the Population in Kyrgyzstan, Article 2, Decree of
the President No. 440-XII of May 20, 1991 (Bishkek).
12 Reporting of vacancies is mandatory for state enterprises. The figures originate
from the Statistical Office of Kyrgyzstan.
13 Information provided by the Ministry of Labour in Tajikistan.
14 Information provided by the Ministry of Labour
15 R. Shadiev, op. cit. p. 12.
16 See Appendix 3, table 10.
17 Assessment by the Main Employment Directorate of Kyrgyzstan as communicated to the ILO in December 1992.
18 Pravda September 12, 1992 (Moscow).
19 T. Behgametov, op. cit.
20 Main Employment Directorate Data (Bishkek, Ministry of Labour and Social
Protection, 1993).
21 Response by the Government of Tadjikistan to ILO Questionnaire on Employment Policies for Transition (Geneva: ILO, Active Labour Market Policies Branch,
1993). Unpublished manuscript.
22 T. Behgametov, Employment in Kazakhstan op. cit.
23 Information provided by the Ministry of Labour and Social Protection of
Kyrgyzstan in 1993.
24 V. Roumyantsev, op. cit.
25 Response by the Government of Tajikistan op. cit.
26 For first time job seekers unemployment benefits are paid for thirteen weeks.
5
Problems of Establishing Tripartism
International Labour Office
Many countries around the world are currently meeting the historical
challenge of making the transition from highly centralized political and
economic systems towards democracy and market economy. At the heart of
this transition lies the acceptance of fundamental principles and practical
models that are successfully applied in market economies. However, these
need to be carefully adapted to the specific situation in each country, taking
due account of historical, cultural, political, economic, and social factors.
Under the old system the countries in transition were deprived of the major
impulse for dynamic development since the officially proclaimed and
cultivated belief in harmony of interests of all segments of their societies
precluded the idea of dissimilarity of interests, which is an indispensable
prerequisite for any form of progress. Having embarked on the road of
freedom and democracy, diese countries have begun to shape new political,
economic, and social systems based on the principle of plurality of interests.
The divergence of interests of the social partners has also been recognised
and the need to set up an effective machinery to balance such interests is now
strongly felt. The method of tripartism, which has been successfully
practiced by many Western countries for decades, is currently establishing
roots in the newly emerging democracies.
The term 'tripartism' in a broad sense refers to any system of labour
relations in which me State, employers and workers are autonomous parties,
each performing special functions. It is merely the transposition into social
relations of the principles underlying political democracy: liberty, pluralism
and participation of individuals in decisions affecting them. Thus
understood, the term covers everything related to the structure, functioning
68
and attributes of the parties involved in labour relations (tripartite
consultations and negotiations as such, that is to say between the
government, employers and workers; bipartite collective bargaining; and
workers' participation in decision-making at the enterprise level). Tripartism
calls for commitment of the social partners to seek compromises and to
respect each other's interests.
The experience of many Western European countries has shown that
recourse to tripartite instruments was especially desirable when those
countries were in particularly difficult situations. This was especially the case
during the period that immediately followed the end of the Second World
War. In countries in transition from central planning to market based
economies the economic and social situation is now extremely perplexed.
The economic reforms are facing enormous difficulties. Living standards of a
significant part of the population have decreased and social tension is high.
In a situation like this social dialogue in all its forms can render inestimable
services. This is particularly true of consultations and negotiations between
the government, employers and workers on the preparation and
implementation of major national economic and social policies. While
bringing all the parties together, such arrangements afford the best
opportunities for working out compromises between the demands of
economic development and tiiose of social protection and, as such, will have
the greatest chance of being applied and thus of ensuring social peace.
Tripartism may play an invaluable role not only in stabilizing these young
democracies economically and socially, but also in strengthening them
politically. An examination of the major problems which the countries in
transition are encountering in the establishment of the tripartism is therefore
warranted.
The Social Partners
The Trade Unions
Recent moves towards democracy and market economy have had a
69
profound impact on the trade union movements of die countries in transition.
The main features that diey are currently acquiring are independence from
political and state institutions, pluralism and a focus on the defense of
workers' rights as a first priority. Many countries have already established a
solid legal basis to encourage such positive changes. Examples are the laws
on trade unions adopted in 1991 in Albania, Hungary, Poland, Romania and
Lithuania, and in 1992 in Uzbekistan. Two processes are currently
simultaneously evolving: the restructuring of the former 'traditional' trade
unions and the emergence of new alternative trade unions.
Under the former regimes, trade unions were integral parts of the political
and economic systems. They performed a number of functions which in
Western democracies with developed tripartite systems are normally
performed by other actors. Examples are the right to parliamentary initiative,
the function of labour inspections and control over the social insurance
funds.
The,successors to the former 'traditional' trade unions are now trying to
redesign their role and functions to match the requirements of the new
political, economic and social environment. Their organizational structures
are being decentralized and are acquiring confederative features. At the same
time, quasi-state functions are gradually being relinquished. This is a
controversial and painful process which cannot be only confined to an
organizational restructuring. The whole concept of unionism needs to be reexamined on the basis of an acceptance of the principles of democracy and
pluralism.
The new alternative trade unions are also facing a number of problems.
There is a lack of organizational experience and professionalism which
cannot be compensated for in full measure by the enthusiasm of their
members. An active participation in political debates and struggles
sometimes prevents these trade unions from properly discharging their
genuine trade union functions of defending the interests of their members as
employees.
The most crucial problem for the alternative trade unions, however, is to
become competitive with the former 'traditional' trade unions. During the
pre-reform period, the latter have acquired assets allowing them to provide
their members with a wide range of social benefits. This puts the new
70
alternative trade unions at a considerable disadvantage. As a result, frictions
among trade unions are increasing and the trade union movement as a whole
is weakening. There is also an overlapping of union membership, when
workers, after having joined newly established trade union, do not leave dieir
old unions which are still controlling social funds and welfare facilities.
There is already an example of how this very delicate and complicated
problem of distribution of trade unions' assets was solved by means of
legislation. In Hungary, where the assets of the former 'official' trade unions
(SZOT - the National Council of Hungarian Trade Unions), the Act on the
protection of trade union property of 17 July 1991 provides that the final
distribution of the assets will be made in proportion to the results of trade
union elections scheduled for 1993.
While the trade union movement as a whole is still divided into two
opposing parts, there seems to be more cooperation between the old and new
trade unions at the enterprise level. There are already cases where the
workers from different trade unions have jointly negotiated and signed
collective agreements.
Employers' Organizations
In the past, the domination of state ownership in the countries currently in
transition left almost no room for employers as a distinct interest group. The
main employer was the state. The economic reforms have facilitated the
process of formation and institutionalization of specific employer interests.
Privatization, which is likely to gain momentum in many of these countries,
will hopefully accelerate the emergence of the class of employers. While in
services and in retail trade privatization simply means a direct sale of
enterprises to private owners (individual or corporate), the privatization of
industrial enterprises, especially big ones, consists normally of two stages.
During the first stage, which in Poland for example is called
'commercialization', such enterprises are transformed into commercial
companies, which are mainly joint-stock companies, typically with a certain
amount of shares given to their work force free (or sold at a preferential
rate). Initially, such enterprises remain under control of the government
71
which keeps a controlling proportion of the shares. The introduction of a
contractual system of hiring managers for such enterprises, which replaces
the system of their appointment by state bodies or their election by the work
force, is an important step towards entrusting these managers with employer
functions. The second stage of privatization begins when stocks of such
enterprises are sold on the market and control over them is taken over by me
new owners.
In the past, organizations such as chambers of commerce or associations of
cooperatives represented the economic interests of enterprises and had no
functions in the field of labour relations, viz. in collective bargaining. With
the passage of die reforms, some steps have been taken in the establishment
of an institutional framework to represent employers' interests. In many
countries in transition employers' organizations have been set up either as
independent bodies or as part of the existing organizations (the chambers of
commerce, of industry, etc.). The process of institutionalization of
employers' interests at the national level has also begun. Thus, national
confederations of employers have been established in Hungary and Poland.
The employers' organizations are assuming an active role in labour relations:
many of them are engaged in collective bargaining and in national level
tripartite consultations.
The Role of the State
With the advance of the economic reforms and privatization in the
countries in transition uie role of die State in the field of labour relations is
also changing. The function of the State as employer is gradually
diminishing, while the function of the 'third' party in charge of setting up
the 'rules for the game' and maintaining a social dialogue is being placed on
the agenda.
Traditionally, the State utilized legislation as a major instrument for
governing labour relations. The principle 'what is not allowed is prohibited'
was the rule of the government' intervention in labour relations. There was
hardly any room for any autonomy of the labour relations partners.
Legislation is now assuming the role of guarantor of minimum labour
72
standards as an instrument for setting up a normative and procedural
framework for 'peaceful' social dialogue. The reforms of the labour laws are
making significant progress. A legal basis for collective bargaining and
collective labour disputes settlement has been established in many countries
in transition.
Some institutional changes are also taking place. The Ministries of Labour
are redesigning their functions with a view to developing their capacities as
facilitators of social dialogue. The process of establishing conciliation,
mediation and arbitration services is also under way.
Before going on from the problems that concern the parties in social
dialogue to those concerning the dialogue itself, it is essential to emphasize
that in order to ensure the smooth pursuit of this dialogue, it is not enough to
construct the 'machinery' characterized by the existence of three distinct
parties sufficiently well equipped to exercise the respective functions. The
parties must also have a certain attitude. This implies, first of all, that they
must accept the discomfort of a certain degree of insecurity. This means in
no way that they have to give up the idea of lessening the social impact of
change, but merely that they must accept the actual principle of change.
There cannot be any substantial place for social dialogue unless there are a
series of areas in respect of which trie State has not determined everything in
advance, but has left the employers and workers considerable liberty. Next in
exercising this liberty, the parties must be aware that notwithstanding the fact
that there are numerous points on which their interests diverge, something
which it would be absurd to deny, in the long term they are fundamentally
engaged in a common task. This implies a consensus between all parties on
the essential characteristics of the political, economic and social organization
of society and die determination to contribute, often at the cost of certain
sacrifices, to developing and maintaining the type of society thus chosen.
The adoption of legislation, the creation of an institution or recourse to
foreign experts may well contribute to the establishment or development of
tripartism, but will never dispense the parties from the need to acquire and
maintain die right attitude.
73
Relations Between the Parties
In the past, labour relations in the countries in transition were void of any
social dialogue, since almost everything, including wages and other major
working conditions, was a prerogative of the State. Collective agreements
were normally signed without any bargaining. To a large extent, they were
just reproductions of legislative provisions. The right to strike was not
officially recognized and there was no machinery for setting collective labour
disputes. Indeed, there was no tripartite dialogue at the national level at all.
The autonomy acquired by the social partners has facilitated an intense
dialogue between them. An appropriate legislative basis to provide the
partners with a necessary procedural and institutional framework is being
established. A national level tripartite dialogue is in process of development
and a number of national tripartite agreements have already been signed.
National level tripartite bodies have been set up, for example, in Bulgaria,
the former Czechoslovakia, Hungary, and the Russian Federation. They are
empowered with negotiation and consultation functions. While, the National
Tripartite Commission in Bulgaria and the Russian Federation, and the
Council for Economic and Social Accord in the former Czechoslovakia were
set up for the purpose of negotiating and reaching national (general,
framework, social peace) tripartite agreements, the Hungarian Council for
the Reconciliation of Interests is mainly a consultative body, but with a
negotiation function as regards mass work force reductions and mandatory
minimum wage.
Social dialogue at a national level may also be successfully carried out on
an ad hoc basis without any institutional set up. The recent example is a set
of legislative acts (called "Pact on State Enterprise") elaborated at the end of
1992 in Poland through a series of informal consultations between the
government and trade unions. The Pact aims to identify an ownership status
of state-owned enterprises compatible with the emerging market
environment, to facilitate privatization of such enterprises and to define their
respective roles of the management and employees in this process.
Since the labour relations machinery is still underdeveloped, there is a
tendency to entrust the tripartite bodies with the function of labour disputes
74
settlement, which in Western countries normally is discharged by other
bodies. This seems to be a temporary problem which will be resolved in die
course of the reforms of labour relations.
Another peculiarity of tripartism in some of the countries in transition
(Bulgaria and the Russian Federation) is that the tripartite arrangements take
place not only at the national level, but also at the sectoral and territorial
(municipal) levels.
As the process of establishing national tripartite dialogues is still in its
initial stage, it runs into a number of difficulties which may be grouped into
two kinds. A first set of difficulties, the most important of which have
already been referred to above, concerns 'party related' problems that stem
from the fact that the functions of the parties are not yet sufficiently separate
and that all too frequently - on both the employers' and the union side ~
there are still too many rival organizations, some of which may not be very
representative. This means that when it comes to tripartite national dialogue
there are problems of party representation, difficulties in reconciling
positions mat are too numerous and too remote from each other as well as
difficulties in ensuring the effective application of the decisions reached. It
would probably be unrealistic to think that these difficulties can be overcome
quickly.
The second set of difficulties — which are more technical and therefore
easier to resolve ~ stem from the fact that there is a frequent tendency to
entrust a single tripartite body with an unduly varied range of functions at
the same time as the procedures for carrying out these functions are
insufficiently differentiated. For example, the same body may be called
upon, using the same voting procedure, to give its opinion on draft economic
and social legislation, to reach agreements on major issues of national social
and economic policy, and to settle disputes. In addition, the sphere of
competence of diese bodies is sometimes defined in such a way mat they are
liable to encroach upon the prerogatives of the parliament or the government.
Certain indispensable distinctions should therefore be established between the
various problems that are now being dealt with by the tripartite bodies, so
that each of these problems, according to its nature, is entrusted to an
appropriate body and settled by means of an appropriate decision-making
procedure.
75
Bipartite negotiation at sectoral and enterprise levels is also becoming an
important supplement to national tripartite arrangements in the countries in
transition. The changing role of the State in labour relations facilitates the
process of assigning collective bargaining with its genuine function of fixing
wages and other working conditions. Recently adopted legislation provides
for collective agreements at both sectoral and enterprise levels.
The establishment of an effective collective bargaining machinery has just
begun in the countries in transition. Due to the difficult economic situation
and to inflation it is unrealistic to expect the countries in transition to switch
overnight to a system of full freedom of collective bargaining. Wage
bargaining is still underdeveloped since the system of prohibitive taxes on
wage increases, imposed for anti-inflation purposes in many countries in
transition, substantially limit die autonomy of the social partners to negotiate
on wages.
In this regard, experiences of limited freedom of collective bargaining in
the countries of Western Europe might be of interest. The freedom to
negotiate is nearly always subject to certain limitations in public enterprises
in West European countries. In some of them there have also been limitations
in the private sector, particularly on wages, during difficult economic
periods such as that immediately following the end of the Second World War
or between 1975 and 1985. Sometimes the government, the employers and
the workers in these countries have managed to agree, at the interoccupational national level, to confer a less distributive character on
collective bargaining by restricting its room for manoeuvre on wages and
orienting it more towards other issues such as arrangements in respect of
hours of work or the introduction of new technologies. Where these attempts
failed, some governments turned to laws or regulations to impose limitations
on wage negotiations. The competent bodies of the International Labour
Organisation considered that certain of these limitations were incompatible
with the fundamental principles embodied in the international labour
standards, but that others were not.
Even though a number of obstacles persist to the establishment of sound
bipartite relations in the countries in transition, enterprise collective
bargaining seems to be an area where such relations may, in the immediate
future, receive a strong impulse for development. At this level there are
76
always partners to engage in dialogue: the owner or management on the one
side, and the union — or the personnel — on die odier. Moreover, there will
always be problems diat must be settled mrough consultation or negotiations
at the enterprise level.
The question of enterprise-level collective bargaining cannot be separated
from that of workers' participation in decision-making at this level. Under
the previous system in the countries in transition labour-management
dialogue at the enterprise level took essentially place within the framework of
the system of participation, through self-management workers councils
empowered with a wide range of rights, some of which (e.g. the right to
appoint and dismiss enterprise managers or die right to veto managements'
decisions) were absolutely incompatible with the rules of die game in a
market economy. Widiin the process of die reforms, die system of workers'
participation is also being substantially redesigned in order to fit in die new
market-oriented economic environment. In Poland, for example, die system
of workers self-management in state enterprises envisaged by the act on selfmanagement of state enterprises of 25 September 1981 ceases now to be
applicable to the enterprises which in the course of privatization are
transformed into joint-stock companies.
One of the most essential problems which the countries in transition
encounter in reshaping dieir system of workers' participation is to find a
manner in which workers will be represented within the enterprise. Three
possible formulas widely practiced in Western labour relations systems are at
their disposal: representation by trade unions, by bodies of the workers
council type, or by both simultaneously. Each country should certainly avail
itself of die particular formula mat meets its specific needs. Some countries
in transition have already made their choice. In Hungary, for example, the
Labour Code adopted in March 1992 provides for die two-channel system of
workers' representation, i.e. through both die trade unions and workers
councils.
Turning from negotiations and participation to the subject of disputes, it
can be seen mat laws and regulations on dieir settlement recently adopted in
the countries in transition provide for conciliation, and sometimes for
arbitration, but only rarely make provisions for die requisite procedures and
institutions to be set up. This seems to be an area where many of these
countries are currently concentrating their efforts.
6
Labour Markets in the Central Asian
Republics: Issues and Policy Implications
Peter Duiker
This chapter considers some of the main issues in creating labour markets
in the Central Asian republics (CARs). The assumption is that markets will
be the main institutions in the new economic order of the Central Asian
republics. This means that resources such as labor, land, capital, managerial
and entrepreneurial talents will be allocated according to relative prices,
based on the relative endowment of the factors concerned. It is a departure
from the direct centralized planning system of the ex-USSR. The new
situation will make possible the introduction of policies promoting full,
productive and freely-chosen employment. Effective labour market policies
will be instrumental in overcoming the difficulties of the transition to a
market economy.
There is particular need to activate emerging labour markets in the Central
Asian republics in order to reach the development objectives of macroeconomic and employment policies. Labour market policies should respond
to specific issues encountered in the Central Asian republics. It is necessary
that these policies contribute to economic progress as well as to social
justice. The ILO's labour standards are important building blocks for
achieving social justice. Labour market policies should in particular aim at
achieving equity, growth and efficiency. Equity will be enhanced through
promoting equal opportunity in access to employment, through equality in
treatment of all in the labour market and through facilitating the participation
of vulnerable groups. The creation of jobs in productive and sustainable
activities contributes to economic growth. Efficiency in labour markets will
78
be strengthened by improving the rewards from investment in human
resource development. This will lead to higher incomes through increases in
productivity.
Experience in Eastern and Central Europe shows that some elements of a
competitive economy, such as liberalization and price reforms, are much
easier to introduce than creating market institutions. The Central Asian
republics are still in the early stages of transition, and are trying to come to
grips with structural reforms and stabilization. In some of the Central Asian
republics output of goods and services is more than 30 percent below
previous levels. Unemployment is increasing. It may take a long time before
the benefits of private enterprise result in higher growth, better quality and
productivity and new employment. This is despite the undeniable assets that
the Central Asian republics possess, such as a relatively skilled and cheap
labour force, land and other natural resources.
Labour absorption is die aim of labour market policies. The conditions in
the Central Asian republics and in the labour market systems being
established will determine how and when this goal will be achieved. The
objective of this brief paper is to highlight some of the issues and the options
in labour market policies for the Central Asian republics. Labour Ministers
and other policy makers will have to make difficult choices among options.
They will have to set the priorities for development and employment
programmes. This paper can only illustrate some of the implication of diese
policies.
Following a review of the special features of labour market systems during
transition die priorities in terms of labour market policies are discussed. The
paper concludes with a short review of the responsibilities for labour market
efficiency, equity and social justice during transition.
Labour Market During Transition
The Central Asian republics face a twofold transition: from centrally
planned to market economies and from regions integrated in a larger country
79
to independent states. This will inevitably result in fundamental changes in
the economic and social structures of the Central Asian republics.
The first year of the transition has been difficult. Reductions in demand
and in production have led to under-utilisation of the industrial capacity.
Labour shedding is increasing. Inflation and currency depreciation make it
difficult to accumulate savings and to establish an environment for
productive investments. Nevertheless, significant progress has been made in
creating the conditions for transforming the Central Asian republics into
market economies. The structures from the past determine to a certain extent
what can be accomplished during transition. However, the achievements so
far and the policies presently pursued by the Central Asian republics are
more important for social and economic progress than the old structures.
From Labour Scarcity to Labour Surplus
Absorption of labour in competitive economies is the outcome of the
interaction between economic growth, labour supply and the structure and
functioning of labour markets. During transition employment becomes
increasingly linked to economic performance. Under the system of central
planning employment was largely divorced from economic performance. At
the enterprise level soft budget constraints ensured that the link was virtually
non-existent. Labour was allocated to enterprises according to the priority
given to the type of production pursued rather than to efficiency and
economic performance. With budget constraints for capital investments especially in non-priority sectors ~ usually being somewhat harder, many
enterprises also found it expedient to substitute labour for capital. Thus, for
individual enterprises labour was a scarce resource to be hoarded and
accumulated in as large numbers as possible to permit future growth. The
same mode of thinking prevailed at the macro level. The inefficient economy
had a seemingly insatiable demand for labour as well for capital and other
resources. These relationships changed fundamentally during transition.
In market economies, employment is directly dependent on economic
opportunities and production process. An economic slump and a fall in
production during the early periods of transition can therefore lead to labour
80
shedding and unemployment. This could result in massive reductions in
labour absorption. This is no moot problem, as output levels are falling at a
yearly rate of more than 10 per cent. It is not a medium or longer term
problem, but it could affect present workers. If this happens will depend on
various factors.
Enterprises might still practice some form of labour hoarding. Alternative
employment opportunities, some of them in the informal sectors, might come
up. However, the possibilities for creating additional productive employment
are not very good. Growth of demand, through exports and higher level
spending are not favourable in the immediate future. In addition, the
prevailing production structure, with its relative emphasis on primary
industries is not a good basis for increasing employment in the face of
international competition. Increasing the share of service arid light
manufacturing sectors beyond the present level of 40 per cent will be a good
strategy for employment as these production processes are more labour and
skill intensive. But changing economic structures takes time.
Growing Labour Supply and Unemployment
The emergence of unemployment is taking place against the background of
the continuing strong labour supply. The arrival of young people and new
entrants on the labour market is an economic, social and political challenge.
Population growth in the Central Asian republics is high by standards of the
former USSR1. It is comparable, diough, to countries at the same level of
development. However, there are wide discrepancies in the Central Asian
republics in this respect. Kazakhstan has a comparatively low rate of
population growth (about 1 per cent), while Tajikistan's population has high
natural increase (3 per cent). Such levels and differences have important
consequences for labour market functioning.
The supply of labour depends on the participation rates. A characteristic of
some of the Central Asian republics is the low participation rate of the
women. Socio-economic development policies can have a strong bearing on
such rates, although the effect might be only felt in the medium to long-term.
However, in the short run important changes can take place through selective
81
out/in migration and differential participation rates of the groups concerned.
In addition, market economies encourage the mobility of labour. This has
also important consequences for the participation rates, in particular for
women. Other factors to be taken into account for evaluating die supply of
labour are the general level of education of die population, as well as the
health conditions. It should also be noted that 60 per cent of the population
in die Central Asian republics is in the not directly productive age group.
Economic hardship might force many people to re-enter the labour market.
During the transition period, labour has ceased to be a scarce resource in
economic terms.
First and foremost affected, were workers in industries suffering from
disrupted customer and supplier links: employees of the defense sector
enterprise undergoing conversion, and civil servants, whose number had to
be reduced as result of state management restructuring. This 'first wave' of
dismissed workers was absorbed back into work after retraining. This was
due mainly to die availability of vacancies left over from central planning.
However, die availability of vacancies has rapidly diminished.
Structural employment problems immediately emerged due to die fact diat
the bulk of job openings was mainly for blue collar workers, in particular, in
heavy manual jobs. Many of die unemployed comprised workers with a high
level of education, among them women and youths. In general, diese two
groups have suffered most from emerging unemployment in Central Asian
republics.
Aldiough unemployment rates are rising in all Central Asian republics and
the danger of large scale unemployment looms large on die horizon, by early
1993 it had only assumed acute proportions in Uzbekistan. Employment
policies have so far shown a bias towards passive policies, although the
employment fund established in all the countries, except Turkmenistan,
generally have a mandate to engage in job placement and training as well as
in disbursement of unemployment benefits. While the establishment of die
employment funds are a laudable step forward, this initiative does not
amount to a full-fledged employment strategy and is, by itself, inadequate as
a response to die emerging employment problems. Although unemployment
rates are still at a manageable level of five per cent in die CAR, aggregate
demand shortfalls can become devastating. Once die effects have taken root,
82
experience — dating back to the depression in western countries ~ indicates
that such unemployment is hard to reduce.
Policy Responses
The response of the Governments and Labour Ministries in die Central
Asian republics to the new situation of transition to a market-oriented
economy and to emerging unemployment has been quick and manifold.
National laws on employment have been adopted, providing a legal
framework for conducting policies to reduce unemployment, create
employment and financially support unemployed workers. The role of
employment services has been strengthened. In some republics enterprises
have also been made financially responsible for the organization of special
public works. Systems for education and basic instruction of workers have
been enhanced and training in managerial techniques and entrepreneurship
introduced, but only on a limited scale.
The replacement rate for unemployment benefits usually is 50 per cent in
Central Asian republics (but not lower than the minimum wage and not
higher than the average wage) and is paid for 26 weeks on the condition that
the unemployed had been in paid employment prior to redundancy for a
specified number of weeks in a calendar year. First time entrants to the
labour market are also eligible for an unemployment benefit, but at a lower
rate. Usually, rates of unemployment benefits take into account the number
of persons (children, elderly) an unemployed worker has to support. In order
to protect the interest of handicapped workers, some governments in the
Central Asian republics have decided to reserve three to five per cent of jobs
for them at die level of enterprise and establishments.
These measures are part of the wider economic reforms conducive to the
establishment of a market economy. This process comprises the introduction
of price mechanisms to allocate factors of production and goods, but also
includes the promotion of the private sector, currency convertibility and
other trade liberalization measures, the guarantee of property rights and die
right of access to factor and goods markets. For labour, of course, the
introduction of true labour 'markets', in which job seekers choose employers
83
and employers choose (or do not choose) their workers is perhaps the most
important economic reform. But a cost of free and flexible labour market is a
stark reality of unemployment.
Stable and sustainable, non-inflationary economic growth will be the best
guarantee for labour absorption in productive, freely chosen employment.
The policy of regional specialization pursued in the former USSR has left the
Central Asian republics extremely trade dependent and with lopsided
economic structure. This implies that diversification of the economic
structure and increased self-sufficiency will inevitably be a main objective of
economic strategy. Economic diversification and a higher degree of
processing of domestic raw materials will also provide the main context and
area for future entrepreneurial development and employment and income
generation. However, increased self-sufficiency is no substitute for trade, in,
particular as, except for Kazakhstan, all the countries register large deficits in
food production. Thus, circumstances would seem to leave no option but
strong emphasis on export-oriented, employment-based development
strategies. Qualitative development and enhanced and more efficient
utilization of the countries' human resources need therefore become key
development objectives. However, rather than being seen as a development
problem, the young and growing labour forces should be taken as the main
resource for development in die design of strategies for structural change and
growth. Such employment based-development strategies will need to address
both the issues of upgrading the quality of the human capital and, in
particular, increasing the efficiency in its utilization.
Labour market institutions will not work without mechanisms which ensure
full participation of the parties involved. This is an integral part of the
democratisation processes in the Central Asian republics. Labour standards
protect basic workers rights and promote social justice. A structured process
of consultations and negotiations contributes to efficiency and equity in the
pursuit of economic goals. Tripartism is a proven means of integrating social
and economic goals.
84
Towards a Framework for Labour Market Policies
Creating labour markets in the Central Asian republics is an integral part of
the economic restructuring which these countries are undertaking. The fact
that labour no longer can be automatically considered a scarce resource
indicates that the transition process is underway. However, how labour
markets will function depends very much on die structures of the institutions
and on the policy environment created by the social partners. It is a challenge
to make labour markets function efficiently and to ensure equitable outcomes
of labour processes.
Creating Labour Markets
Labour markets in the Central Asian republics will not develop unless the
parties concerned, in particular employers and workers, have acquired
freedom of action in respect of individual decisions to participate in labour
processes. Constraints on the mobility of labour, skills and jobs should be
limited only in die interest of worker protection and of basic social justice.
Free markets require the presence of many agents in order to ensure a fair
outcome of the system. Economic pluralism is dierefore also a characteristic
of mature labour markets. However, democratisation should go beyond the
immediate economic relationships.
Political reforms are important to individual workers, organized labour and
employers because their success will mean the establishment of an
environment supportive of decentralized decision-taking and private
initiative, as well as democracy at the workplace. Workers' rights, such as
freedom of association and the right to* organize and bargain collectively are
the most visible labour related aspects of political reform.
In a labour market, wages and other returns to labour serve as rewards to
workers and also as market signals to employers about how to more
efficiently use labour,resources, and more importantly, about whether or not
to utilize (hired) labour. Some minimal level of unemployment is a natural
characteristic of a functioning labour market. Workers who are free to leave
85
their current job do so for a variety of reasons, including the belief that a
better job awaits them in a different occupation or with a different employer.
Workers who are dismissed make possible their productive capacity to
another employer or producer. A certain level of ' friedonal' unemployment
is natural and facilitates the working of a market economy, but has not been
experienced in most Central Asian republics. However, these labour
processes depend on the conditions in specific markets. Rural labour markets
are different from urban and formal sector markets. The status and
bargaining power of the workers, the employers and the self-employed will
vary according to the prevailing labour market conditions.
Rural Labour Markets
Rural labour markets are, the world over, less subject to institutional
factors than urban and formal sector markets. Nevertheless, rural labour
markets are of prime importance for the future development of the Central
Asian republics. Rural areas are not only the environment for half of the
population, but also a comparative asset in terms of their factor endowment.
The way rural and regional labour markets are induced to function will have
enormous consequences for the development and the standard of living in all
Central Asian republics. The following are some of the main factors which
thereby have to be taken into account:
-
Land distribution and utilization is a main determinant of labour
absorption, in particular, but not only, in agriculture. It is a good
illustration of the bearing which non-labour variables have on
employment. Labour policies should take this into account.
-
Self-employment will, in the future, become a main characteristic of rural
development. This has important consequences for labour policies and for
the ways these can be made effective.
-
Labour absorption in rural areas can be increased substantially if the right
type of linkages are developed between farm and non-farm employment;
86
rural non-farm enterprises will become increasingly important in a
strategy of economic diversification.
-
A main problem in rural areas is the underutilization of labour. There is a
high population pressure on arable land and productivity in agriculture is
low. Remedial action will require simultaneous interventions in the use of
several factors of production; land, labour, material inputs and
organization, including appropriate levels of technology. It will be
important to provide for the right type of institutions in support of rural
employment. Cooperative and new forms of participatory development
could be promoted in this area.
Labour processes in rural areas are of prime direct and indirect importance
for labour markets in the Central Asian republics. Directly, as the
availability of surplus labour influences urban and formal-wage labour
markets. Indirectly, as the linkages and income multipliers in die rural sector
can create a strong demand. Comprehensive employment and labour policies
in the Central Asian republics should take diese effects into account.
Urban Labour Markets
Formal wage contracts are a main characteristic of present labour
relationships in the Central Asian republics. It was not unusual for 90 per
cent of the workers to be employed in the state sector. Although that
percentage is rapidly diminishing, it is still high. These enterprises have
internal markets which are important from a labour point of view. In
addition, labour analysts will be interested in the emerging private sector. As
for die rural sector, it would be useful to monitor closely some of die main
parameters in die urban labour markets:
-
Labour allocation processes in existing enterprises will remain important
for some time to come. Beside die remuneration and wage costs aspects
(see below), die development and die utilization of human capital in diese
enterprises is an important variable.
87
-
Labour markets suppose the pursuit of full employment, freely chosen
employment and quality of economic growth. There will thus be an
emergence of private sector employment. This will be heterogeneous in
character. Some of it will rapidly evolve into formal, medium-sized
enterprises or into small scale professional services. However, a large
part will become 'informal' in nature.
- Informal sector employment requires differentiated approaches. Some
entrepreneurs simultaneously capitalize on several production factors. In
that case informal sector activities can be an engine for growth and
employment. Small business creation efforts can have many lasting direct
and indirect effects. On the other hand, activities such as petty trading,
which only provide a return to labour, should be considered mainly from
the viewpoint of their income-maintenance and safety-net function.
- There are strong reasons for developing labour and odier policies which
aim at complementarity between formal and informal sectors. This
concerns, in particular, the different types of demand for products which
are being met by die two sectors. In addition, sub-contracting might be
pursued as a viable economic and employment strategy.
Access to Education and Training
Creating a proper environment for human resource development and
utilization is an integral part of labour market policies. Rewarding the
investments in the upgrading of skills is an important function of labour
markets. These rewards will be the outcome of higher productivity and
competitiveness. The Central Asian republics inherited an extensive and
highly developed system of education and training. Important successes have
been achieved in the general education and skills levels of the population. As
long as the basic educational system manages to cope with the rapidly rising
absolute number of school entrants, prospects for further educational
improvements are good. However, the relevance of the education and
88
training system for the emerging labour market conditions have to be
carefully assessed.
The quality and scope of secondary training will determine the ability of
the work force to make a positive contribution to the development of the
economy. Traditionally, the Soviet educational system has emphasized
vocational training, the Central Asian republics have been no exception in
this regard. However, besides the complaint that vocational and professional
training has been of a sub-standard quality, concern has also been voiced that
the training has been too narrowly focused on the needs of the profession for
which training is given. This implies not only that occupational mobility is
unduly limited, but also that flexibility and the ability to keep up with the
times may be inadvertently restricted.
Major revisions of the educational and training systems are likely to be
required. The educational system inherited from the USSR needs to be
reviewed to determine to what extent it is still appropriate and what changes
are needed. The qualitative aspects deserve particular attention in view of the
widespread criticism, particularly with regard to rural education. The system
for vocational and skills training need to be revamped. An overhaul of the
training system should be undertaken against the backdrop of the changes in
the economic structure. A much stronger emphasis on training in
entrepreneurship and rudimentary business administration as a complement to
skills training should be given. Channels of communication need also be
developed between the central agency responsible for employment and
manpower planning and the training institutes. In addition to traditional
training, it may be expected that there will be a considerable need for short
term retraining of skilled labour, and of upgrading of skill levels among
adults.
Making Labour Markets Efficient
Efficient labour markets contribute to competitiveness. The allocation of
resources should take place according to relative prices, which correspond to
the scarcity or relative availability of the inputs concerned. Information is a
main factor in the decision-making process. Labour market participants have
89
only limited possibilities to monitor levels and trends in supply and demand.
The acquisition of such information entails a cost. Employers as well as
workers try to minimize those costs. Many aspects of internal labour markets
can be more easily understood if such costs are taken into account. For
example, employers prefer internal promotions partly because of the cost
involved in searching for external candidates. Timely labour information can
reduce that cost for both employers and workers.
Increasing labour mobility and job diversification contribute to labour
market efficiency. Employment services in the Central Asian republics
should in the future concentrate on service functions, as job exchanges and
support to prospective employers and local administrators. These tasks would
give a new dimension to employment services, beyond the immediate
function of catering for dislocated workers during transition. However,
mobility has several wider aspects which should be kept in mind. For
workers it includes not only geographical mobility, but also skill and sectoral
movements. Each move represents a cost, in terms of alternative location,
acquisition of new skills and perhaps (temporary) unemployment. Benefits
should flow through future higher wages and better working conditions. The
employer will seek higher productivity and a better return on the investment.
In the process, posts might be relocated, some employment will be lost and
new jobs will be created. These different types of mobility should be
monitored in terms of costs and effects.
The institutional aspects of labour markets, including processes of
matching supply and demand cannot be considered in isolation from me wage
rates. Wages constitute the prices through which factors are allocated on
markets. However, wages are also incomes for the workers. The standard of
living, if not the status, of the worker's family depends on that income. On
the other hand, employers use wages as an important determinant of their
total cost structure in production. Governments are monitoring and using
wages in the framework of several economic policies. A wage policy is
therefore a most important aspect of labour market policies.
From the point of view of labour market policies, it is important to note
that wages are still largely determined by institutional factors. In the future,
a shift towards a role for economic forces, such as the relative scarcity of
skills, will need to take place. Wage determinants should increasingly be
90
based on differences in skill and efficiency at the enterprise level.
Investments in skills should ultimately be reflected in differentials in wages
and remunerations. These indicators also guide the contributions which
enterprises make to training of their workers. However, the present wage
structure reflects also the sectoral distribution of prevailing economic
activities. This distribution is not an optimal one in view of the future
development potential of the Central Asian republics. Wages policies should
be instrumental in correcting these imbalances.
A major constraint for wage policies in the Central Asian republics is the
high level of non-wage labour cost. In a competitive environment, all costs
which are not directly related to compensation of workers can become a
liability to the enterprise and not to the nation. On the other hand, many
facilities provided through the workplace can not be obtained yet through the
open market or from state services. A long term plan to bring these facilities
and costs more in line with practices elsewhere would facilitate labour
market functioning.
Minimum wages should be an integral part of wage policies. In the early
stages of the transition period, the protection of minimum standards of living
for workers and their families as well as the safety-net aspects should be
stressed. In the future, minimum wages can also be used as a basis for a
remuneration system. However, in the present situation in which workers
sometimes have to spend 50 per cent of their wage on food, the social
protection aspects take precedence.
Equity and the Labour Market
An important lesson which the experience of mature labour market
economies has to teach is that it is at times not only necessary to move a
worker out of his or her job, but that it is also in society's interest to help
him or her into another, more productive job as soon as possible. Moreover,
the post-socialist countries should do something better than compensate the
unemployed with a stream of income as long as they remain unemployed. All
efforts and resources should be directed at re-allocating labour resources to
more productive uses. 'Activating' income support measures is an important
91
task which serves both equity and efficiency objectives in the Central Asian
republics.
It is unfortunate, but true, that in each labour market some groups
experience greater hardships and problems than others. Such manifestations
include higher unemployment rates, lower participation rates, lower wages,
and/or occupational segregation. The causes may be discrimination, social
mores, market imperfections in education and training, etc. Groups likely to
be adversely affected and thus be made special targets for active labour
market policies may include women, youth, disabled, migrant workers,
ethnic minorities, displaced workers, older workers and those with very low
educational and skill levels.
Social safety nets constitute a shield against hardships caused by changes in
labour processes. The objective is to absorb labour from sectors which have
to shed labour into productive employment. The ILO knows what it takes to
design, implement and maintain a social safety net, which components of a
safety net work best and at what costs, and how to share these experiences
with the Central Asian republics. These capacities and the efforts of all
concerned should be directed at active participation in the new social and
economic order.
Responsibilities During Economic Reforms
In any country, regardless of its stage of economic development or its
relative reliance on market forces or planning, the design of labour market
and safety net programmes begins with die recognition that there are tihree
'players' in the economic adjustment game:
- workers and their trade union representative;
- enterprises which, regardless of their legal form or composition of
ownership, play the role of employers, and;
- governments, national as well as regional and local.
92
Each country has its own way of dealing with redundancies and lay-offs. In
the Central Asian republics, it is likely that most of the burden in case of job
losses falls on the workers. Those who live in a competitive market economy
tend to understand that competition inevitably means die birth and death of
firms. Market-oriented economists understand that this process is not only
inevitable, but also desirable, so that inefficient firms will make their
workers available for more productive and rewarding employment. In this
light, the current and impending economic dislocations and unemployment in
the Central Asian republics can be considered as an opportunity for those
economies. The opportunity is to quickly move labour out of loss-making
state enterprises and into private sector firms which produce goods and
services for which there is a real demand.
But it must be realized that, for die first time in a generation, workers and
their families in these countries will experience unemployment. This
unemployment will impose very real economic, social and psychological
hardships on the affected workers. Unemployment may also generate worker
unrest and a backlash against economic reforms. It is therefore necessary to
get these unemployed workers re-employed as soon as possible, and also to
take actions to protect the individual worker and his/her family while they
are unemployed.
In focusing on the economic aspects of active labour market policies and
the reallocation of labour, this brief paper has ignored many other critical
social aspects of the transition from a socialist to a market economy;
housing, medical care, access to and quality of education, pension benefits,
the quality of life and environment etc. Neither has it addressed all of the
labour market aspects of the transition, such as; occupational safety and
health, industrial relations, freedom of association and trade union
representation, democracy in the work-place, wage determination systems,
productivity, dispute resolution systems, etc. Some of these issues are
discussed elsewhere in this volume.
Active labour market policies can assist in creating efficient labour markets
which also provide for equal opportunity in access to employment and for
social justice. Such policies will constitute an effective framework for actions
in specific (local) labour markets and for programmes in sectors" including in
the areas mentioned above.
93
Notes
1 The average rate of population growth in the CARs was 2.3 per cent during the
period 1980-90, as against only 0.9 per cent in the former USSR as a whole.
7
A Policy Agenda
Per Ronnds and Orjan Sjoberg
Since the Central Asian republics obtained independence in the second half
of 1991 they have all opted for a policy of gradual economic liberalization
and transformation. The aim has been to strike a balance between the need
for fundamental economic reform and restructuring on the one hand and the
risk of increasing economic disorder and political and social unrest on the
other hand. The statement by the president of Turkmenistan, Saparmurad
Niyazov, that '[w]e shall maintain a balance between the desired and the
possible as we are making headway toward a market system' 1 is
representative in this regard. During the first year after the collapse of the
Soviet Union the main concern was inevitably to counter and mitigate as far
as possible the economic disarray and slump in production that followed in
its trail and to cope with the acute problems of nation building. As the
economic links with Russia remain intimate, the room for independent
macro-economic policies remain limited. Although it will increase following
the introduction of national currencies.
Considerable preparatory work for a privatization of the economy has been
undertaken in all of the countries. Privatization plans have been drafted and
much of the legislation is now in place. However, implementation will
inevitable be difficult and slow. Already, fear of rampant unemployment and
the economic slump is showing signs of slowing down the often ambitious
plans for marketization of enterprises, viz. in Kyrgyzstan.2 Similarly, all the
countries in the region have adopted land reform programmes, aiming at
transferring the managerial and usufruct rights, but not necessarily the
ownership, of agricultural land to the individual farm households. However,
implementation in this area, too, has so far been slow and piecemeal. Despite
96
attempts at liberalization, state control over agricultural production remains
large and, for example in Uzbekistan, artificially low state procurement
prices in the face of sharp increases in the prices of agricultural inputs have
deteriorated agricultural terms-of-trade.
Although unemployment rates are rising in all the countries and the danger
of large scale unemployment looms large on the horizon, by early 1993 it
had only assumed acute proportions in Uzbekistan, where unofficial
estimates placed die number at almost two million.3 Employment policies
have so far shown a bias towards passive policies, although the employment
funds established in all the countries, except Turkmenistan, generally have a
mandate to engage in job placement and training as well as in disbursement
of unemployment benefits. While trie establishment of the employment funds
are a laudable step forward, mis initiative does not amount to a full-fledged
employment strategy and is, by itself, inadequate as response to the emerging
employment problems.
Indeed, a main conclusion of the review of the issues and problems
confronting the Central Asian republics is that the employment aspects are of
absolutely paramount importance as these newly independent countries begin
to chart their course ahead. The young population structures imply that the
economies will need to absorb large increments in the labour force on top of
those who are displaced and need alternative employment as a consequence
of the transition process. At the same time, the structure of me economies
make them ill-suited to assume this task, while poorly developed factor
markets impair labour market flexibility and spontaneous growth processes.
However, rauier than being seen as a development problem, the young and
growing labour forces should be taken as the main resource for development
in the design of strategies for structural change and growth. Such
employment-based development strategies will need to address both me issue
of upgrading the quality of the human capital and, in particular, increasing
the efficiency in its utilization. To this end a three-pronged approach to
confronting the employment issues facing the Central Asian republics may be
identified.
The first and most important component should be to ensure an effective
integration of the employment aspects into overall economic development
strategies and policies for structural change and transition to market oriented
97
economies. This point needs to be made with some force, as it by and large
implies a break with past practices and requires that policy-makers and
planners are imbued with a new mode of thinking. Furthermore, the states in
these countries are weak and the temptation to replace dogmatic belief in the
plan by a similarly unquestioning belief in the market presents a real danger,
in particular as markets are for the most part not yet in place. Irrespective of
the political and economic ideology adopted, the state will need to continue
to play an active and major role in the economy in the foreseeable future and
a policy of laissez-faire does not present a viable alternative to forcefully
pursued development strategies.
Restructuring die economies with a view to diversify the economic base
and rectify the biases towards large scale heavy industry, and industry over
services, will have fundamental, potentially positive, employment
implications. Sound macro-economic and trade policies, the creation of an
environment conducive to the development and growth of new enterprises
and forceful regional policies are three broad areas for strategies to
encourage and guide the restructuring of the economies. Policies of a more
general nature need to be combined with more specifically targeted policies,
requiring an assessment of each country's comparative advantages and clearly
formulated objectives.
It may be conceptually useful to distinguish me countries that are rich in
energy and natural resources — Kazakhstan and Turkmenistan — from the
other three: Kyrgyzstan, Tajikistan and Uzbekistan. The rich endowment
with natural resources makes the former countries attractive targets for
foreign direct investments4 and hold promises of enhanced earnings of
foreign exchange and of government revenues. While such a development
may provide an escape from the current impasse, it is by itself unlikely to
have any major effect on employment generation. Mining and extraction of
natural resources provides neither much employment nor does it have any
significant linkages effects. On the contrary, a development based on
extraction and export of energy and other raw materials carries die risk of
'Dutch disease',5 in particular as the absorptive capacities of these economies
are limited and factor markets function poorly. Thus, the main risk would
seem to be that successes in exploiting natural resources and in generating
foreign exchange may cloud the need for economic diversification and
98
employment-based growth. The second tier of countries appears less lustrous
in the eyes of foreign investers and face the starker problem of achieving
economic development and increasing employment and income generation
with limited resources at hand and in the face of tight foreign exchange and
budgetary constraints.
Employment aspects also need to be incorporated in the strategy for
achieving the transition to market economies. Price liberalization, fiscal and
monetary policies, trade policies, development of factor markets,
privatization and, not least, de-collectivization of agriculture, have important
implications on employment and incomes. Yet, as noted above, policies in
this field in East Central Europe have typically been formulated and
implemented without consideration of the employment aspects. As late
starters, the Central Asian republics can benefit from the experiences of other
transition economies and need not repeat this mistake.
As a consequence of independence and the change of economic system the
government administrative apparatuses are being remolded. This provides a
unique opportunity to ensure that employment aspects are administratively
integrated into the planning process. Ideally, an employment and manpower
planning unit may be established, attached to a key ministry and with direct
communication channels with other ministries and key organizations and
backed up by a small research outfit. This would serve the purpose of
concentrating scarce competence, ensure integration of employment aspects
into overall planning, break down intersectoral/ministerial barriers to
communication and create national focal points for external assistance and
regional cooperation.
A system for monitoring and forecasting changes in the supply and demand
for labour and appearances of critical skills needs to be developed to remedy
the current scarcity of quantitative information and in light of the volatile
changes that follow in the trail of economic transition. Innovative approaches
are needed to devise a system which is capable of collecting and processing
information quickly and which makes maximum use of inadequate statistical
information. It should be noted in this context that short and long term
forecasting requires different approaches and that regional aspects are
important.
Apart from inadequate statistical information, the knowledge base on
99
employment related issues remains patchy and partly out of date.
Investigative studies in a variety of areas will be required to fill information
gaps and provide an adequate base for policy formulation. In view of the
inappropriate policies and untenable development patterns in agriculture, and
the large and rapidly increasing labour force in rural areas, studies aimed at
providing a basis for new agricultural strategies and identification of avenues
for increasing the labour absorptive capacity of the rural economy deserve
special priority. Other obvious topics for studies include promotion of
entrepreneurship and small scale enterprise development in general and the
employment aspects of policies for economic transition.
Mechanisms for regional cooperation and, in particular, exchange of
information need to be developed. Given the unfamiliar and experimental
situation, much can be gained from a regular exchange of information
between the Central Asian republics, but also by learning from the
experiences of more advanced transition economies in East Central Europe
and from China and Vietnam, as well as from Turkey. Regional cooperation
would also facilitate pooling of resources, for example in research and
specialized training (in particular as language barriers between most Central
Asian republics are small).
ILO is well placed to provide technical assistance and advisory services in
all the above areas. Apart from supplementing scarce local expertise, it has a
key role to play in providing access to the vast body of experience in
employment planning generated in ouier countries — which is neither wellknown nor easily accessible to policy-makers in the region — and by acting
as a catalyst for international cooperation. The latter is particularly important
in view of the rather weak traditional links between the Central Asian
republics on the one hand and transition economies elsewhere on the other
hand. Advisory services are also needed to make up for the limited domestic
experiences in the formulation and implementation of employment policies in
a market based economic system.
The second component on the policy agenda should focus on active labour
market policies. As noted above, the initial response to the emerging
problems of unemployment in the transition economies in East Central
Europe has primarily taken the form of traditional passive labour market
policies. Such an approach is both inadequate and unsustainable. Drastic
100
changes in both the demand and the supply of labour in the wake of
commercialization and marketization of state enterprises, economic
restructuring and return migration of, primarily, Russians need to be
matched by efficient labour markets and high labour mobility. Unfortunately,
the Central Asian republics have inherited a legacy of inadequate labour
market institutions and low labour mobility, to which may be added
ethnically segregated labour markets. The main areas for policies include the
creation of an institutional framework for efficient labour intermediation, a
review of labour legislation, a shift from administrative wage determination
to a modern system of wage bargaining, and revamping of the system for
professional and vocational training (and re-training) with a view to increase
the vocational mobility of labour. The establishment of employment funds in
four of the five countries under study can be seen as constituting an
important first step in this direction. Geographical decentralization of
economic activities and diversification of the economic base in rural areas
and small towns will inevitably require considerably investments in physical
infrastructure.
Efficient intermediation of labour requires a network of labour exchanges/
placement bureaus. Under the old system most hirings were done directly by
the enterprises.6 In the 1970s a network of job placement bureaus were
established throughout the country in response to perceived increasing labour
shortages. However, the main objective of these bureaus was to mobilize
labour in an overall environment of labour shortage rather than to serve as
institutions for genuine labour intermediation.7 Thus, this network (which
has offices in all larger cities) will need to be given a different mandate and
will also require assistance to assume the task of promoting labour mobility
and providing intermediation between employers and job seekers in a market
environment. Ideally, they should also be redesigned to play an additional
role as collection points of labour market information; such as changes in the
supply and demand for specific skills, wage levels and the development of
shortages of critical skills.
Major revisions of die educational and training systems are likely to be
required. The inherited Soviet educational system needs to be reviewed to
determine to what extent it is still appropriate and what changes are needed.
The qualitative aspects deserve particular attention in view of the widespread
101
criticism, particularly with regard to rural education. The system for
vocational and skills training need to be revamped. It would appear that it
never functioned very well in the first place8 and the change of economic
system will render it partly obsolete. An overhaul of the training system
should be undertaken against the backdrop of the changes in the economic
structure and would inter alia result in a much stronger emphasis on training
in entrepreneurship and rudimentary business administration as a complement
to skills training. Channels of communication need also be developed
between the central agency responsible for employment and manpower
planning and the training institutes. In addition to traditional training, it may
be expected that there will be a considerable need for short term retraining of
skilled labour, and of upgrading of skill levels among adults.
The existing labour and wage legislation is both inadequate and largely
inappropriate to meet the needs of a pluralistic market economy. As already
noted the old system of administrative wage determination needs to be
replaced by a modern system of wage bargaining. A careful balance needs to
be struck between the need for a flexible and market based wage system,
which is essential for the establishment of an efficient labour market, and
equity aspects. Thus, the guiding principle should be to foster direct links
between the supply and demand for labour and wage levels, at the same time
as certain safeguards are established for the weaker segments of the labour
force and outright exploitatory practices are prevented.
As all the Central Asian republics face the same need to revise the
legislative framework and the system of wage determination, and as there is
considerable prior experience from other countries, this is an obvious area
for technical assistance and regional cooperation. Indeed, these are all
traditional areas for ILO technical assistance and advisory services, but they
are essentially uncharted territories for the new to the governments in the
Central Asian republics. Much can be learnt by the experiences of others in
these fields and by pooling and drawing on the experiences of other
transition economies large synergy effects can be gained and the quality of
the assistance provided enhanced.
Lastly, as a third component, the social security net needs to be adjusted to
fill the void left behind by the defunct centrally planned economic system.
Poverty levels in most of the Central Asian republics were alarmingly high
102
already prior to independence and the situation has worsened over the past
few years. Budgetary constraints impose severe limitations on the
comprehensiveness and level of ambition of social security schemes. The
main task must therefore be to devise cost-efficient schemes that are welltargeted on those in greatest need of assistance and to ensure that the schemes
are financially sustainable. Not least the trial and error approach adopted by
several of the formerly socialist countries in East Central Europe highlight
the gains that can be made from learning from the experiences of others in
this field.
Limited Room for Manoeuvre
As the Central Asian republics embark on the fundamental economic and
societal restructuring that inevitably follows from the transition towards a
market economy and the breakup of the Soviet Union they face four major
constraints which must have a strong imprint on policy formulation and on
the design of overall development strategies.
First and foremost, the Central Asian republics are all confronted with a
rapid growth of their labour forces. Even under the previous economic
regime, they were characterized as labour surplus regions. In contrast to the
situation elsewhere in the former Soviet Union, there was open
unemployment in urban areas and widespread underemployment in the
agricultural sector. The young population structure implies that the labour
force will continue to grow at a rapid rate over the next decades even if birth
rates decline and overall population growth is brought under control.
Productive employment generation will inevitably be a key development
issue, as the strong supply side pressure on the labour market will not abate
for a long time.
The crucial importance of the employment issues is further underscored by
the second constraints facing all the Central Asian republics, with the
possible exception of Kazakhstan, namely the high population pressure on
land. The scarce and environmentally damaged land resources imply inter
103
alia that agriculture cannot, even temporarily, be relied upon to serve as an
employment buffer. Although there undoubtedly is scope for increased
efficiency in the utilization of the available land resources, incremental
employment generation must inevitably be concentrated to the non-farm
sectors of the economies. This will be a major challenge in the years ahead
and will require die full attention of policy-makers and planners and needs to
be in the focus of technical assistance.
A third major constraint is the unbalanced trade structure and the large
deficits in foreign trade. Except for Turkmenistan (and possibly, within a
reasonable time horizon, Kazakhstan), none of the countries are even close to
balancing dieir trade widi me rest of me world, at the same time as they are
extremely trade dependent. Although a shift to world market prices in trade
with the rest of the former Soviet Union and a gradual shift towards
increased trade wim non-CIS countries is likely to improve die overall terms
of trade for most, if not all, of die Central Asian republics, diis alone is
unlikely to solve me problem of die trade deficit, at least not in me short and
medium term perspective. The Central Asian republics urgently need to focus
Uieir attention on developing their export base and to develop new markets
for meir exports. In many instances this is likely to be an uphill struggle.
Economic diversification and increased self-sufficiency is no substitute for
trade, in particular as, except for Kazakhstan, all the countries register large
deficits in food production. Thus circumstances would seem to leave no
option but strong emphasis on export-oriented, employment-based
development strategies. Qualitative development and enhanced and more
efficient utilization of me countries' human resources need therefore become
key development objectives.
A fourth constraint is the precarious budgetary situation of most of die
governments concerned and, more broadly, the generally weak capacity to
formulate and implement policies. Loss of revenue following from a
discontinuation of the previous financial net flow from the central
government to die republican administrations within die former Soviet Union
and revenue losses following from die transition process imply not only mat
new sources of revenue need to be developed, but also diat, at least in die
near term future, policy implementation in die Central Asian republics will
be subject to severe financial constraints and will need to meet very high
104
requirements of cost-efficiency. In some of the countries (e.g.,
Turkmenistan, Kazakhstan) there would seem to exist good prospects for
enhanced generation of government revenues, primarily from exploitation of
natural resources, while in others (viz. Uzbekistan and Tajikistan) no easy
solutions are in sight.
Notes
1 Ecotass, 1993:6 (25 January 1993).
2 Bess Brown, 'Central Asia: The first year of unexpected statehood', RFE/RL
Research Report, Vol. 2, no.l (1 January 1993), pp. 25-36; Cassandra Cavanaugh,
'Uzbekistan's long road to the market', RFE/RL Research Report, Vol. 1, no. 29 (17
July 1992), pp. 33-38.
3 Cavanaugh, 'Uzbekistan's long road', as compared to 600,000 officially
registered unemployed.
4 In particular Kazakhstan has already attracted considerable attention among
foreign investors; see Ahmed Rashid, "The next frontier: Kazakhstan is a magnet for
energy firms', Far Eastern Economic Review, 4 February 1993, pp. 48-50.
5 The 'Dutch disease' refers to the effects of windfall gains (e.g., from rapidly
increasing exports from a booming sector or from development assistance) on (i) the
exchange rate - the national currency being appreciated - and (ii) costs of production,
which tend to rise also in non-booming sectors, thereby effectively reducing the competitiveness of the latter. See William L. Corden and Peter Neary, 'Booming sector
and de-industrialization in a small open economy', Economic Journal, Vol. 92, no.
368 (1982), pp. 825-848.
6 In the whole Soviet Union the percentage of hirings done directly by the enterprises fell from 79 per cent in 1971 to 62 per cent in 1981 (Malle, Employment Planning, p. 62). By 1991, an estimated 4.3 million individuals, or 22 per cent out of a
total of 19.5 million jobs allocated, found work with the help of employment
bureaus, according to Aleksandr Shokhin, 'Labour market regulation in the USSR',
Communist Economies and Economic Transformation, Vol. 3, no. 4 (1991), pp. 499509, at p. 500.
7 Silvana Malle, Employment Planning in the Soviet Union (Basingstoke: Macmillan, 1990) p. 68.
8 See for example Gleason, 'Educating for underemployment', and Yevgeni
Antosenkov, 'A new employment concept in Soviet labour legislation', in Guy Standing (ed.), In Search of Flexibility: The new Soviet labour market (Geneva: ILO,
1991), pp. 63-79, especially pp. 73-78.
8
The Road Ahead: A Remark
William Clatanoff
The Central Asian republics are all in a period of threefold transformation:
-
-
from a centrally planned to a market economy;
from an overly specialized economic region, subsumed within a larger
economy, to self-interested membership in the international trading
community, and;
from membership in the one-party Soviet Union to an independent and
democratically pluralistic nation state.
All of this may happen, but none are at this point guaranteed, and because
of the complex inter-relationships between the three transformations it is to
early too predict the outcomes.
My remarks focus primarily on the first of these transformations, what is
generally called the economic transition from central planning to markets,
and within that framework most specifically on the transformation of the
labour market. The primary labour market problem during uiis transition is
no doubt unemployment. The disruption of economic linkages between
enterprises and regions, the disappearance of markets which used to be taken
for granted and the imposition of hard budget constraints on enterprises
exerts a yery strong pressure on most enterprises to trim their work force.
As an economy enters the transformation from central planning to a market
orientation, there are two theoretically possible ~ and highly contradictory —
policy alternative with regard to aggregate labour market behaviour, as
indicated by the absolute level and rate of open unemployment.
106
Under the first alternative, a relatively high level of unemployment
(presumably of a relatively short duration) is seen as not only unavoidable,
but somewhat desirable, as state owned enterprises shed their excess
(hoarded) labour. The 'good' aspects of unemployment are seen to be:
-
job losses and unemployment put downward pressure on wages, leading
to moderate wage increases and reduced inflation;
higher unemployment 'pushes' workers into new (private sector) jobs;
cuts in public budget deficits are realized by cuts in state enterprise wage
bills;
state enterprise productivity and profitability are directly enhanced (via a
smaller work force), enabling more rapid privatization;
state enterprise productivity is indirectly enhanced through improved
labour 'discipline' as workers fear job loss.
The alternative economic argument does not doubt the inefficient allocation
and utilization of labour by state enterprises, but would never-the-less avoid
or delay labour shedding by state enterprises during the crucial early period
of economic transformation. In this scenario:
-
-
-
-
high unemployment does not affect wages, since money wages are
administratively determined and real wages are much more a function of
inflation and exchange rates;
the growth of private sector employment is primarily dependent upon
non-labour market policies (i.e. capital markets, property ownership
guarantees, trade policy), and in any event the loss of jobs and income by
state enterprise workers depresses domestic demand and hence
employment creation;
the payment of unemployment compensation benefits will increase public
sector budget deficits;
state enterprise performance, productivity and profitability will be
improved only by the imposition of 'hard' budget constraints,
'marketization' measures including the exposure to competition, and
management training;
high levels of unemployment will lead to social unrest and an inevitable
107
political back-lash against the very process of economic reform.
Proponents of the first policy scenario outlined above can be said to
include the World Bank, the IMF, and most western academic economists.
Its advocates can now point to the bottoming out of Poland's recession as an
indicator of the success of such a policy, and to the stagnation of Romania
and Slovakia as examples of what will happen if you do not move to
economic restructuring via unemployment. Proponents of the alternative
policy strategy will point to China as an example of a successfully reforming
economy without open unemployment.
Unfortunately, die low unemployment ('China option') scenario, however
much it may be desired, is almost certainly not available to any of the
Central Asian republics. Each of the Central Asian republics starts the
economic transformation from a distorted and disadvantaged labour market
position, so that maintaining the existing structure of employment will
impede odier economic adjustments. They must begin to lay die foundation
for employment-led economic growth and development.
All of the countries of Central and Eastern Europe, and most of the exUSSR, began their economic transformation from a position of at least
nominal 'labour shortage'. Since economic growth was generally induced by
applying more and more inputs, rather than improving the productivity of
existing inputs, labour was viewed (by both die enterprise at the micro level
and die planner at the macro level) as the ultimate scarce resource — to be
hoarded by the enterprise and selectivity allocated to priority sectors by die
planner. However, in the Central Asian republics open unemployment —
'socially underutilized labour' ~ was acknowledged to exist even before
glasnost, much less the breakup of the Soviet Union.
The demographic profile and the rapid rate of population growth make
sustained employment growth necessary if you are to avoid rising
unemployment. Maintaining the employment in state enterprises is not
sufficient, particularly because of what can best be described as a 'lopsided'
economy, which is not geared to meeting domestic needs fbr consumption or
investment goods (much less trade, transport, personal or financial services),
but radier designed to feed certain identified raw materials or semi-processed
goods into the Soviet economic system. Trade widi other Soviet republics
108
made up well over 80 per cent of the total 'external' trade of the Central
Asian republics prior to independence. Furthermore, the Central Asian
republics were in effect trapped by the Council for Mutual Economic
Assistance (CMEA) trading system; CMEA trade in 1989 ranged from over
30 per cent of the total net material product in Kazahkstan to as much as 58
percent in Azerbaijan. Furthermore, the trade balances were negative for
most of the Central Asian republics, both with regard to the intra-Soviet
trade and the trade with the rest of the world. It is fair to conclude that
exports to countries outside the socialist bloc were insignificant for all the
Central Asian republics.
The employment patterns of the Central Asian republics clearly reflect
these trade distortions. For instance Uzbekistan processed only 15 to 20 per
cent of its own cotton, since employment in spinning and weaving was
planned for other republics.
The Central Asian republics must face the facts of their external trade
situation. While it may be that in the long run the terms of trade will move in
their favour, if they can successfully find international markets at world
prices for their major commodities, at present and for the foreseeable future
all the Central Asian republics, with the exception of Turkmenistan, face a
critical balance of trade deficit. Perhaps more importantly, they face an
absolute dependency on certain critical imports, made more difficult by the
Russian Federation's decision to change the prices of its exports. Therefore,
even if 'bottom up' privatization, self-employment, and trade and service
enterprise growth were sufficient to absorb labour force increases, they
would still need to create employment in the production of tradable goods in
order to offset the loss of inter-republic subsidies and finance critical
imports.
Finally the high ratio of population to arable land as well as the
environmental fragility of that land implies that they cannot rely upon
agricultural employment as much of a 'buffer' to absorb labour force
increases during the economic transition.
The question thus arises, what can be done to help create employment.
Based on the lessons of Central and Eastern Europe, one can clearly identify
some economic reform priorities; including privatization, the guarantee of
individual property rights, liberalizing foreign trade relationships, capital
109
market creation, banking and finance reform, and price reforms - usually
called price liberalization.
-
All of these types of reforms will directly impact upon the demand for
labour, causing significant shifts in the demand for labour among sectors
of the economy, enterprises, occupations, and geographic locations.
- It is the responsibility of the Ministry of Labour, to take a look at every
single 'economic reform' proposal and ask these questions: Will this
increase the demand for labour? Will this make it more likely that private
sector firms will want to have more workers? If it doesn't get the right
answers, then perhaps it should have a friendly talk with the Ministry of
Finance or Ministry of Economics.
Similarly, the Central Asian republics need to immediately begin a range of
social sector and human resource development reform activities, including
educational reforms which expand access to all regardless of ethnic group or
sex, more market-oriented occupational training, improved health care, and
social security (pension) reform.
-
All of these will directly, some in the short term and others in the longer
run, impact upon the supply of labour, causing alterations in the quantity
and/or quality of labour available in various local labour markets.
- The question to be ask about any of these reforms is: Will this increase
the quality and quantity of available human resources? If not, perhaps the
Ministry of Labour should have a friendly talk with the Ministry of
Education or the Ministry of Health or Human Services.
I would now like to turn to those policies which impact upon how the
demand for labour and the supply of labour interact — in the labour market
- to create jobs and income. Macro-economic reforms and human resource
development are the necessary basis for long-run economic and social
development, but functioning labour markets are necessary to assure me most
effective utilization of human resources.
110
Creating an efficiently functioning and equitable labour market must be
seen as an indispensable element of the economic transformation of the
Central Asian republics.
There are two important aspects of equitable labour markets. First is equity
- equal treatment — in access to employment and the preparation for
employment. This means that education and training should be open to all
citizens, regardless of gender or national or ethnic group. There must also be
equality of treatment in employment, most notably equal pay for equal work,
again regardless of ethnic group or gender.
What is also crucial at this point is an improved allocative efficiency for me
human resources — to assure that the skills and abilities of the labour force
are distributed among sectors, enterprises and occupations so as to maximize
output. To refer back to the comment made earlier, fewer of the workers
should produce materials and products intended for CMEA markets and more
of the workers should start to produce goods and services intended for
domestic consumption and the world market. It is important to note that, in
an efficient labour market, when output is maximized income received by the
workers is also maximized.
At the present, the primary objective for labour market policy in the
Central Asian republics — and the standard by which one should judge if the
labour market policy is succeeding - should be to assure that an ever smaller
proportion of national income is distributed via government transfers, and
that a larger share of the total national income is generated as a reward for,
and incentive to, private sector production and employment. This can only be
accomplished in an efficient and equitable labour market.
But creating efficient labour markets in the Central Asian republics will not
be automatic. The most cursory look at the current labour markets reveals the
following deficiencies which must be overcome:
-
a lack of market-based systems of wage determination, including free
collective bargaining;
the almost complete absence of labour market information of the type
needed by employers and/or job-seekers in a market economy;
distinct barriers to labour mobility; geographically by the system of
'residence permits' and housing availability, and occupationally by overly
Ill
-
narrow job preparation and training systems;
and perhaps most importantly, an under-developed system of labour
market institutions, systems and regulations, including an effective public
employment (labour exchange) system, an employment law suitable for
private sector workers and employers and which incorporates
international labour standards, and an adequate and equitable social safety
net for those who are unable to find employment.
Some of these deficiencies can be overcome by the countries themselves,
for others they will need both material and technical assistance. The
International Labour Office is ready to cooperate with the donor community
in helping to overcome these deficiencies and help create efficient labour
markets. Let me conclude my remarks by giving a few practical suggestions
which would help improve labour market efficiency in the Central Asian
republics. None of them require a 'project' or long-term adviser to
implement, although most of them will require a fight with Parliament or
other ministries before can they be implemented.
1. Changes in retrenchment policy. In virtuality all the Central Asian
republics the law requires that the enterprise give a worker two months
advance notice of an eventual lay-off, followed by three months of
severance pay (termination allowance) - usually on the condition that die
worker register with the state employment service. This implies that die
enterprise, the very day that a worker first starts to work, has a liability
to pay at least five montfis wages.
Such retrenchment policies may be suitable for state enterprises.
However, they are a distinct barrier to employment in the newer, smaller,
private sector enterprises — or else such employers will ignore advance
notice and severance pay altogether, creating a class of 'gray market'
workers wim virtually no social benefits or protections.
Is it not possible to devise more flexible policies with respect to the
hiring and firing of workers that are more appropriate to private sector
enterprises? For example, could not the three month's severance pay be
included in unemployment insurance?
112
2. Maternity benefits. Current laws forbid the termination of the
employment of women while they are pregnant, and require the payment
of wages while on maternity leave for periods which vary from six
months to two years. Such a requirement will greatly reduce the hiring of
women by private sector enterprises. There is also evidence that some
state enterprises have begun laying off women of child-bearing age, to
avoid the potential of paying these maternity benefits. This sounds
paradoxical, but to maximize employment in a market economy, such
maternity benefits should be socialized, i.e. made a liability of the
government, and not die individual employer.
3. Wage controls. Most of die Central Asian republics still have direct wage
controls, some as a result of never having 'reformed' the wage system,
some because wage controls were imposed as a result of IMF-inspired
anti-inflationary policies. As noted above, in a market economy wages
serve as both rewards and incentives to workers. Wages also serve as
important market signals to employers, about how to more efficiently
utilize and allocate workers, and whether or not to hire or fire them when
their wage is greater or lesser than their value to the enterprise. Such
rational, output and income maximizing behaviour cannot take place
under conditions of direct wage controls. Drop them.
If the IMF or the Finance Minister insists, replace direct wage controls in
the government's anti-inflation package with a 'tax-based incomes
policy'. But this should only be applied to state enterprises. The private
sector should be set free from any sort of wage controls as soon as
possible. This will draw workers into the private sector, and give the
highest labour market rewards to those who produce the most.
4. Wage taxes. The tax systems in all the Central Asian republics have a
Marxist-Leninist heritage, and so all of them have a tendency to impose
taxes on enterprise wage bills, usually as some percentage of that wage
bill. This means that when an enterprise 'hires' capital or other material
resources, it pays the price of diose inputs; but when an enterprise hires
labour, it pays the price (wages) of human resources plus the tax rate.
Since the effective tax rate on enterprise wage bills can be over fifty per
113
cent, this is a very high built-in economic bias against employment,
against hiring labour. Again, the Ministry of Finance will probably not
go along with suggestions to simply abolish wage bill taxes, unless
alternative sources of public finance are identified. I personally would
advocate income taxes, progressively graduated for die equity's sake, but
taxes imposed across-the-board on all enterprise income or expenditures
would still be better than the taxes just on wage bills.
5. Income support measures. An adequate system of income support,
generally called social security, including unemployment compensation
and pensions is clearly required in any society, regardless of how
'market' oriented it is. I am not going to go into a long and complicated
debate about the incentives and disincentives, and impacts on labour
supply and job search behaviour, of alternative social security systems.
But I do wish to point out that the Central Asian republics have tended to
equate minimum wages with minimum incomes, and I believe that this is
causing distortions in your labour markets. Pensions and unemployment
benefits are usually set at, or just above, the subsistence minimum
income, if they are to serve their equity and social justice functions at all.
But if this level is also the minimum wage, then it implies that some, not
to say many, workers receive the same incomes as those not working.
The disincentive this gives the unemployed to search for work is a
problem, but one that does not bother me as much as the demoralizing
effect it has on those who are working and know they would get the same
income if they were not working. The minimum monthly wage should
therefore exceed die subsistence-defined minimum monthly income which
is used for pensions and unemployment compensation.
6. With regard to labour market information, diere is a need to take a good
hard look at the systems for collecting, analyzing and disseminating
labour market information. By labour market information, I do not mean
the statistics on how many people have registered with the employment
service, the number of vacancies or the number of people who are
receiving unemployment compensation. Rather, I would support that one
should look at labour market information in the following way: If I were
114
an unemployed worker, what kind of information would help me find and
get another job? This implies collecting information on issues such as:
What types of skills and experiences are demanded by employers in this
town? What are the wages in occupation X compared to occupation (or
enterprise) Y? What types of training and re-training programs are
available? Is such information available? I do not think so. Could one
start to make it available? I think one could.
Appendix One
Final Communique of the Conference
The Ministers of Labour and Social Security of
Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan,
Turkmenistan and Turkey
The Conference of the Ministers of Labour and Social Security of
Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan
and Turkey;1
Having been convened at Ankara on 29-31 May, 1993, upon the invitation
of the Minister of Labour and Social Security of the Republic of Turkey,
with the technical assistance of the International Labour Organisation, and;
having departed from the notion that in the process of transition to a
democratic system and market economy, the establishment of a state
governed by the rule of law based on fundamental human rights and liberties
is a major objective, and;
considering that it is necessary that any labour legislation to be prepared
within this framework should be developed in conformity with the
international labour standards, and;
having joined in the idea that for the protection and development of
democracy and in the establishment and maintenance of a market economy,
the roles of workers' and employers' organisations having attained
institutionalised structures cannot be denied, and that in the process of social
and economic development, the sharing of the responsibilities between the
social partners is a must, and;
considering the fact that poverty and unemployment constitute a great
danger for democracy, the preservation and development of democracy and
market economy can only be achieved by means of diminishing poverty,
preventing unemployment and extending social security and social services;
having shared the opinion that it should not be forgotten that the
116
development of industrial relations system, within the framework of the ILO
standards and appropriate with the national social and economic conditions,
is the fundamental element in the establishment of industrial peace and a just
income distribution.
declare that they agree on the necessity of cooperation and mutual
assistance in the following fields:
- improvements of legislation governing labour life in accordance with the
ILO standards,
- carrying out the legal arrangement studies with a view to enable workers'
and employers' organisations to attain institutionalised structures,
-
by taking into account the national requirements, for training to meet the
need for qualified labour force,
-
establishment/development of a system with the objective of placing
workers in appropriate jobs according to their qualifications and filling
up the vacancies with skillful labour.
Remembering the guiding role played by the ILO by means of the universal
standards it has set so far in the preparation of national legislation of many
countries, the Ministers participating in the Conference invite the
International Labour Organisation to:
-
support effectively, with means and methods appropriate to regional and
national realities, the wishes for and the efforts made towards integration
with the world, of those countries undergoing a transition process into
democracy and market economy.
117
The Ministers participating in the Conference
declare that they expect
-
from the International Labour Organisation (ILO) provision of
consultancy services, in accordance with these objectives, and support in
the form of technical assistance;
- both from the ILO contributing to this Conference and from Turkey, the
host country submitting her own experiences and models with various
examples, again through the ILO, transference of their experiences and
accumulated knowledge to all the participating countries in this
Conference that have not as yet started to benefit directly from these
services;
-
that the Ministers participating in the Conference state that immigration
between the former Soviet Republics takes the priority within the
economic problems faced by the Republics, who recently gained
independence, and that they are expecting from ILO and other
organisations concerned to taken an interest in this matter within the
framework of their specialized fields.
The Ministers participating in the Conference would like to express their
gratitude to Turkey, the host country, for organizing this Conference.
Notes
1 The European Communities (EC), the United Nations Development Programme
(UNDP), the Turkish Cooperation and Development Agency (TICA) and the World
Bank participated in the Conference as observers.
Appendix Two
List of Participants
Labour Ministers Conference
Ankara, 30-31 May 1993
Delegations of the Participant Countries
Azerbaijan
Akif Kerimov
Minister of Labour
Tarlan Caffrof
Adviser to the Minister of Labour
Firengiz Mamedova
Main Specialist, International Cooperation Department,
Ministry of Labour and Social Protection
Mehmet Ali Nevruzoglu
Ambassador of Azerbaijan to Turkey
Kazakhstan
Sayat Beysenov
Minister of Labour
Azamat Ahmetsayev
Director General of Labour and Employment of Cambul Region,
Ministry of Labour
120
Acenseyit Tumbayev
Central Asian Department, Ministry of Foreign Affairs
Marat Tajibayev
Head of Foreign Relations Department, Ministry of Labour
Kanat Saudabaev
Ambassador of the Republic of Kazakhstan to Turkey
Kyrghyzstan
Kanyshal A. Saiakbaeva
First Deputy Minister of Labour and Social Protection
Zhanyl A. Kozhomuratova
Deputy Chief, Main Employment Department
Sadyk B. Bakashev
Chief of Employment Department of Tchuya Region
Shukubek Esenaliev
Chief of Employment Department of Issyk-Kul Region
Dilde Sarbagisheva
Minister-Counsellor, Embassy of the Kyrghyz Republic in Turkey
Tajikistan
Sukurcan Zuhurovi Suhurov
Minister of Labour and Employment
Jura Latipovic Latifov
Head of Department of Refugees
Akbar Pacliyatovic Davliyatov
Head of Department of Education
Abdumanof Usmanovic Abdudalamuv
Deputy Director of the Employment Centre
121
Turkmenistan
Nedirmamed Alovov
Minister of Social Security
Khan Ahmedovic Ahmedov
Ambassador of Turkmenistan to Turkey
Uzbekistan
Akil Abidov
Minister of Labour a.i.
Murad Umarov
Chef du Cabinet
Aman Ergasev
Ministry of Labour
Israel Isaev
Ministry of Labour
Rustam Raimov
First Secretary, Embassy of the Republic of Uzbekistan in
Turkey
Turkey
Erdal Inonii
Deputy Prime Minister
Ministry of Foreign Affairs
Yasar Yakis
Deputy Undersecretary
Sembir Tumay
KGSI
122
Sule Ozkaya
International Economic Organizations Department
Nilgun Tas
TICA, Coordinator for Projects and Programmes
Ministry of Labour and Social Security
Mehmet Mogultay
Minister of Labour and Social Security
Kutlut Turker
Undersecretary
Tugrul Agar
Deputy Undersecretary
Osman Terzi
Deputy Undersecretary
Ismail Bayer
Director General of Labour
Gulay Aslantepe
Director General of Services for Turkish Workers Abroad
Emel Danisoglu
Director General of the Social Security Institute
Kemal Kilicdaroglu
Director General, SSK
Mete Toriiner
Director General, Employment Organization
Ridvan Selcuk
Director General, BAG-KUR
Mehmet Ali Inal
Head of Research, Planning and Coordination Board
Mehmet Keles
Head of Labour Inspection Board, a.i.
Tuncer Donmez
Head of Inspection Board
Nurhan Tengirsenk
Legal Adviser
Sengul Berksu
Head of EC Department
Ibrahim Cikrik
Head of Personnel Department
Fahrettin Karadeniz
Head of Occupational Safety Department
Mehmet Ozdemir
Head of Administrative and Financial Department
Bulent Piyal
Ministry Adviser
Perinan San
Deputy Director General of Labour
Ismail Ascioglu
Press Adviser
Metin Gomceli
Director General, YODCEM
Handan Sabir
Director ISGUM
TISK (Confederation of Turkish Employers' Association)
Refik Baydur
President
Kubilay Atasayar
Secretary General
TURK-IS (Confederation of Turkish Workers' Union)
Bayram Meral
President
124
Semsi Denizer
Secretary General
Academia
Professor Tuncer Bulutay
National Consultant for UNDP/ILO LMIS Project
Professor Murat Demircioglu
Consultant and Lecturer
Professor Oner Egrenci
Consultant and Lecturer
Professor Cahit Talas
Consultant and Lecturer
Professor Savas Taskent
Consultant and Lecturer
Professor Devrim Ulucan
Consultant and Lecturer
International Organizations
United Nations Development Programme
E. J. Cain
UNDP Resident Representative, Ankara
The World Bank
Luis de Azcarate
Chief of Mission, Ankara
European Union
M. J. Lake
Head of the Representation of the Commission of the EU, Ankara
International Labour Office
O. de Vries Reilingh
Director, Europe Regional Office, ILO, Geneva
W. R. Simpson
Director, Industrial Relations and Labour Administration, ILO,
Geneva
W. Clatanoff
Chief, Active Labour Market Policies Branch, ILO, Geneva
A. T. Samorodov
Active Labour Market Policies Branch, ILO, Geneva
R. Isik
Director, ILO Ankara Office
Course Participants
Maksut Imasev
Kazakhstan
Marat Baysan
Kazakhstan
Hamit Safarov
Uzbekistan
Devra Sukurcanov
Uzbekistan
Nurmuhammetov Erkenbek
Kyrghyzstan
Cumabayev Cumabek Busurmankulovic
Kyrghyzstan
Appendix Three
Statistical Tables
TABLE 1:
Share of inter-republican trade in total trade, 1988.
TABLE 2:
Total population and rural/urban distribution, 1959 1989.
TABLE 3:
Average annual rates of total population growth. Per
cent.
TABLE 4:
Relative shares of working age and below/above
working age population in 1990. Per cent.
TABLE 5:
Projected net average annual increase in working
age population, 1979-1999. Per cent.
TABLE 6:
Per cent annual change in national income 1986-92.
TABLE 7:
Structure of labour force by industry and type of
employer. Per cent.
TABLE 8:
Proportion of titular ethnic group in the labour force
by economic sectors in 1987. Per cent.
TABLE 9:
Per cent of total population over the age of 10 with
more than primary education by ethnic groups.
TABLE 10: Labour Supply and Demand in Kazakhstan, January
through September 1992 (1,000).
128
TABLE 1: Share of inter-republican trade in total trade, 1988.
Total
mil.
Kyrgyz-
stan
atan
Tajiki- Turkmenistan
stan
Uzbekistan
9, 100
export,
rubles
% within
USSR
% outside
Total
mil.
Kazakh-
USSR
2, 560
2,330
2, 600
10,490
91.2
97.7
85.8
92 .3
85.4
8.8
2.3
14.2
7.7
14.6
16,400
3, 770
3,490
2, 900
12,320
83.5
79.6
86.5
86.2
86.2
16.5
20.4
13 .5
13 .8
13 .8
55
68
67
90
85
61
83
66
96
84
30
8
70
50
90
import,
rubles
% within
USSR
% outside
USSR
E x p o r t s as % o f
imports,
within
outside
total
USSR
USSR
Source: Murat Albegov, 'Problems of regional development in the USSR
under perestroika', in Tibor Vasko (ed.), Problems of Economic
Transition (Aldershot: Avebury, 1992), p. 149.
129
TABLE 2: Total population and rural/urban distribution, 1959
1989.
Kazakh-
Kyrgyz-
stan
atan
Tajiki- Turkmenistan
stan
Uzbekistan
Total population (1,000)
1959
9,295
2,066
1,981
1,516
8,119
1970
13,009
2,934
2,900
2,159
11,799
1979
14,684
3,529
3,801
2,759
15,391
1989
16,538
4,291
5,112
3,534
19,906
1959
43.8
33.7
32.6
46.2
33.6
1970
50.3
37.4
37.1
47.9
36.6
1979
53.9
38.7
34.9
48.0
41.2
1989
57.2
38.2
32.6
45.4
40.7
1959
56.2
66.3
67.4
53.8
66.4
1970
49.7
62.6
62.9
52.1
63.4
1979
46.1
61.3
65.1
52.0
58.8
1989
42.5
61.8
67.4
54.6
59.3
Urban population
Rural population
(%)
(%)
Sources: Naselenie SSSR 1988. Statisticheskiy ezhegodnik (Moscow:
Finansy i statistika, 1989), pp. 24-26; Demograficheskiy
ezhegodnik SSSR 1990 (Moscow: Finansy i statistika, 1990), pp.
11-12.
130
TABLE 3: Average annual rates of total population growth. Per
cent.
Kazakh-
Kyrgyz-
Tajiki- Turkmeni-
stan
stan
stan
1959-69
3.1
3.3
1970-78
1.4
2.1
1979-88
1.2
1989
1990
Uzbeki-
stan
stan
3.5
3.3
3.5
3.1
2.8
3.0
2.0
3.0
2.5
2.6
1.0
1.9
2.9
2.6
2.2
0.6
1.3
2.1
2.5
1.9
Source: Vestnik Statistiki, 1991:7 (Moscow: Finansy i statistika), p. 71.
TABLE 4: Relative shares of working age and below/above
working age population in 1990. Per cent.
Kazakh-
Kyrgyz-
stan
stan
Tajiki- Turkmenistan
stan
Uzbekistan
Below working age
33.5
39.5
45.2
42.7
42.9
Working age
55.2
50.4
47.2
49.8
49.2
Above working age
11.3
10.1
7.6
7.5
7.9
Source: Vestnik Statistiki, 1991:7 (Moscow: Finansy i statistika), p. 73.
131
TABLE 5: Projected net average annual increase in working
age population, 1979-1999. Per cent.
Taj iki- Turkmeni-
Uzbeki-
stan
stan
stan
2.1
3.6
3.2
3 .2
2.6
3.3
3.1
3.0
2.7
3.S
3.1
3.2
Kazakh-
Kyrgy z -
stan
stan
1979-89
1.3
1990-94
1.8
1995-99
1.7
Source: Calculations based on Demograficheskiy ezhegodnik SSSR 1990
(Moscow: Finansy i statistika, 1990), pp. 27-74.
Remark: The figures for 1979-89 are based on the working age population
at the beginning and at the end of the period as given by census
returns. The calculations behind the forcasts for 1990-99 are based
on the the assumptions of no migration and of proportional
mortality over the age groups upon which the calculations are
based, i.e. 6 to 54/59 years.
132
TABLE 6: Per cent annual change in national income 1986-92.
Kazakhstan
Kyrgyzstan
0.8
0.0
0.1
2.0
5.8
12. 6
0.5
3.7
Tajiki- Turkmenistan
Stan
3.1
-
1.0
1.7
3.2
-
0.2
12.2
2.6
-
Uzbekistan
10.2
10.0
-
1.0
1.4
2.2
0.5
1.7
-
0.9
-
8.9
13.0
-
5.0
-
9.0
-
4.7
-
0.9
n. a.
-
5.3
-
9.5
14.0
-
26.0
3.4
Sources: Roland Gotz and Uwe Halbach, 'Die Nachfolgestaaten der UdSSR
- kurz vorgestellt (III)', Osteuropa, Vol. 42, no. 8 (1992), pp.
680-693; Idem, 'Die Nachfolgestaaten der UdSSR - kurz
vorgestellt (IV)', Osteuropa, Vol. 42, no. 10 (1992), pp. 887907; World Development Outlook, October 1993 (Washington
D.C.: IMF, 1993), p. 140.
Remark: Figures for 1986-1990 from Roland Gotz and Uwe Halbach and
for 1991 and 1992 from World Development Outlook. In some
instances it would appear tiiat the figures are based on net material
product.
133
TABLE 7: Structure of labour force by industry and type of
employer. Per cent.
Kazakh-
Kyrgyz-
stan
stan
stan
stan
stan
34
42
41
38
27
21
21
24
18
17
18
17
21
20
20
21
66.0
57.6
55.7
62.4
1.6
1.2
0.2
1.2
2.8
4.7
0.7
3.0
15.1
16.3
26.2
17.3
14.5
20.2
17.2
16.0
Industry (1987)
Agriculture
Industry & construction
Trade & transport
Services
23
31
24
22
Tajiki- Turkmeni-
Uzbeki-
Type of employer (1991)
State sector
75.5
Stock companies et. al. 2 . 6
Leasing, tenant
9.0
Kolchoz & cooperatives 8.8
Private (farming)
4.0
Sources: Roland Gotz and Uwe Halbach, 'Die Nachfolgestaaten der UdSSR
- kurz vorgestellt (III)', Osteuropa, Vol. 42, no. 8 (1992), pp.
680-693; Idem, 'Die Nachfolgestaaten der UdSSR - kurz
vorgestellt (IV)', Osteuropa, Vol. 42, no. 10 (1992), pp. 887907; Trud v SSSR, Statisticheskiy sbornik (Moscow: Finansy i
Statistika, 1988), pp. 16-17.
134
TABLE 8: Proportion of titular ethnic group in the labour force
by economic sectors in 1987. Per cent.
Kazakh-
Kyrgyz-
stan
stan
Tajiki- Turkmenistan
stan
Uzbeki-
Agriculture
52
69
63
81
76
Industry-
21
25
48
53
S3
Construction
stan
All branches
21
26
48
54
50
Transport & communications 28
35
57
48
55
Trade
29
34
61
65
'Municipal economy'
23
30
56
S3
. 55
Health
38
46
50
62
64
Education
43
43
58
67
69
Science
25
27
31
48
33
Administration
40
42
51
51
57
66
Source: Trud v SSSR, Statisticheskiy sbornik (Moscow: Finansy i
statistika, 1988), pp. 20, 22-23.
135
TABLE 9: Per cent of total population over the age of 10 with
more than primary education by ethnic groups.
Kazakhs
Kyrgyz
Taj iks
Turkmens
Uzbeks
1959
26.8
29.9
29.9
36.3
31.1
1970
39.0
40.0
39.0
43.0
41.2
1979
59.2
59.0
56.5
59.7
61.5
198S
67.8
66.6
64.3
67.7
68.3
Sources: I. P. Zinchenko, 'Natsionalnyy sostav naseleniya SSSR', in A. A.
Isupova and N. A. Shvartsera (eds.), Vseoyuznaya perepis
naseleniya 1979 goda. Sbornik statey (Moscow: Finansy i
statistika, 1984), p. 160; 'Statisticheskie materialy', Vestnik
statistiki 1986:7, p. 67.
it
136
TABLE 10: Labour Supply and Demand in Kazakhstan,
January through September 1992 (1,000).
January
March
June
Sept.
Total unemployed
- urban areas
4.0
2.3
9.2
4.7
15.8
8.7
25.1
14.9
- rural areas
1.7
4.5
7.1
10.2
Total vacancies
74.8
45.3
55.0
50.4
- urban areas
- rural areas
52.8
22.0
32.4
12.9
32.7
22.3
41.3
9.1
Source:
Data supplied by the Ministry of Labour.