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OECD Reviews of Labour Market and Social Policies: Russian Federation 2011

image of OECD Reviews of Labour Market and Social Policies: Russian Federation 2011

The global financial crisis interrupted a protracted period of strong economic growth in the Russian Federation. Despite a large decline in output, job losses and hikes in unemployment remained rather modest, and much of the labour market adjustment took place through reduced working hours and, in particular, real wages. Notwithstanding the recent recovery, the Russian labour market remains characterised by significant structural imbalances resulting in widespread segmentation and large earnings inequalities.

To improve the balance between labour market flexibility and the protection of workers, the Russian Federation needs to reinforce its labour market institutions.

Poverty and income inequalities remain well above the OECD average. Family policy is focused on increasing birth rates, but is ineffective in reducing poverty as working adults and children make up 60% of the poor. Instead, social policy is focused on the elderly and disabled, and in recent years there has been significant increases in transfer payments to pensioners.

Recent reform is likely to “eradicate” poverty among pensioners, as measured by official benchmarks, but raises questions about the long-term financial sustainability of the private pensions system. Rapid population ageing further contributes to the need to raise the low standard pensionable ages in Russia and limit access to early pensions. The challenge for Russia will be to rebalance its social policy towards more effective support for parents to combine work and family life. 

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Reinforcing labour market institutions

The Russian Federation needs to reinforce its labour market institutions to improve the balance between labour market flexibility and the protection of workers. Employment protection regulation is relatively strict for workers on permanent contracts with short tenure, but relatively flexible for those on other types of contracts. But labour laws, in general, do not seem to impose major constraints on employers owing to the lax and unequal enforcement. The State Labour Inspection is relatively understaffed and sanctions for labour law violations are too low to act as a deterrent. The collective bargaining framework is fairly developed but has a very limited effect on wages and working conditions given the weak bargaining power of the trade unions. Employers almost entirely set wages on their own, which helps explain wage flexibility. Employment services and unemployment benefits have been scaled up in response to the recent economic downturn, but major restructuring of the system is necessary to provide adequate assistance to all unemployed people and to improve the cost-effectiveness of existing programmes.

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