Simulation of full employment could ruin businesses in Belarus
In February 2017, the lay-off rate was the lowest in the past several years. The staffing policy at enterprises was affected by the president’s directive to ensure full employment by May 1st, 2017. By creating additional jobs at enterprises, which need to reduce costs, managers are deteriorating their financial health, and in some cases, this could lead to bankruptcy.
According to Belstat, 39500 people found jobs in February and 40900 lost them. The number of laid-off workers was minimal for the last few years. On a clean basis, 1,400 people were dismissed in February 2017. In February 2016, 7300 people were dismissed on a clean basis. Most layoffs were in the construction and retail trade due to a decrease in shared construction volumes and a fall in household incomes, which led to a decrease in retail turnover by 3.7% in January-February 2017. New vacancies mainly appeared in education and healthcare, and, conventionally, in the IT sector.
Fewer layoffs were reported due to the directive by the president to ensure full employment by May 1st, 2017. In addition, the authorities requested to coordinate layoffs at state enterprises with the local authorities. As a result, in February 2017, layoffs halved as compared with January 2017.
The authorities aim to solve the full employment task by providing community service jobs to the unemployed and by creating additional work places at enterprises. However, the first option is unlikely to attract many people due to an extremely low pay - circa USD 1 per day. Since early 2017, only about 1000 people agreed to such jobs.
As for creating new jobs at state owned enterprises, such an option requires administrative pressure from the authorities, provided, that managers at such enterprises are simultaneously tasked to ensure the pay rise up to USD 500 by the year-end. Hence, instead of ensuring cost-cutting measures, managers at state enterprises would have to hire new employees and step up wages, which would only increase costs. Simultaneously, they would be unable to increase the product price due a decrease in consumer activity on the consumer market. That said, most state-owned enterprises operate with a profitability margin 0% to 5%. Such inability to lay off workers and reduce costs over a long time would inevitably make such enterprises loss making; they would delay tax payments to the budget and in some cases, would have to claim bankruptcy.
Overall, the reported improvement with employment in the Belarusian economy was fundamentally due to the administrative factor. Enterprises are forced to bear additional labour costs, which, amid low profitability of sales, could lead to losses or bankruptcy.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.