Authorities attempt to control unemployment and growth of social tension
Amid harsh austerity measures on the labour market, the Belarusian authorities control the situation and are ready to prevent protest activity among workers. Belarusian enterprises and organisations, experiencing fall in exports, overstocked warehouses and production slowdown, cut their costs by reducing salaries and laying-off workers. Most likely, the authorities will try to maintain social and political stability by further lay-offs, reduced working hours and targeted repressions and by reducing worker’s wage expectations.
President Lukashenko has expressed concern about the situation in the Industry Ministry enterprises and growing tension in labour collectives.
In Belarus, official unemployment rate is low – 0.7%, but the number of registered unemployed increased by 26.8% in late January (up to 30700 people). Independent analysts estimate the unemployment in the country is much higher - around 5-6%, which is ‘natural’ for the Belarusian economy. The Belarusian authorities anticipate the unemployment to grow in 2015 up to 1.5%, while de facto unemployment might be much higher - up to 10% and higher - due to reduced working hours.
In 2014, part-time employment increased by almost 40%. Most often, large state-owned industrial enterprises cut working hours and offered unpaid leave to the employees. Since early 2015, the situation has deteriorated and spread to other economic sectors: construction, trade and banking, affecting both public and private sectors. In addition, individual entrepreneurs were prompted to suspend their activities due to new technical regulations introduced by the authorities within the Customs Union and EAEC.
Since early 2015, enterprises’ payroll debt has grown rapidly. According to the National Statistics Committee, as of March 1st, 510 enterprises had overdue payroll to 87,300 employees, on February 1st, only 277 organisations did not pay wages to 49,300 employees. The overall overdue payment is Br 300.6 billion, or 1.7% of the salary fund in January 2015. Furthermore, many large state-owned enterprises have reduced wages in Belarusian roubles.
Due to the deteriorating situation on the labour market, the Belarusian authorities have decided to postpone the introduction of the tax on "social parasites", which was supposed to be signed in mid-February. In anticipation of this tax, the employment centres were crowded with those willing to register and could not fill the demand for jobs. For example, circa 14500 workers have been laid-off, while only 9800 have found new jobs.
Regardless of wage cuts and non-payments, many workers are trying to keep their jobs and do not leave for new ones. The competition on the labour market has increased - not only due to lay-offs, but also due to migration of workers from Russia. Due to the recession, Russian labour market has lost its attractiveness. In addition, the Belarusian labour market is under some pressure from migrant workers and refugees from Ukraine.
The Belarusian authorities watch labour market very closely –their main objective before the presidential elections is to keep the balance between the macroeconomic stability and well-being of the population. At a meeting with directors of the largest state-owned enterprises, President Lukashenko reiterated his requirement, “I want to emphasise once again that this year I do not ask the government for a breakthrough or a wild production growth. The main objective is not to make the situation worse. However, in January it has not improved”. The government is trying to reduce tension in society with short-term measures, eg by offering paid public works or seasonal employment in agriculture.
Meanwhile, the Belarusian authorities have demonstrated the ability to implement tough measures if protest activity grows – they have conducted a showcase training for internal troops on how to disperse protests. In addition, the president constantly reminds the population about the futility of protests by emphasising that “maidan will not happen in Belarus”.
The authorities will seek to maintain employment at the highest possible level in order to prevent the growth of social tension in society. Meanwhile, worsened working conditions and some increase in unemployment are unlikely to lead to an increase in protest activity among employees.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.