Analysis of Russias Financial and Labour Crisis

Analysis of Russias Financial and Labour CrisisINTRODUCTIONIn 2003, major economic formations and key economists predicted that within a decade, the Russian Economy willing face a human race capital and savvy crisis that will be unable to meet the developing demands of the pastoral. This prediction came true and Russia easy witnessed diminish sweat merchandise performance following the Global Financial Crisis jump in 2009.The Russian Fed seasontion has a very flexible comminute commercialize. Cutting leases, reduction working hours and minimising non-wage savvy costs argon round of the policies adopted by most of the companies to adjust to the economic scenario. The workers respond to this by changing jobs. Hence, there exists a high and unchanging overall custom rate, and withal high wage inequality, informality and apprehend turnover, collectable to which firms do not have the incentive to invest in human capital and productiveness mitigatements. Hence, th e growth figures of the Russian Economy r atomic number 18ly show how the economic performance is impacting the bonny man.Problems in the labour grocery of Russia slowly became noticeable following the Global Financial Crisis that started in 2008. The global fiscal crisis had a signifi corporationt impact on the Russian saving and its labour trade. According to OECD Database, in 2009, the decline in the GDP was 7.9% (World Bank scotch Outlook, 2009). save, since the latter half of 2009, Russia showed economic recovery. in that respect was 4.5% growth rate in 2010 (World Bank economical Outlook, 2010), and 4.3% in 2011 (World Bank economical Outlook, 2011).The graph higher(prenominal) up indicates the changes in the unemployment rate and GDP of Russia during 2008-09. Russia was the third country a vast with Slovenia in the list with highest polishfall in the GDP after Estonia and Finland. The unemployment rate increased, although it was stable as comp ard to some other countriesThis menses saw a fall in the output generation of goods. Working hours and wages were reduced to adjust to the scenario. The younker of the country were the most affected by the sudden increase in unemployment.As shown in the diagram, from 2009 to 2012, unemployment rate was the highest for people aged 15-24.The labour market strengthened a little in early 2013. Unemployment in the months of January, February, and troop lowered by 0.4% than the rate prevalent in 2012. But the routine quarter of 2013 again saw a reversal of this trend, with unemployment again growing up by 0.1% compared to 2012 (OECD Economic Survey- Russian partnership, 2013) This marked the advent of an Economic Slump in the Russian Economy that is discussed in the succeeding chapter.Russian Economic Slump How and Why?Russia suffered from major economic slump in 2012 and tried to make efforts to recover from it using the oil and gas revenues. However the living standards and productivity was below th ose of move BRIICS countries. Growth in 2012 slowed not yet because of cyclical factors but overly collectible to slow down of potential drop output growth. The Ministry of Economic exploitation, in November 2013, projected long-term average growth to 2.5% (OECD Survey 2013) down from 4.3% (ibid) projected in April, warning that Russian growth until 2030 would lag behind the global average. The reason that led to the offspring of slump is the heavy dependence on natural resources and the challenge lies in reduction of dependence on exhaustible natural resources, strengthen sustainable, productivity-driven, regionally balanced and broad-based growth.The abovementioned Economic slump emerged in late 2012 and into 2013, resulting in the juvenile Russian Economic crisis triggered by stagnant terms of trade due to inefficient labour market reforms. The temporary factors that earlier boosted growth slowed down, reducing investment mostly driven by natural resource associate sect ors and public expenditures.The employment and capacity utilization rates are rough their pre-crisis records. The unemployment rate has fallen because of employment gains, a fall in labour force, high wage flexibility and extremely low unemployment returnss. Inflation go above the central bank target range of 5-6% (Ibid).Although this rapid revoke was driven mostly by high food prices due to the scurvy 2012 harvest and headline inflation, the second half of 2013 was on a downward trend and inflation expectations are sticky. These factors structurally limited growth , retardant potential growth below 3% (ibid)This Russian economic deceleration led to several changes in the society and some signifi batcht trends were seen incomplete employment increaseNo demand for radical life changes or political changesDormant discontent against crisis situationunique adjustment exit of the Russian labor market suppressed the impact of the economic crisis on the workers and they did not ex press their discontent in the form of strikesThe policies and reforms for this slump are bearn in further chapters as discussed by the OECD report on Russian Economic Crisis.OECD ECONOMIC REPORT REFORMS AND POLICIESPreviously we studied the ground of Russia and the possible reasons that triggered the authoritative Russian economic slump. OECD is a world organisation that has come up with a report about the changes required for the current economic slump.The Organization of economic cooperation and evolution (OECD) is a forum founded in 1961 that discusses economic growth and world trade of its 34 member countries. It issues answers to roughhewn chores, identify practices in favour of these countries and also provide coordination between the home(prenominal) and international policies. It gives assistance in economic, environmental and social issues.Objectives of the OECD-To promote sustainable phylogenesis in economic growth and employment, giving a sneak in standard of li ving along with the maintenance of financial sector.To provide economic expansion to member countries in order to promote development in world economies.To carry out this expansion on a non-discriminatory basis.OECD Russian Labour MarketThe Russian Labour market is in segments even though the global financial crisis ended the long period economic growth .The labour market faces a number of problems desire unequal earnings, lack of enforcement of effective labour truths and underdeveloped collective bargaining.To improve this dissymmetry between labour market flexibility and the protection of workers the Russian federation needs to impose favourable labour market institutions. This imbalance can be improved by shifting to a more(prenominal) sustainable based growth from dependence on revenues from natural resources much(prenominal) as oil (main relying natural resource) by making it attractive head to invest, study and work. Russia should ensure growth beyond natural endowmen t.BOOSTING PRODUCTIVITYStronger and more sustainable growth is not possible without better use of sciences and stronger aim. tidy resources are employed in lowproductivity activities. Lifelong learning, activating programmes and temporary income support remain underdeveloped. secern RecommendationsBetter market oriented training.Strengthening the quality of the bringing up systemImprove the brass of higher education.IMPROVING THE BUSINESS CLIMATEThe business climate in Russia is bout out to be risky as rule of law is wobbly and general corruption along with widespread state involvement. The implications are widespread such as low level of entrepreneurship and investment. Thus a stronger insurance policy initiative along with stronger financial sector is required to match the skills of labour.Key Recommendations-Identify risks to integrity for particular jobs, work and project.Strengthening the rule of law by enhancing the quality of law instead of change magnitude the numb er of laws and regulations thus giving demonstrate to judicial independence.Incorporating accountability and transparency of public institutions by promotion of media freedom.COMPETITION FRAMEWORK IN RUSSIARussia has the highest barricades to competitor when compared with any OECD country or emerging country. This halts the diffusion of technology and hampers the speed with which the labour productivity catch up with best per reasons. As suggested by OECD product market regulation (PMR) indicator, it suggests that Russias PMR is very restrictive as compared to any other OECD country. A PMR indicator tells the state involvement extent and administrative barrier to developing unfermented enterprises. This high rate is reflected in Small and culture medium sized enterprises sector in Russia.Key Recommendations-Lowering administrative shipment on firms by cutting red tape, introducing deemed clearance administration and carrying out systematic Regulatory Impact Analysis and Sta ke holder consultations.Strengthen the competition by eliminating subsidies to large firms, prioritize resources only to authoritative cases and liberalization of foreign trade and investment policy.Widening scope of competition by taking WTO accession as an opportunity and supporting the concerned firms with framework measures rather than imposing entry barriers.POLICY IMPLICATIONSThe basic problem in the Russian Economy is that it is still heavily dependent on the communist age infrastructure and economic mechanisms. No innovations or new methods of economic development have significantly evolved after the communist era collapsed. The sparing still uses capitalist management styles that were used in the once USSR.The sparing is heavily dependent on gas reservoirs and their rising prices. This leaves the internal market open to major jolts due to the fluctuating world market prices of gas and other natural resources. Growth in 2013 slowed to 1.3 percent, the lowest in a decad e other than during the global recession in 2009 (OECD Economic Indicators root 2013).As mentioned in the previous chapter, the economic resilience of the economy can be raised through structural reforms. Making the economy more balanced, and less dependent on the volatile revenue from the zippo market is one of the main challenges. This challenge can only be met by higher productivity of labour and energy efficiency which further, can by increasing competition in the market and investment in the structural economy.The improvement of the political economy and implementation of structural reforms is crucial to revive the Russian Economy. The society and not natural resources needs to equal in Russias transformation. And so there is need for investments in infrastructure, innovation and human resources.Russia needs to step up its governance and address the increasing inter-regional disparity. The OECD survey indicates that the Federation is doing well in numerous areas but afterl ife growth and development is being retarded by poor governance and laws.Russia faces major transport bottlenecks that hinder the infrastructural growth in many potential regions. The irony is that a majority of the Russian population- about a million, are engaged in the railways with most of them being disguisedly unemployed in the process.The Russian Federation has one of the highest shares of tertiary educated population in the world, but the education system has had difficulties in providing the education according to the needs of the market and the firms. The education system of the country is outdated. It needs to be revamped to suit the modern sensibilities and economic conditions. Education will have to target higher give and more intellectual jobs (white collar jobs). Public spending on education is low and the high inequality of educational opportunities adds to the problem.Major public and secret sector investments in the education sector, especially in backward areas s hould be a national priority. Better quality of market oriented vocational training and an improved technical curriculum is also the need of the hour.another(prenominal) good way to increase the labour force of the nation is to step-down the gender gap in the labour market. Education and training cogitate solely on women would be beneficial. The Government should also increase the loneliness age of women to equal to that of men.A boost in education and skill in turn will increase opportunities and investments in Research and Development that will bring the much needed innovation and further call down the business climate.Flexibility in the Russian labour market has helped the economy achieve very low levels of unemployment. However, firms lose the incentive to invest in human resource due to the high labour turnover. This causes high wage inequality. The OECD encourages better communication between employers and labour, encouragement to engage in long term training programmes an d temporary income support from the Government.One industry that has a lot of potential in the Russian economy and will benefit out of the recommended labour changes by OECD is the automobile industry. This will not only give a much required push to the economy but also solve the transportation bottleneck that the nation is facing.The Russian Federation will also benefit by strengthening its Immigration policies. There is a large influx of unskilled labour from countries that were part of the former Soviet Union, who come in the search for better employment opportunities and standards of living. They are seen to be putting additional incubus on the Governments diminished upbeat schemes such as free education and health care systems. This is happening due to the easy immigration policy of the state. Hence the welfare labour policies that are already functional in the State cannot give quality output due to this additional burden put on them.CONCLUSIONIt can be asserted that the eco nomic slump in Russia is a temporary bottleneck in its path of growth and development and can the removed by focusing on the improvement of the labour market performance by implementing the measures given in the OECD Economic Report on the Russian Federation 2013.As suggested by the OECD, encouraging womb-to-tomb learning among skilled workers, training and targeting the youth for inculcating better skills, developing advanced Information Technology in this arena, reducing the gender gap in the work force, reforms in the education system and promoting innovation and technology can take the nation a long way.However other measures such as State support in welfare schemes that boost labour performance and privatisation of firms can be beneficial. Encouraging better Human imaginativeness policies in Russian Firms and stronger collective bargaining power of the workers can also help promote the right balance between wages and productivity. Russia also needs to look into its immigratio n policy to stop the rapid rise in immigrants who are unskilled and ultimately become a burden on the state.