RS Main Foreign investors are not looking for migrant workers in Russia

Foreign investors are not looking for migrant workers in Russia

June 2012

The number of economically active citizens in Russia is shrinking. Government hired experts (authors of the Strategy for the country’s economic development up until 2020) feel that is important to entice blue-collar immigrant workers by more actively creating a framework for assimilation into Russian society. However, independent analysts believe that foreign investors with their production facilities are unlikely to cater to foreign labour power. Only highly-qualified specialists have a competitive edge irrespective of their country of origin.

What is “Strategy 2020”

Short overview

At the beginning of 2011 Prime Minister Vladimir Putin called upon a group of experts to develop a strategy for economic growth in Russia up until 2020. 21 expert task forces were established for all spheres of society from macro-economics and health care to cutting down on bureaucratic red-tape and strengthening Russia’s influence on the global market. Yaroslav Kuzminov, Rector of the national research university “Higher School of Economics”, and Vladimir Mau, Rector of The Russian Presidential Academy of National Economy and Public Administration are heading up this project.

Representatives of federal and regional government bodies, the Russian Academy of Sciences, universities, successful groups of entrepreneurs are also taking part in this project. A final report was published in the middle of March.

“Strategy 2020” experts note that the Russian labour market has its own unique features. The older workforce is not particularly mobile, has a great turnover, high expenses due to the inflexibility of the labour legislation, inflated expectations regarding compensation, big social encumbrances for both employers and employees. But, on the other hand, salaries are incredibly flexible and adapt to any radical shocks that may take place at the firm. The level of employee social protection is inflated only in theory—in reality it is much lower than in other countries.

“Strategy 2020” experts note that the Russian labour market has its own unique features. The older workforce is not particularly mobile, has a great turnover, high expenses due to the inflexibility of the labour legislation, inflated expectations regarding compensation, big social encumbrances for both employers and employees. But, on the other hand, salaries are incredibly flexible and adapt to any radical shocks that may take place at the firm. The level of employee social protection is inflated only in theory—in reality it is much lower than in other countries.

The older workforce is not particularly mobile, has a great turnover, high expenses due to the inflexibility of labour legislation, inflated expectations regarding compensation, big social encumbrances for both employers and employees

The main problem boils down to the fact that from 2011 to 2020 the number of economically active citizens (currently 75 million) will decrease by at least 10 million workers while the percentage of retired people will rise from 22% to 26% of the country’s residents. Experts concluded that no matter how the country develops an increase in different types of migrant workers is necessary. “Strategy 2020” states that it would be ideal if there was a yearly inflow of 250,000-300,000 foreign workers.

Up to this point migration policies have been focused mainly on temporary labour migration and were a bit constrictive; these initiatives did not allow for migrant workers to become fully integrated into Russian society. This deficiency impacted the quality of labour migration. The costs of legalising migrant workers are so high that these ‘guest workers’ are no longer competitive on the labour market. The cheapness of migrant labour power is mainly connected with its illegal segment. As a result, the great majority of migrant workers in Russia come from the countries of Central Asia and South Caucasus, and they lack an adequate education, Russian language and career skills.

The costs of legalising migrant workers are so high that these ‘guest workers’ are no longer competitive on the labour market. The cheapness of migrant labour power is mainly connected with its illegal segment

Naturally, foreign investors opening up production facilities in Russia assess the resource pool (including human resources) of their future firms. One of the authors of “Strategy 2020”, Valery Mironov from the Centre for Development of the National University “Higher School of Economics”(HSE) notes that although Western firms are much more labour - heavy (relative to Russian firms), they still need less workers and the fraction of labour costs is lower than at our old factories. But, foreign companies need more qualified labour power for operating more advanced technology. Mironov is convinced that “therefore, investors are drawn to those regions that Russians naturally gravitate towards—the Centre (Moscow, Moscow region), the Northwest near/in Saint Petersburg and the South (Krasnodar territory, Rostov region). These regions are even capable of enticing relatively qualified labour power from Belarus and the Ukraine. It is easy to lure them away using the internet. There should not be any problems with labour power here. Currently, the country is lacking investors/projects, not workers.”

Natalya Zubarevich, the Director of the Regional Programme at the Independent Institute for Social Policy, agrees with Mironov regarding the fact that foreign investors are exclusively geared toward migration within Russia. The analyst points out that “the Kaluga car assembly cluster is now attracting workers from Tolyatti where the largest Russian producer of automobiles “Avtovaz” is located”. Even top management which originally was comprised mostly of foreigners is now gradually shifting to high-qualified local specialists.

Cheap migrant labour power is not so much needed for the intensive development of the Russian economy, rather it is to be used for keeping old, backward industrial sectors afloat

Zubarevich asserts that cheap migrant labour power is not so much needed for the intensive development of the Russian economy, rather it is to be used for keeping old, backward industrial sectors afloat. Zubarevich predicts that “Russians are not particularly willing to work for little pay in the old industrial sector, especially in big cities. There is a labour deficit in that area which low-qualified labour migrants will most likely fill up”.

Marat Valiev, from the project financing department of the consulting company “Grant Thornton” in Russia, says that the claim that rapid economic growth in Russia is not possible without increasing the inflow of foreign migrant labour resources needs supportive arguments for credibility, as the temptation is always there to go for extensive development driven by just adding more resources to the process, rather than opting for intensive development geared by raising operations efficiency, including labour efficiency. He notes that “this is not a secret that overall labour efficiency in Russia yields to that in the leading economies. Studies show that some industries in Russia display extreme two-digit gap in that factor.”

The cost of hiring skilled foreigners in Russia is certainly higher than those for locals. And the new professional migration policy should open the Russian labour market to international professionals setting competition

Investors seek those people who (a) have the best qualifications, and (b) can speak common language with the investors. And the latter is not so much about the command of English or other languages, but about understanding both cultures of Russia and the one that investors are comfortable with. If they cannot find such personnel locally, they are interested in bringing those right people from abroad. Valiev claims that “this explains the number of expats working for multinational corporations in Moscow despite higher cost of employment for them. In that sense, professional migration in Russia is a key factor to foreign investors.”

Mr Valiev draws attention to the fact that foreign businessmen are limited by the expensiveness of highly-qualified labour power. The cost of hiring skilled foreigners in Russia is certainly higher than those for locals. Firstly, this should not be so, and the new professional migration policy should open the Russian labour market to international professionals setting competition. If we take other well-known global locations with a lot of international personnel, we will not see the situation of differentiating locals and foreigners. Opening the Russian labour market is called to remove its exclusivity in a way for those who succeeded in resolving the difficulties set by the Russian migration policy. Secondly, the cost is always the reversed of the profit. As long as the costly global minds with top expertise deliver good value, hiring them is economically feasible.

On the other hand, construction and other basic service industries would need workers who would deliver basic professional performance at a reasonable rate. The emphasis, if tried to be set, will be dependent on the field of employment and industry. Therefore, it is overall opening of the labour market for international workforce that should be the actual priority of the migration policy improvement.

Andrei Susarov,
Tax observer for the Moscow News
Exclusively for Russian Survey RS