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Rich cities and dying company towns

Russia’s unemployment figures look low, but they are rising, and there is a great gulf between the prosperous centre and failing regions.

A foreigner coming to Moscow or St Petersburg as a tourist or on business is unlikely to notice any problem with unemployment among the locals. Muscovites and Petersburgers are very fussy and many of them are unwilling to take on low paid manual jobs, preferring to work in the creative professions or sit in an office on a nice regular salary.

A foreigner coming to Moscow or St Petersburg as a tourist or on business is unlikely to notice any problem with unemployment among the locals. Muscovites and Petersburgers are very fussy and many of them are unwilling to take on low paid manual jobs, preferring to work in the creative professions or sit in an office on a nice regular salary.

Menial jobs are for migrants

In fact most of the people you see on construction sites or road works will be from Uzbekistan, Ukraine or Tajikistan. People from these former Soviet republics are also prominent in the distribution sector, often in lowly manual jobs such as loading, and you might also see them driving buses or sweeping the streets.


Gastarbeiters from central Asia carry out much of Russia's less appealing manual labour, especially in the richer cities. Photo CC Cea.

Recently I had some work done in my St Petersburg flat and noticed that the van driver who delivered the building materials, who was also the guy in charge, was Russian, but it was Uzbeks and Tajiks who lugged them up to the seventh floor. And the largest number of flights out of the city’s Pulkovo airport are to Uzbekistan: St Petersburg has excellent air connections to the south and east with all Russia’s large cities and beyond, but not many flights to other European cities. The flights to Uzbekistan have nothing to do with Russians wanting to visit the wonderful ancient cities of Samarkand and Bukhara, but are to bring planeloads of Uzbeks to work here.

Since 2000 in Russia unemployment has fallen from 10% to 5%, and in Moscow and St Petersburg it’s a mere 1%, so it’s not surprising that migrants do all the badly paid jobs.

In general Peterburgers and Muscovites can find good jobs with generous salaries without much difficulty, and leave the dirtier work to people from countries with high unemployment rates. Official figures for Russia as a whole confirm what we see on the streets: since 2000 the overall unemployment level has fallen by half, from 10% to 5%, with a temporary blip during the economic crisis of 2009 when it rose to over 8%. In Moscow and St Petersburg the numbers are much lower still, at a mere 1%, so it’s not surprising that migrant workers from elsewhere do all the badly paid jobs.

This is not hard to explain. Russia exports massive quantities of oil and gas, and the petrodollars it earns create a demand for goods and services, which in turn boosts business and creates work. However, there are signs that things are not going so well at present. Oil prices have peaked, shale gas is beginning to provide real competition on the international gas market, and in 2013 Russia’s GDP rose by just 1.3%. So Russians are starting to notice unwelcome changes in the labour market: after unemployment figures fell to their lowest level at the beginning of 2013, by the second quarter of the year they were beginning to rise again. This is unlikely to affect Moscow and St Petersburg, where anyone losing one job will probably find another one without much trouble, but it could have a big impact on other parts of the country.

But outside the big cities…

There are two key issues facing the Russian labour market. The first is current unemployment levels in certain regions, notably in the north Caucasus – Dagestan, Chechnya, Ingushetia and so on. The second is the growing problem of so-called one-company towns (some of them little more than villages) where there is a single major employer. 

In Ingushetia unemployment is running at almost 50%; in Chechnya, at 25%. In Dagestan one person in eight is unemployed. There are three main reasons for this situation. The first is that, although Chechnya has officially been at peace for more than ten years, the whole north Caucasus is effectively still a militarised zone, where it is simply too risky to open a business and create jobs. The second is that people who lived through the wars rarely want to work and don’t even know how to work, so they prefer to either live off state benefits or steal money from weaker members of society. The third reason is that the north Caucasus has a much higher birth rate than other areas of Russia and so a larger proportion of school leavers find themselves jobless.

Oil prices have peaked, shale gas is beginning to provide real competition on the international gas market, and in 2013 Russia’s GDP rose by a mere 1.3%.

Over the last few years unemployment has been falling in the region, thanks to increased financial aid from Moscow that has created new jobs in the public sector (local authority staff, police etc.). But Russia’s present economic problems mean inevitable spending cuts, and the slogan ‘Stop feeding the Caucasus’ has widespread support among opposition politicians. So the Russian government will probably be forced to reduce its subsidies to the Caucasus, and unemployment there will rise once more.

One-company towns

The north Caucasus isn’t, however, the worst hit region: people there live in large extended families where the richer members support the poorer. The situation is much more difficult in one-company towns and cities, officially defined as those where over a quarter of the local workforce is employed by a single company that also accounts for over half of the town’s production. There are 342 such places in Russia – one in three of all towns - and they provide the country with about a quarter of its GDP. So if the company concerned is uncompetitive and has to close down, it has a devastating impact on employment in the area.

These company towns and cities fall into three main categories. Many of them were built in the Soviet period to service military production plants. For security reasons, they were situated in remote parts of northern and eastern Russia, ostensibly to protect them from espionage (and they were closed to ordinary Soviet citizens as well).


Nadvoitsy's aluminum smelting plant will probably have to close this summer, striking a massive economic blow to the town's community. Photo CC Aleksandr Sokolov

Company towns also sprang up around areas rich in mineral resources. The extraction and processing of these resources is a key sector for Russia, so there are many towns of this type.

The third category of town appeared when the Soviet government decided to build industrial plants to create work in areas of high unemployment, and people flocked from local villages into these small towns. Since the Soviet central planning system didn’t take into account the need for restructuring and innovation, the assumption was that these factories would provide employment indefinitely, but after the reforms of the 1990s it became clear that many of them were unable to compete with foreign competitors.  

One in three towns and cities in Russia is dependent on one large employer, and if that company has to close down, it has a devastating impact on employment in the area.

The 1990s were very difficult years for company towns, since many firms were effectively closed down and weren’t paying their workers. The situation only improved with the growth in global demand for Russian mineral resources. Newly wealthy Russia was then able to increase its demand for military technology, bringing new growth to this sector. And some companies were privatised and their new owners managed to switch production to meet the new market for consumer goods.

Now, however, global demand for Russian goods is falling, and the government, strapped for cash, is having to cut back its arms budget. Increasing international competition and a growth in imports is also undermining many Russian firms. So we are hearing more and more about growing unemployment in Russia’s company towns and cities.

Ladas, aluminium and market forces

The best known one-company city in Russia is probably Tolyatti, on the Volga, where back in the seventies a gigantic car production plant was built, with the help of Fiat, to produce an affordable family car, the Lada. After the reforms of the 1990s it had to reduce its workforce, although in more recent years the government subsidised production to maintain the demand for Russian cars, and further retrenchment was avoided. Now, however, we are seeing a new round of redundancies, with 7,500 out of the company’s 66,500 employees losing their jobs. The cuts, initiated by the company’s new boss, the Swedish Bo Andersson, were inevitable, since the government can no longer afford to subsidise the Lada, whose popularity is waning against superior competition from foreign cars.

Another example is the aluminium smelting plant in the village of Nadvoitsy, in Karelia, which will probably close down by the summer. The question is what to do with its employees? They have been offered the chance to move to the other end of the country, where another smelting plant is due to go into operation, but have refused to go – there is, they say, no guarantee that it will happen, and it would mean living in basic hostel accommodation. So a small part of the workforce have temporary work dismantling their plant, while the rest have accepted redundancy packages and are drinking their way through them, evidently hoping that they will get unemployment benefits when the money runs out.

The government can no longer afford to subsidise the Lada, whose popularity is waning against superior competition from foreign cars.

But in the next few years the government will have no money to bail out dozens of these crisis-hit company cities and towns. The best that people can hope for is to manage to move to somewhere where there is work; otherwise they are in for long term unemployment.

If Vladimir Putin wants to be re-elected in 2018, he will need to find a solution to the unemployment problem, especially in company towns, but so far nobody is rating his chances very highly.  

 

About the author

Dmitry Travin is Research Director at the European University in St. Petersburg's Centre of Modernization Studies.


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