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Human Capital Quality Delivers Economic Boost

In an environment where the natural-resources growth model is exhausted, human capital becomes the Russian economy's key competitive advantage. The problem of how the state, business and citizens can develop and invest in it was the main theme for the plenary discussion 'Social Policy Priorities' which took place on 7 April at the HSE's XVI April International Confernce on Modernizing the Economy and Society.

Self-development becomes a key part of consumer spending

Logically, the human capital accumulated should already mean that major changes take place in the population's cost structure. The broad standard of living for Russians has moved well beyond subsistence, stressed Director of the Institute for Social Development Studies Lilia Ovcharova, in her report Social Policy: Long-term trends and recent years' changes, a collective study by HSE experts.

Based on last year's figures, only half of an average Russian family's expenditure went on their basic needs. The rest went on: leisure, education, healthcare, holidays, personal transport, communications etc.

With this expenses structure, consumer behavior becomes a powerful development driver. However, current economic difficulties are having an impact. 'Looking at depth, this crisis does not yet present a real threat to the household sector,' Ovcharova said. However, it is important to pay attention to how long this period lasts. Experts predict that economic difficulties could continue – not for a year, like previous crisis – but for a longer period. If the anticipated fall in real incomes is a long-term issue, then families risk returning to the 'just getting by' scenario.

Incomes fall – but not because of unemployment

It is vital to identify mechanisms that would prevent a worsening in people's situation, stressed Russian Deputy Prime Minister Olga Golodets. 'For the first time in a long time we are seeing real wages fall,' she said. At the same time, there is no 'uptick in joblessness', as the unemployment level remains unchanged on last year (job-centers have recorded about 990,000 vacancies against about 2 million in December 2014). However, the problems are mainly hidden – Golodets says. 'We are seeing a gradual increase in wage arrears, and in some cases even nominal wages are falling,' she conceded. Many enterprises have stopped adding the inflation-linked incremental increase to wages paid.

This is how the Russian employment market responds to 'economic shocks', i.e., through cost and time adjustments (reducing wages and introducing part time rotas), explains Rostislav Kapeliushnikov, Deputy Director of the Centre for Labour Market Studies. This scenario makes it possible to avoid social dislocation. There will not be any significant growth in unemployment, he believes. Even if GDP falls by 3%, unemployment will only increase by 1%. Today, the unemployment level is not particularly high, at 5.5% (on data from January this year). In addition, the researcher notes, there is a safety valve in the form of migrant laborers. As they leave the country, more Russians will get jobs. The structure of unemployment may itself change, Lilia Ovcharova, explains. For the first time since the 1990s, high-qualified specialists may have to go to job centers. An inter-sectoral re-distribution of the workforce would be one solution to this situation. The professional education system, currently very distant from the job market, needs to change. It is vital to introduce professional standards in a variety of sectors, several discussion participants stressed. This goes hand-in-hand with boosting the quality of human capital.

Demographic situation demands upgrade in social provision

This emphasis on human capital is no accident, as HSE's demographers have noted, the economy is on the verge of a severe contraction in available workforce linked with the aging population. If, the 'noughties' saw the country reach an historic maximum number of people of working age on the labor market (as the 1980s babies reached 20, and the wartime generation left the labor market), then now we are seeing resources (as Lilia Ovcharova noted, this can be an advantage in a recession, e.g. reducing pressure on the job market). One way or another, in this environment, quality of qualification is particularly important.

An aging population increases the burden on the healthcare system and social services provision, stressed Mikhail Denisenko, Deputy Director of the Institute for Demography. Illness rates will rise as the proportion of senior citizens in the population rises (this process is mitigated by migrants, many of whom are young). But one way or another, there will be more lonely old people who need social support.

A crisis (particularly a deep one) generates the risk of falling birth rate. In recent years it palpably grew – in 2007 the figure was 1.3 children per woman, and in 2014 – 1.75. In order to continue to support this progress, it is necessary to shift the emphasis from incentivising births through maternal capital, increasing maternity leave and child support payments, to the family element of demographic policy.

Healthcare needs an upgrade

The subject of healthcare was discussed in qualitative and quantitative terms. Olga Golodets said that the number of doctors will continue to grow. Russian medical staff are in demand not only within Russia but abroad, particularly doctors in border areas, she added.

At the same time there is a lack of trust in medical professionals. The state has invested significant funds in healthcare, but the population is becoming less satisfied with the quality of healthcare on offer, said Sergei Shishkin, Director of the Center for Health Policy.

Introducing efficient contracts that incentivize doctors to work better (including through performance related pay) has not yet succeeding in changing this dynamic. Based on the current situation, it would make sense to improve a number of areas (primary health care), take action to improve doctors' qualification levels, promote competition in medical services, and raise the prestige of the medical profession, Shishkin argues.

The regions find it harder and harder to help people

Social support must be targeted, experts stress. People's differing needs and abilities across the social strata should be taken into consideration. In many regions this is already happening. 'A more targeted approach is already in place across the Moscow Region, the Amur, Zabaikal and other regions,' said Director of the Institute of Social Analysis and Forecasting at the Russian Presidential Academy of National Economy and Public Administration Tatiana Maleva. 'The crisis did the hard graft, and the shortage of budget resources proved an efficient mechanism.'

At the same time, in the regions – many of which are facing a budget deficit – ther is the danger of cutting expenditure on social support too harshly, warned Leading Research Fellow at the HSE's Centre for Studies of Income and Living Standards Natalia Zubarevich.

Experts also discussed the 'geography' of the crisis. Tatiana Maleva argued that it starts in the major cities, as there are numerous sectors of the economy that will suffer: trade, construction, residential – mortgage. At the same time, people in major cities are better at adapting, and find it easier to make it through the current difficulties.

People need to be given the opportunity to solve problems via horizontal and territorial mobility: the free movement of available workforce, Maleva concluded.

 

Author: Olga Sobolevskaya, April 08, 2015