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Mobility Opens up New Prospects for Employees

Rostislav Kapeliushnikov, Deputy Director, HSE Centre for Labour Market Studies

Labour mobility — a term used to describe the movement of workers within the labour market — can be further categorised as internal mobility, i.e. promotion or demotion within the same company, and external mobility, i.e. changing employers.

Worldwide, relatively few studies have focused on the relationship between these two types of mobility; most such studies examine mobility from the employer’s perspective based on corporate data. In contrast, this study uses the HSE RLMS household survey data for 2006 to 2013 to examine the dynamics and determinants of labour mobility in Russia and how it affects employee’s salaries and the accumulation and use of human capital.

Kapeliushnikov presented the study's findings in the report The Pathways We Choose: Intra- and Interfirm Transitions at a joint seminar of the HSE Centre for Labour Market Studies and the Laboratory for Labour Market Studies. The study was co-authored by Vladimir Gimpelson, Director of the Centre for Labour Market Studies, and Anna Sharunina, Junior Research Fellow of the Centre.

Lifetime Employment Not Trending

External mobility tends to be much higher than internal in a number of countries, including Russia. In recent decades, this has been a growing global trend due to increased labour market flexibility, structural shifts in favour of the service sector, and global competition. As a result, large companies have been moving away from lifetime employment and internal promotions towards external recruitment.

In Russia, a number of factors, such as limited in-service training opportunities, policies linking wages to the company's financial performance, and significant pay gaps, contribute to employee turnover and reliance on external hiring.

"External mobility prevails, often as a compensatory mechanism in response to limited opportunities for internal promotion," according to the study's authors.

Who Needs Labour Mobility

Both internal and external recruitment approaches have their pros and cons for companies. Internally promoted employees tend to be more loyal, have accumulated company-specific and relevant human capital, and can be motivated by the prospect of further promotion. In addition to this, employers usually have detailed knowledge of their capabilities and productivity.

On the other hand, by tapping the external labour market, employers benefit from a wider choice of candidates who can have better capabilities and innovative ideas. Importantly, external recruitment also helps employers avoid the risk of internal promotion based on favouritism.

From the employee’s perspective, internal promotion can have obvious advantages, such as capitalising on company-specific work experience and competences which may have less value for other potential employers. However, a longer employment history with the same company does not necessarily bring higher pay; in fact, the likelihood of getting promoted decreases with time, reaching its lowest for old-timers who have stayed with the company for a decade or more. Also, limited investment in additional training reduces the value of individual employees, making it easier to replace them with an external hire.

According to the study, high rates of employee turnover in Russian companies discourage employers from investing in training, which in turn stimulates turnover, thus creating a vicious circle.

Promotion: the Russian Way

During the study period, approximately one in five workers (22%) was mobile each year by either getting promoted or changing employers. The rates of external mobility were nearly three times higher, 16.3% vs. 5.8%, than internal mobility rates, while socio-demographic characteristics of people choosing either type of mobility were different.

The study found that men were more inclined towards external mobility, while women were almost as likely to move within the company. "With certain reservations, this finding suggests a relatively low degree of gender discrimination in the Russian labour market — at least when it comes to internal promotion," the authors note.

Both internal and external mobility tend to decrease with age, from 25% and 8.5% in the 30 and younger group to 9.5% and 3% in the 50 and older group for external and internal mobility, respectively.

Additional training stimulates mobility; employees who pay for additional training are about twice as likely to change employers, while those trained at the employer's cost are twice as likely to get promoted internally.

Another important factor is the settlement size; labour mobility has been found to be the highest in big cities such as Moscow and St. Petersburg and the lowest in rural communities. Regionally, labour mobility in Russia is relatively high in Siberia, the Far East and Urals, and relatively low in the Central and Volga federal districts.

Companies with foreign ownership are the leaders in terms of both internal and external mobility. According to the study's authors, "such companies are the most efficient and fastest growing sector of the Russian economy, hence they tend to hire more people and offer opportunities for career growth. "

Industry-wise, external mobility prevails in construction and is relatively rare in non-market sectors such as ​public administration, education and healthcare, while internal mobility varies little in the range of 5.5% to 6%, being the highest in the manufacturing industry and non-market sectors and the lowest in agriculture.

Changing Employers for Higher Pay

In choosing career paths, people are guided by expected benefits, such as pay. A relationship between one’s paycheck and mobility has been observed across countries, but the cause vs. effect question — i.e. whether mobility brings higher pay or the prospect of higher pay leads to mobility — remains unanswered.

Mobility often involves highly paid employees and usually results in a substantial salary increase. During the study period, internally mobile employees were found to earn, on average, 25% more than externally mobilie ones who, in turn, earned some 5% more than those who stayed in the same job.

At the same time, between 2005 and 2013, the expected salary increase was the highest at 23% for externally mobile employees and stood at 19% for those internally mobile and 10% for those who did not move jobs.

"From this perspective, external mobility appears to be the most economically attractive strategy, particularly during the period before the 2008-2009 crisis; however, in recent years, little if any difference has been observed between external and internal mobility in terms of pay increase," according to the authors.

Before the move, externally mobile employees tend to earn an average salary slightly below the market average, while internally mobile ones earn market-level salaries. In other words, the former just catch up with those who stay in the same job, while the latter outpace them in terms of salary, according to the study's main finding.

In Line with the Global Trend

The study demonstrates that labour mobility in Russia is part of the global trend, governed by the same factors as in other countries.

The findings confirm the country's trend towards external labour mobility, which was an estimated three times higher than internal mobility during the study period.

However, the initial assumption of low internal mobility was not confirmed, as many vacancies created by external mobility are filled by company employees, keeping internal mobility quite high in Russia.
Author: Svetlana Saltanova, March 22, 2016