Avoid paying so people work

January 29, 2020

Unlike the case in many developed countries, the Russian government is ready to provide financial support to all people who are registered unemployed. That said, the amount of benefits paid is so small that most unemployed simply disregard it. This approach by the state serves as motivation for them to hurry in finding a new job rather than hang around doing nothing. Researchers from the HSE Centre for Labour Market Studies undertook a study of how the unemployed are treated in other countries and proposed measures for improving the situation on Russia's labour market.

Unemployment benefits are a social policy tool used by the state. They are designed to support purchasing power among unemployed citizens and help them find jobs at their professional level. The amount and duration of benefits should be set at such a level that people are motivated to actively look for a job, on the one hand, but not forced to simply accept any available offer.

Nominal Payment

In Russia, it is virtually impossible to live off unemployment benefits. The amount did not change from 2009 to 2018, when it ranged from 850 to 4,900 a month, and most of those registered as unemployed received the minimal amount. According to the new version of the employment law that took effect in 2019, the maximum amount of benefits increased to 8,000 roubles a month, which is 70% of the subsistence rate (about 11,000 roubles in 2019) at best. The minimum amount of benefits is 1,500 roubles. Benefits are usually paid over a period of six months. An exception has been made for unemployed people of pre-retirement age (who have less than five years to retirement): they are entitled to 11,280 roubles a month for a period of 12 months.

According to data provided by Rostrud (Federal Labour and Employment Service), only 690,000 out of 3.6 million registered as unemployed in 2018. This means that the majority do not rely on payments, despite the fact that in Russia, unlike many other countries, benefits are paid to nearly all people who register as unemployed, independently of their age, duration of employment, and reason for unemployment.

On the other hand, lower benefits promote greater mobility in the labour force. Russians avoid the status of unemployment and try to find new jobs before leaving their previous one or being so-called 'economically inactive', which means they are not officially employed, but not officially unemployed either. People are forced to pursue this option due to financial necessity, including the lack of sufficient support from the state. Such a situation leads to an income gap and further expansion of informal employment in Russia.

It's Not Easy in Other Countries Either

Regarding global experience, the example of 22 member countries of the Organization for Economic Co-Operation and Development (OECD) - most of the world's developed countries - demonstrates that the share of people receiving unemployment benefits has been decreasing over the last two decades. The average share is 30%, with considerable differences between countries. As of 2016, over 80% of all unemployed people were receiving unemployment benefits in Finland, France and Belgium, while in Spain, Hungary and Ireland the share was less than 20%.

Unlike Russia, most OECD countries have different categories of unemployment, and not all of them are eligible for benefits. First, duration of employment matters. If it does not reach the relevant minimum, one isn't eligible to apply for benefits. Taking widespread project (temporary) jobs into account, this category of unemployment is growing. In addition, the reason for unemployment is considered. People who resign voluntarily are not eligible for benefits.

The researchers say that the governments in OECD countries want the benefits to motivate people to search for new jobs more actively. That is why the benefits are mostly paid to those who are ready to start new jobs without delay.

Additionally, there are other, less numerous, categories of benefit recipients, such as those who are employed part-time. In some OECD countries, the law allows them to receive unemployment benefits during a certain period of time. For example, in Switzerland and Belgium, about 25% of benefit recipients are actually working.

Other categories of unemployed people are also entitled to financial support from the state, including new mothers, people who are of pre-retirement age, and the unemployed who participate in employment service programmes (for example, retraining) and have temporarily stopped looking for jobs.

In OECD countries, the average amount of unemployment benefits reaches 56% of previous wages. In some of the countries, it is higher (over 80% in Luxembourg and Switzerland), while it is lower in others (about 30% in Great Britain and the Czech Republic).

The duration of benefits payment also varies depending on the country and a person's category. The shortest period (three months) has been registered in Hungary, with the longest (up to three years) in Iceland and Denmark. In Belgium, there is no time limit if a family has underage children.

What Research Has to Say

Unemployment benefits, their size and duration have a considerable impact on the labour market. For example, a study in the Austrian job market demonstrated that a 4.2% increase in benefits leads to prolongation of the unemployment by 2 - 3 days. Receiving benefits lowers the chances of finding a job by 5 - 9%.

On the other hand, limits to the amount of benefits and payment period force applicants to accept jobs with lower wages than they had had before, which promotes income inequality.

With respect to Russia's system for supporting the unemployed, the HSE University researchers believe that it needs to be reformed. In particular, the amount of the benefits must be increased, and criteria for recipients should be introduced, which would depend on occupational experience, successful retraining, and how active applicants are in their job search.

National Research University Higher School of Economics

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