A Welfare Production Regime between Equilibria: How the Russian Social Protection mismatches its Skill Regime

Following its research question “What welfare production regime can the Russian Federation be assigned to?”, this paper applies the “social protection/skill regime” concept, developed by Estevez-Abe et al. (2001), to the Russian Federation. OECD and World Bank data show that Russia provides a relatively high employment protection (EP) and dangerously low unemployment protection (UP), who are both mismatched with the industry-specific skill regime provided by state education. In the following, the paper remodels EP and UP indices, then characterizes the Russian skill profile, and concludes with guidance for the Russian government.

After the collapse of the Soviet Union, globalisation expected countries to converge economically and politically. Yet, instead of one equilibrium, the 1990s have shown “varieties of capitalisms”, theoretically analysed by Peter Hall and David Soskice (2001) in their eponymous, seminal book. Focussing on strategic interactions to solve coordination problems, Hall & Soskice elaborated two equilibria: Liberal Market Economies (LME; coordination through markets) and Coordinated Market Economies (CME; coordination through collaborative networks). For both varieties of capitalism, the authors describe institutional variations of political and economic setting that reflect upon how firms coordinate with corporate governance, intercompany/industrial relations, and the education & training system.

Refining the latter, Estevez-Abe, Iversen, and Soskice (2001) define different welfare production regimes, which are combinations of social protection and skill regimes within LMEs and CMEs. Focussing on “institutional complementaries” (Hall/Soskice 2001: 17), the authors analyse equilibria of self-reinforcing skill types acquired and provided by labourers, demanded by companies, and secured by social protection. Based on the risk-benefit calculation of labourers to invest in general, industry-specific, or firm-specific skills, Estevez-Abe et al. explain that UP, EP and wage protection work as an institutional framework to secure these investments in human capital. The relationship between skill levels and social protection is here interdependent, as labourers equipped with one skill regime demand an according level of social protection, whereas standards of social protection encourage or discourage skill-specific investments in human capital. In the following, the paper transfers the framework of welfare production regimes to the Russian Federation. The “varieties of capitalism” literature refers to Russia as an “oligarchic capitalism” (Leszczynski 2015: 117) or “patrimonial capitalism” (Robinson 2013: 137), where coordination is mainly achieved by semi-official networks with state agencies as well as with politically or economically strong oligarchs.

Rooted in its Soviet history, EP in Russia is comparatively high. On paper, workers benefit from noti­fi­ca­tion minimum 2 months prior to dismissal and a severance pay up to 6 monthly wages. Especially short-tenure workers are strongly protected as notification period or severance pay do not increase over tenure duration. This results in an OECD employment protection legislation score of 2.8 (high = more protective), which is far above OECD average of 2.0 (OECD 2013a), as well as a World Bank employment rigidity score of 44.0 (OECD average: 30.8; World Bank 2007). The other factors of table 1 (collective dismissal and company-based protection) are comparatively low as either regulation is relatively new (OECD 2013b), or unions play a traditionally weak role (Gimpelson/ Kapeliushnikov 2007, Tchetvernina 2009). The relatively high formal protection is undermined by slacking en­force­ment, as labour courts do not exist, inspections are understaffed, trust in state legislation is low (Gim­pelson et al. 2009), and labourers partially “cooperate” with employers to avoid EP (“voluntary quits”, OECD 2011: 73).

The Russian UP provides very limited replacement rates: Over the first 12 months, only 26 % of the previous income is substituted. Afterwards, the compensation drops to 5% (OECD 2011) and thereby pushes many unemployed into poverty (Sederlof 2000, World Bank 2016, Konkov 2017). Even though some non-monetary benefits (e.g., housing support, reduced fees for community services, or discounts on medicine) are provided additionally, the support remains far below OECD average. UP is further diminished by little applications for non-monetary compensation (OECD 2011). The constantly high Russian employment rate is therefore not only an indicator for the country’s economic capacities but for lacking unemployment protection that drives labourer into subsistence work. The factors of table 2 are estimates based on OECD (2011) data for net replacement rates for a standardized single-income married/non-married worker and World Bank (2011) estimates on Russian spending on unemployment benefits. The third factor is set “1”, even though reintegration of unemployed via active labour market programmes is lacking, nor are there enough administrators to execute legislation (OECD 2011), but extremely low replacement rates force unemployed to take up “any suitable job”.

The Russian skill profile is based on a highly educated workforce, where 67% of the population completed tertiary education (data of 2012, OECD average: 36%; OECD 2018a). Rooted in its Soviet history, the educational system provides elaborated and highly frequented vocational training, focussing on industry-specific knowledge such as engineering, mathematics, and physics (Kopnov et al. 2018). The positive figures are somewhat undermined by the lower average quality of and the limited spending on education – yet, contrasted by a very good student/teacher ratio (OECD 2011). Furthermore, the state-provided educational system lacks systematic cooperation with the private sector, which results in an industry-specific skill regime de-coupled from company and industry needs (Kopnov et al. 2018, OECD 2012, 2018b).

Bringing together the welfare production regime, Russia’s EP/UP position in the Estevez-Abe et al.’s “Social protection and skill profile” is mismatched with its skill regime. Low UP and higher EP promote long-tenure employment and a firm-specific skill regime with training on the job. This reflects little in the real economy: (1) In large and medium-sized companies only 8 % skilled and 1% unskilled workers take on-job trainings (OECD 2011). (2) The overall proportion of short-tenure workers is high and temporary employment rises (Gimpelson/Kapeliushnikov 2011, Karabchuk 2012). (3) There are no country-wide certification system, little state-financed incentives for companies, and little borrowing possibilities for workers to invest in their skill profile (OECD 2011). Beyond the state-provided industry-specific skillset, which is mismatched with the firm-specific requirements and de-coupled from private sector needs, the current social protection framework provides little incentives for workers or firms to invest in human capital. Instead, labourers become highly dependent on their employers as workers’ unions are weak and unemployment bears a high risk of poverty (Tchet­ver­nina 2009, Gimpelson/Kapeliushnikov 2011, Konkov 2017). Due to the limited scope of this paper, wage protection is not analysed in detail. First insights yet show that the lack of wage protection – usually intended to reinforce EP and UP – increases the uncertainty for workers in the labour market even further, as unions do not participate in the wage bargain process, are not perceived as a constraint to employers (OECD 2011), and tend to work in opposition to the government, not the employers (Ashwin/Clarke 2003). The mismatch of EP/UP and skill regime is not discharged even if we take the de facto enforced EP as a lower index into account. Instead, it would only shift Russia to the left of figure 1, promoting a more general skill regime.

This paper briefly analysed the current inter-equilibria status and mismatch of the Russian welfare protection regime, where a low UP, high formal EP and an industry-specific skill regime cannot be aligned. To decrease this mismatch, the country can either liberalize its already lacking EP and focus on poverty reduction but then needs to align the industry-specific skill regime through educational reforms to more general skills. Or, it can strengthen UP, improve de facto EP, and link industry and firms closer to its education system – shifting itself to a highly industry-/firm-skill profile (upper right corner in figure 1). Both options appear to be costly: The former more with regards to transaction costs when overcoming the long tradition of industry-specific skill regime in Russian education, the latter more with regards to administration and welfare costs when strengthening overall social protection.

This research on the welfare regime of the Russian Federation was conducted for the course "The Policy Process: Social policy and the welfare state" at Hertie School of Governance, lectured by Prof Dr Hanna Schwander, Professor of Public Policy at the Hertie School.

LITERATURE

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