Excess labour and managerial shortage: Findings from a survey in St Petersburg

Abstract

SURVEY EVIDENCE HAS SHOWN THAT MANY FIRMS in Russia retain excess labour.1 A principal aim of this article is to evaluate whether the retention of excess labour is profitable, and if not, why it is retained. A second aim is to determine why some firms have restructured and others have not. Results from a survey conducted in June and July 1995 of top-level managers of 21 firms in St Petersburg are used to examine these issues. The results suggest that hard budget constraints are a necessary but not sufficient condition for restructuring. An adequate supply of managers who know how to restructure and who have the internal authority to implement it is also a necessary condition for restructuring, but privatisation is not. The introduction briefly reviews the literature and gives a summary of the main findings of the survey. I then describe the general characteristics of the sample. In the next section the reasons managers gave for keeping excess labour are examined to see whether the retention of excess labour is profitable. The factors which may explain why some firms have conducted significant restructuring while others have not are then discussed, and the article ends with a concluding summary. The literature studying excess labour in Russian firms has given the following categories of explanations for the retention of excess labour: paternalism; labour influence; low profitability from laying off workers owing to the excess wage tax, severance pay, and low wages; retention of excess labour may increase the likelihood that a firm will receive state assistance, or alternatively, firms are pressured by the state to retain excess labour in return for state assistance; legal restrictions on laying off workers; and an expectation that output will increase in the future combined with high hiring costs.2 A 1994 World Bank survey of 435 industrial firms reported that managers most often said excess labour was kept because they expected an output and demand recovery. They also often mentioned paternalistic reasons.3 The St Petersburg survey included several follow-up questions in order to illuminate the issue further. The results of the survey suggest that even firms which have otherwise undergone significant restructuring may keep some excess labour owing to high hiring costs. In the majority of cases, though, managers do not appear to retain excess labour to minimise labour costs.