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Compensating wage differentials in Russia


Introduction 3

Compensating wage differentials policy in the regions of the Russian Federation 4

Compensating wage differentials policy by occupation and by industry in the Russian Federation 6

Conclusion 9

Bibliography 10

Wages are the most important determinant of economic activity of any country, this parameter reflects a lot. Labour cannot be reduced to a simple formula: an employee spends his/her physical or mental energy, and the employer pays for it. Wages are to be sufficient to compensate many other aspects of a person’s life. Compensating wage differentials have always been a significant instrument of managing labour force and are common for practically all countries – both large and small ones. National labour market and the territory of any state are not homogenous. Thus, the price for labour cannot be the same for all regions, industries and occupations – similar workers can be evaluated differently by different employers of different areas, because there should be compensation in terms of wages for worse conditions of living, higher living costs or greater risks connected with the work process. For example, workers may receive wage compensations for living in regions with a higher price level and worse non-pecuniary characteristics, such as a relatively low life expectancy, a high level of air pollution, poor medical services and a colder climate. Empirical evidence suggests that compensating wage differentials also exist in the EU and USA . But the most interesting case for conducting an analysis of compensating wage differentials is undoubtedly the Russian Federation.
First of all, Russia is a huge country, where environmental (weather) conditions and living costs vary extremely throughout its territory. A system of wage differentials existed even under the planned economy in the USSR, thus, it is not a completely new phenomenon for our country. Secondly, the price liberalization, increase in regional unemployment and equalisation of policies have led to the intensification of two major trends in the internal migration: from the eastern to the western part of the country, the so called “western drift”, and migration out of the Russian North . And finally, the unconditional compensating wage differentials are huge and persistent in Russia, what, in turn, contributes to “the total wage inequality and generate interregional income variation, but an explanation for this phenomenon is still lacking” .
But what is the magnitude of compensating wage differentials in Russia? In accordance with which criteria are they formed? The analysis of these issues can help us to understand the nature of the salaries inequality in our country. In my essay I tried to contribute to the understanding of wage differentiation by applying this theory to the real situation on the Russian market and analysing its display and development by regions, occupations and industries.

Compensating wage differentials policy in the regions of the Russian Federation
The basics in the system of territorial regulation of payment for labour are the regional coefficients, that are applied to wages of more than 2/5 of the labour force of Russia . Regional coefficients are rises (additions) in salaries, established as a percentage ratio. Their aim is to compensate to employees the inequality of living cost in the regions, caused by different needs (basket of goods) and different price levels for goods and tariffs for services. Another aim of such policy is a stimulating one so as to attract labour force to specific enterprises or territories (of a higher national value or importance) or to the constructing of industrial sites and exploring and development of natural resources in remote and sparsely populated areas.
Originally regional coefficients were introduced for the employees working in northern and eastern areas. After these coefficients were implemented in the Far East and Eastern Siberia, they were further established for employees of southern areas of the Western Siberia and the Ural and also in the southern regions of the European North (Karelia Republic, Komi and Arkhangelsk region).
Table 1.The current regional coefficients can be observed in the following table :
The Far North regions 1.60-2.0
The northern regions of the Far East 1.60-2.0
The northern regions of the Western and Eastern Siberia 1.40-1.80
The northern regions of the European part of Russia 1.40-1.80
The areas, equated to the Far North regions:
The Far-Eastern regions 1.40-1.60
Other regions 1.20-1.40
The southern regions of the Far East and Eastern Siberia 1.20-1.30
The southern regions of the Western Siberia, Ural 1.15, 1.20, 1.25

The corresponding expenditures for implementation these policies are covered by the enterprises and organisations, budgets of the republics, krais, districts and autonomous regions and also local budgets. Since 1991 the regional coefficient has been added to wages without any boundary of their maximum amount . However, during almost 40 years since the system of regional regulation has been adopted the economic situation has changed in the country to a great extent. Empirical evidence says, that for successful functioning of this system (e.g. compensating of living cost and environmental conditions inequalities) – regional coefficients are to be increased significantly in the northern and eastern areas of Russia, employees of the budgetary sphere in particular.
For further increase in interested motives to attract and consolidate labour forces in the southern regions of the Eastern Siberia and the Far East, additional rises in wages for continuous seniority have been implemented at the rate of 30% . This instrument is used for increase of wages, providing a higher level of real salary and, correspondingly, is used for attracting labour force to regions with severe weather conditions and where development of productive forces was desired. The scale of extra payments has been such, that it can be added only after 5 years of permanent employment in all regions of the Russian Federation.
In the compensating coefficients for working in uninhabited and water-scarce areas the level of adequate provision with water and severe climate condition are accounted. These coefficients have been implemented for compensating the decreased labour productivity and efficiency of employees in waterless regions that are now added to wages of people employed in the Black Lands and Kizliar pastures of Kalmykia and Dagestan Republics, in Astrakhan and Saratov oblasts and in Altay. The coefficients amount nowadays up to 1.10-1.40 .
For mollification of the impact of the severe climate conditions of the North upon health and labour productivity, the following compensations are also being practiced today:
o additional prolonged leaves;
o compensation of passage to the place of vacation and back for an employee and his/her family;
o decrease of age and labour seniority needed for being granted a pension.
The pension is granted (in accordance with work in the regions of the Far North and areas equated to it) to men aged 55 years and women aged 50 years under condition that they had worked not less than 15 calendar years in these regions and have a total seniority of not less than 25 and 20 years correspondingly .
Due to the current trend of labour migration from the northern areas of Russia to the European ones, compensations of expenditures incurred as a result of leaving the Far North territories and areas equated to it gain in importance.
There is still a great need for differentiated approach in this sphere, because enterprises represent different forms of ownership, relate to varied spheres of economy and posses diverse sources of financing.
Compensating wage differentials policy by occupation and by industry in the Russian Federation
Among various occupations represented on the labour market ordinary or easy forms of labour can be singled out, that do not require much effort of an employee – for example, labour of a yard-keeper, a watchman or a clerk (in its most broad sense). It is easy to get to these labour markets, these professions do not require any specific training and do not generate significant utility (or disutility). The wages of such employees can serve as a specific reference point with which we can compare other labour prices at other markets.
Compensation for disutility:
Simple labour Physical difficulty Psychological difficulty Insalubrity

Some occupations are connected with greater physical energy outlay – for example, the labour of steel founder, pitman or loader. Therefore, the wages are to be higher than those of an ordinary employee; otherwise, pitmen and steel founder will not be willing to waste additional efforts, will give up their jobs and turn into postmen. Other occupations are connected with higher requirements for psychological outlay – for example, the labour of a dispatcher, managing a huge factory or the labour of an actor. Wages of such employees should also be higher otherwise they will opt for a more peaceful occupation with the same wages. It is also psychologically difficult to work as a butcher or a toilet cleaner. There are also occupations that are not physically or mentally difficult but which assume a great deal of insalubrity for a person. Thus, being employed at a chemical enterprise or as a diver or to work under conditions of extreme pollution – all these occupations will “cost” to an employee more. Thus, he or she will demand for greater salary.
There is no any official classification listing unhealthy and dangerous forms of economic activity in Russia. Instead, the “Index of industries, occupations and positions with unfavourable labour conditions, being employed in which grants a right for additional vacation and half day employment” is currently in force. Thus, enterprises are to work out there own list of occupations with unhealthy and dangerous labour conditions. In accordance with the “Index of industries, occupations and positions…” the following spheres of economic activity are considered to be unhealthy and dangerous :
underground mining, open-cast mining;
working in the zones of radioactive contamination;
chemical enterprises;
medicine, veterinary medicine or other sphere,
involving participation in anti-tuberculous treatment. food industry;
radio engineering;
welding and painting;
jewelry production;
In addition, the following spheres of economic activity are stated to be perilous: labour connected with glass, diamonds, porcelain, wood; underground tunnels construction; transport industry, communication, polygraphy and also cultural sphere. In other words, almost in all the industries and occupations there are risky and unhealthy factors.
The actual rate of such compensating wage differentials is established in the result of workplaces attestation by labour conditions and vary within the following limits: for labour under unfavourable and especially unhealthy conditions – 4, 8, 12%; with particularly hard and especially unhealthy labour conditions – 16, 20, 24%. Additional procedure of wage calculation can be implemented for other industries. In accordance with the Decree of the Government of the Russian Federation of the 8th of October, 1993 № 1002 “Other issues of the protection of the medical personnel labour”, an increase in the compensating coefficients for labour under extremely hard and unhealthy conditions was raised to 15-60%. The Decree of the Ministry of Labour Of the Russian Federation of the 27th May, 1994 №41 established that the rate of compensating wage differential for employees of the state veterinary sphere for labour under unhealthy labour conditions is not to be less than 12% of the official wages. In the Appendix to the Decree of the 29th of March, 2002 №187 “About compensation for labour in the sphere of chemical weapon” established that the rate of the tariff increase is to be within the limits of 15-50% of the official wages. People employed in unhealthy production are granted with an additional paid leave. In accordance with the occupation and position of a given employee, he or she has a right for extra 6-36 days of vacation . Not all professions are specified in the “Index of industries, occupations and positions…”, that the enterprise administration can consider hazardous. In this case, an enterprise can establish the vacation duration for its employees itself and apply modifications to the collective or labour contract. An employer also has a right to cancel completely or partially any employee’s compensations if he or she brings these workplaces into accord with the state requirements.
Various compensations, not connected with any single sphere of economic activity, but caused by the specifications of labour organisations (overtime work, work at weekends and during red-letter days) are mandatory as they are provided by the legislation. The list of compensations and increments of a tariff nature, applied in the budgetary sphere institutions and organisations, including its socio-cultural branches (education, public health service, culture and art) coincide to a great extent with compensations and increments, applied in the private sphere of economy. Increments in wages compensating abnormal labour conditions, combination of occupations and fulfilment of duties of the missing employees, travelling nature of an occupation etc. are applicable to both sectors – private and public.
In the sphere of public institutions, organisations and enterprises there are also applied some increments and compensating wage differentials that are specific only for this particular sector of economy and that are under strict control of the government. For example, employees of the scientific institutions and organisations of the higher professional education are granted with additional compensations (to the official level of wages), that correspond to the category for the academic degree of a Candidate of Science or a Doctor of Science at the rate of 3 and 5 minimum wages correspondingly and also increments of 40% and 60% to the employees, possessing a degree of a Senior Lecturer and a Professor in the sphere of the higher education respectively. The same form of compensation is applied to the wages of teachers and pedagogues in the educational sphere – 35% increment to the official wages of a Doctor of Science and 20% increment to the official wages of a Candidate of Science .
In a number of spheres of economic activity compensation wage differential are applied to the rate of wages for the knowledge and usage in the work process of foreign languages, for example for librarians and guides: not less than 10% for the knowledge of one foreign language and 15% - for two.
The application of various compensation wage differentials, established by the Government of the Russian Federation, is connected with a specific nature of the work process and aim to attract human resources to the given positions in various industries and their further consolidation at these positions.
Compensating wage differentials play a significant role in the system of labour market regulation of any country and are of a huge importance for our motherland as well. They contribute to the settlement of qualitative differences between different forms and aspects of labour: its complexity, employees’ qualification, work process conditions, such as heaviness, insalubrity for health, unattractiveness of labour. The aim of the labour qualitative differences consideration is to provide an equal level of wages (or compensation) for the equal work, irrespective of the specific character of various forms of labour. The wage differentials tariff system is established by the legal documents of the federal, regional and other levels, that help to conduct a regulation of wages by categories of employees and their qualification groups, by industries and forms of economic activity (e.g. by occupation) and, finally, by regions of Russia. Being developed since Soviet times, the Russian system of compensating wage differentials is rather sophisticated and well thought-out as it encompasses practically all peculiarities of our national economy: the variety of regions and climate zones, rough conditions of life in remote northern and eastern part of the country, presence of all industries – including the most risky and harmful for a person’s health ones, such as open-cast and underground mining, chemical and nuclear industries and many others.
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