USSR: MODERNIZING A RELUCTANT LABOR FORCE

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• Collection: General CIA Records
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• Document Page Count: 32
• Document Creation Date: December 27, 2016
• Document Release Date: March 14, 2012
• Sequence Number: 1
• Publication Date: November 1, 1987
• Content Type: REPORT

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Directorate of Seeret
Intelligence F- -1 25X1
USSR: Modernizing a Reluctant
Labor Force
SOV 87-10071
November 1987
404
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Directorate of Secret
Intelligence
Labor Force
USSR: Modernizing a Reluctant
Economic Performance Division, SOYA
This paper was prepared byl Office
of Soviet Analysis. Comments and queries are
welcome and may be addressed to the Chief,
Secret
SOV 87-10071
November 1987
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USSR: Modernizing a Reluctant
Labor Force
Scope Note Gorbachev's ability to modernize the Soviet economy will depend as much
on whether he can convince or coerce a reluctant labor force to adopt new
attitudes and work habits as it will on his ability to generate more and bet-
ter capital goods for workers to use. Because the present Soviet labor force
is ill prepared to cope with a major upheaval in its work ethic-"we
pretend to work and the government pretends to pay us"-Gorbachev's
policies will be viewed with skepticism among some managers and with
anxiety among the workers. Overcoming this skepticism and anxiety while
sticking to his game plan poses a major challenge to the Soviet leader. This
assessment addresses his ability to meet that challenge.
The current paper focuses on the industrial
labor force-the problems that inhibit its motivation and efficient utiliza-
tion, Gorbachev's efforts to deal with these problems, the progress of his
policies so far, and the implications for labor productivity and moderniza-
tion. Research is under way in SOYA on the implications of Gorbachev's
reform program for the social contract with the working class. The reaction
of the managerial elite to Gorbachev's policies will be assessed in another
Secret
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DI study
Secret
soy 87-10071
November 1987
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USSR: Modernizing a Reluctant
Labor Force
Key Judgments The Soviet work force is ill prepared to take on the challenge of
Information available Gorbachev's ambitious industrial modernization program. A number of
as of 20 October 1987 chronic labor problems threaten to bog down progress, including poor
was used in this report.
utilization of workers, a long-term erosion of discipline fostered by a high
degree of job security and an egalitarian wage structure, and declining
standards in the technical professions. In the 1960s and 1970s rapid labor
force growth mitigated these problems. In the 1980s, however, this growth
has been declining sharply. The Soviets will have to make up for the
demographic shortfall by increasing productivity. Moscow believes that the
assimilation of new technology will eventually generate much of this
increase. But, because it will take time to manufacture and install new
equipment, productivity gains from harder work and better organization
and use of labor are needed now to get the modernization effort on track.
Gorbachev has set about to change attitudes toward work, improve the
allocation and utilization of scarce labor resources, and raise standards in
higher education and technical training. His success is far from certain.
His temperance and discipline campaigns gave an initial boost to produc-
tivity by cutting down on lost work time, but booze and backsliding are
creeping back into the workplace. A report recently published in Pravda
charged that some localities are relaxing alcohol restrictions and covering
up incidents of alcohol abuse in the workplace. According to the report, in
the first six months of this year in the Karelian region alone more than
3,500 persons were detained for showing up drunk at work.
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Gorbachev has also attacked the hitherto sacrosanct issues of egalitarian 25X1
wages and job security. A new pay system introduced on 1 January 1987
increased wage differentiation, granting top administrative and technical
personnel wages sharply higher than those of blue-collar workers. The new
system also encourages enterprises to cut excess workers and managers.
The state is not funding the pay increases stipulated by the reform, forcing
enterprises to lay off workers to finance the higher pay scales. Thousands
of layoffs have already occurred, and more are scheduled. Many of those
released will be older workers who will simply go on pension. Moscow
expects other laid-off workers to take jobs on night shifts, in the service sec-
tor, or in the labor-deficit regions of the Soviet Far East and Siberia.
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Some enterprises have reportedly raised labor productivity through cutting
staff, combining jobs, and improving organization, but others have run into
problems. Most enterprises need better equipment and time for retraining
to keep up production with fewer workers. Needed equipment, however, is
scarce. Problems with delivery schedules, product mix, and quality in the
machine-building sector could slow gains from staff cutbacks. And little
slack time will be available unless the leadership backs away from setting
high production targets.
Many of Gorbachev's policies have proved unpopular with Soviet workers,
who are accustomed to a low level of effort, guaranteed jobs, and easy bo-
nuses. As Gorbachev attempts to alter this implicit contract, he will have to
move carefully to avoid disaffecting blue-collar workers, who have much to
lose and little to gain over the short run. There have already been reports of
labor disturbances following the loss of bonuses because of poor perfor-
mance, inequalities arising from the wage reform, plans for staff reduc-
tions, requirements to work on late shifts, and higher work quotas.
It will be difficult for Gorbachev to convince the Soviet worker-made
cynical by years of campaigns, promises, and exhortation-that a more
prosperous future will indeed materialize if he increases his effort.
Members of the intelligentsia may be excited by glasnost, or "openness,"
and the reform discussion, but the average worker will believe in change
when he sees it on the store shelves and on the shop floor.
Improvements in the consumer sector will have to be made if any new
incentive system is to be effective. The benefits of widening wage
differentials will be greatly diminished if higher wages cannot buy a
productive worker a substantially better way of life than that of less
productive coworkers. As things currently stand, both are queuing up for
the same shoddy goods and services. Gorbachev has initiated a number of
measures to improve consumer goods and services on the cheap, including a
new law on individual labor activity that is intended to make it easier for
private citizens to fill some of the gaps left by the state sector. However,
unless more resources are diverted to the consumer sector, and unless
consumers are given more influence over producers, major improvements
will be difficult to achieve.
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Key Judgments
Labor Practices Constraining Modernization 1
Labor Hoarding
Sluggish Capital-Labor Substitution 2
Imbalances in Education and Training 4
Temperance and Discipline Campaigns 5
Wage Reform: A Wager on the Strong 6
Giving Workers a Stake in Enterprise Performance 9
Retraining 10
Wage Reform Leads to Layoffs 12
Bureaucratic Foot-Dragging Impedes Workplace Certification 13
A Barrier to Tying Wages to Enterprise Performance 14
Simulating Success 14
Implications for Labor Productivity and Industrial Modernization 15
Constraints on the Industrial Labor Supply 21
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USSR: Modernizing a Reluctant
Labor Force
Gorbachev is trying to implement an ambitious pro-
gram of industrial modernization without bringing
more workers into industry. To do this, he will have to
find ways to reverse the indifference and laxity that
have been ingrained in the work force for nearly seven
decades-a formidable challenge, even for Gorba-
chev. Both workers and managers tend to resist
change. Incentives to innovate or advance technical
progress are weak, and labor is inefficiently utilized.
In the 1960s and 1970s rapid labor force growth
mitigated the economic impact of these problems. In
the 1980s, however, this growth has been declining
sharply (figure 1 and inset). According to Nikolay
Ryzhkov, Chairman of the USSR Council of
Ministers:
For the first time virtually the entire increase in
the national income, industrial output and
other production sectors will be obtained, it is
planned, through increasing labor productivi-
ty.... Over [the 12th Five-Year Plan] the in-
crease in labor resources will diminish and
amount to only 3.2 million persons. Without the
planned increase in labor productivity, the
national economy would need more than 22
million additional workers. We simply do not
have such labor resources at our disposal.
Gorbachev apparently believes that technological
progress and accompanying increases in labor produc-
tivity will allow industry to meet its production goals
without an increase in workers. If this is to occur,
however, there must be a fundamental change in the
way industry utilizes workers, as well as changes in
workers' attitudes. To modernize Soviet industry,
Gorbachev needs a flexible, modern labor force moti-
vated to work hard and keep up with changing
technology. He also needs managers who use incen-
tives effectively to boost productivity and who are
Figure 1
USSR: Increments to Working-Age
Population and Civilian Labor Force
EJ Working-age Civilian labor
population force
Million persons
Source: Ward Kingkade, "Estimates and
Projections of the Labor Force and Civilian
Employment in the USSR: 1950 to 2000" (Center
for International Research, Bureau of the
Census), unpublished data, September 1986.
1996-
2000
forward-leaning and resourceful in introducing labor-
saving techniques and technologies. This is a far cry
from the labor force that Gorbachev inherited. The
Soviet approach to the workplace had virtually insti-
tutionalized practices that promote job security at the
expense of efficiency and innovation.
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Labor Hoarding
Unlike firms in a competitive market environment,
Soviet enterprises have had little incentive to econo-
mize on labor. Managers have not been concerned by
the cost of labor, because the wage fund is allotted by
the state. Indeed, industrial ministries and their sub-
ordinate enterprises have attempted to bid for as
many workers as possible as a means of increasing
current output, regardless of cost. Enterprises have
been judged on the basis of how much they produced,
not how efficiently they utilized human resources. As
a result, Soviet enterprises have become substantially
overmanned in comparison with Western factories.
Managers have also hoarded labor as a hedge against
steadily rising plan targets, demands to supply labor
for the harvest or special civic projects, and time lost
because of the erratic supply of materials and equip-
ment.
Labor hoarding at older enterprises has led to a
shortage of workers for new production facilities.
According to one Soviet economist writing in 1986,
labor shortages were responsible for one-third of the
delays in commissioning new enterprises. A 1982
Soviet study of several branches of industry found
that enterprises put into operation between 1976 and
1981 were staffed at only 84 to 87 percent of the
planned level, while enterprises six to eight years older
had a 10- to 15-percent surplus of labor. Even in
enterprises with a labor surplus, the newest equipment
often has been undermanned because labor has been
tied up operating and repairing obsolete machinery.
Sluggish Capital-Labor Substitution
Western firms try to use new equipment to reduce
their labor requirements, but in the Soviet Union the
opposite has generally been true. Ministries have
tended to use investment to create more jobs and
boost production, rather than to replace workers.
Indeed, there has been an incentive to create positions
whether there have been workers to fill them or not.
Some Soviet writers have claimed that managers' pay
is linked to the number of work positions-even empty
ones-at their enterprises. Moreover, unfilled slots
have been used to justify further demands for labor.
Gorbachev complained in 1986 that industry had
more than 700,000 vacant work positions.
Soviet demographic trends have led to a sharp decel-
eration in growth of both the working-age population
and the civilian labor force during the 1980s. a The
working-age population will grow at an average annu-
al rate of just 0.4 percent in the 1980s, compared to
an average annual rate of 1.6 in the 1970s. The labor
force will grow somewhat faster, increasing at an
average annual rate of 0.7 in the 1980s, compared to
1.6 percent in the 1970s. This is the result of a
greater concentration of people in the middle age
groups, which have the highest participation rates, as
well as a rise in the number of pensioners in the labor
force. In the mid-1990s the number of new entrants to
the labor force will pick up, easing strains on labor
supply.
The problem of slow growth is compounded by a
severe regional imbalance in labor supply. The great-
est demand for workers in the Soviet Union is in the
highly industrialized western USSR and in resource-
rich Siberia. However, the able-bodied population in
the Russian Republic and the European republics has
actually been declining since 1984 and will continue
to decline until 1996. In the last 20 years Soviet
population growth has been concentrated in the high-
fertility southern-tier republics. During the eighties
most of the increment to the able-bodied population
in the Soviet Union will come from Central Asia,
where workers generally have less education, fewer
skills, and less plant and equipment to work with
than elsewhere in the country. Central Asians are
generally unwilling to migrate to the urban industrial
centers of the north.
a The working-age population is composed of men 16 to 59 and
women 16 to 54. The labor force is the economically active
population, including working pensioners and those engaged in
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Table 1
USSR: Labor Savings From the
Introduction of New Technology in
Industry, 1971-85 a
Annual Reduction Percent of
in Workers Industrial
(thousands) Employment
1976-80
558
1.6
1981-85
502
1.3
1980
555
1.5
1981
510
1.4
1982
450
1.2
1983
479
1.3
1984
1985
In their drive to create new jobs, ministries neglected
the mechanization of existing positions, particularly
those in auxiliary processes such as loading, unload-
ing, packing, and maintenance. As a result, substitu-
tion of capital for labor has been slow (table 1), and
industry requires large numbers of manual workers.
Currently over one-third of all industrial workers are
manual laborers (table 2).
Job Security and Low Motivation
When Gorbachev came to power, excess demand for
labor, a tightening labor market, and a commitment
to full employment had given Soviet workers a high
degree of job security. Workers generally were fired
only in cases of persistent drunkenness or other gross
infractions of discipline-and most of these workers
had little trouble finding new jobs. In 1981 one
enterprise reported that, for every two people it fired
for discipline problems, one of the people hired as a
replacement had been fired for similar reasons from
another local enterprise. The guaranteed job fostered
a long-term erosion of discipline and a widespread
attitude of indifference. At a public lecture early this
year one Soviet worker observed, "We have no unem-
ployed workers outside our factories-they are all
inside."
Figure 2
USSR: Wage-Leveling in Machine
Building and Metalworking
Average pay for:
0 Workers M Administrative and
technical personnel
a Includes wages and bonuses.
Source: Vladimir Shcherbakov, Sotsialisticheskij,
trud, Number 1, January 1987.
Wage-Leveling
Wage-leveling has weakened the incentive for profes-
sional managerial and technical personnel to excel. As
a result of the state's egalitarian wage policy, as well
as a proliferation of bonus payments to workers
awarded primarily for meeting quantity targets, blue-
collar wages have grown at a faster rate than earnings
of professionals. In 1986 in the USSR as a whole, a
white-collar worker earned on average only about 10
percent more than a blue-collar worker. In the critical
machine-building sector, earnings were roughly equal
(figure 2). In the construction sector, white-collar
employees actually earned less than blue-collar work-
ers. Moreover, through the years differentials between
the lowest and highest skill grades have narrowed for
both blue- and white-collar workers. The Soviet wage
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Table 2
USSR: Manual Labor in Industry
Total
Wage Earners
(thousands)
Wage Earners Who
Work Manually
(excluding repair work)
Wage Earners Who
Manually Repair or
Adjust Machines
Percent
of Total
Percent
of Total
Thousands
1959
17,598
54.6
9,608
9.5
1,672
1965
23,495
48.5
11,395
11.2
2,631
1975
28,487
41.6
11,850
12.7
3,618
1979
30,226
40.2
12,151
13.2
3,990
1982
30,950
37.4
11,575
13.8
4,271
system thus has offered workers little incentive to
improve their skills or retrain to keep up with chang-
ing technology.
Imbalances in Education and Training
The USSR has had acute problems with the training,
utilization, and motivation of engineers 2 and other
specialists, a group critical to the success of the
industrial modernization program.
Soviet higher educational institutions have produced
an overabundance of poorly trained engineers (table
3). While the top technical universities turn out an
engineering elite, this is a small fraction of the total.
Approximately one-half of engineers graduate from
evening and correspondence courses, where the quali-
ty of instruction is notoriously low. Many more have
attended substandard institutions in rural areas and
small towns. Soviet schools, like industry, have suf-
fered from a focus on quantity rather than quality.
Weak or undisciplined students have been passed
through the system so that schools could meet targets
for admissions, promotions, and graduations. As a
result of these trends, the prestige and attractiveness
of engineering have declined and professional stan-
dards have deteriorated.
' In the Soviet Union the term "engineer" is more broadly defined
than it is in the United States. Many Soviet "engineers" would be
called technicians or other kinds of specialists in the United States.
Industry has not been able to effectively utilize the
large number of engineers and specialists available in
the labor force. As their numbers increased, engineers
have had less and less substantive work to do. They
tend to spend more time on routine tasks than on
research and design. Many engineers take jobs that in
no way utilize the skills they have acquired. Many end
up in blue-collar jobs. Thus, resources invested in
educating these workers have been wasted and their
entry into the labor force unnecessarily delayed.
Although there is an overall abundance of engineers,
there are deficits in particular specialties, as well as
regional imbalances in training, because educational
planning has been unable to keep pace with the
changing needs of the economy. This reflects both the
difficulty of projecting demand five years in advance
and the ministries' habit of overstating future man-
power requirements. One Soviet official complained
that there are shortages of qualified specialists in
computers, electronic equipment, automation and
mechanization of machine building, and a number of
other areas, while "the number of graduates in spe-
cialties for which there is no demand is growing year
in, year out." Moreover, because many engineers are
trained in narrow specialties, it is more difficult for
them to switch fields or adjust to changing require-
ments after they have entered the work force.
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Table 3
USSR: Expansion of the Engineering
Profession
Total
Engineers
400,200
1,135,000
2,486,500
4,914,200
Number
per 1,000
workers
and man-
agers
9.9
18.3
27.5
43.7
Engineers
as a per-
centage of
all special-
ists with
higher
education
27.7
32.0
36.2
40.7
Ratio of
engineers
to techni-
cians
1:2.1
1:1.7
1:1.8
1:1.6
Engineers
graduat-
ing from
higher
education-
al institu-
tions
37,400
120,400
257,400
329,300
Source: S. A. Kugel', Sotsiologicheskiye issledovaniya, No. 1,
1983.
a In the Soviet Union the term "engineer" is more broadly defined
than it is in the United States, encompassing a wide range of
specialties.
Gorbachev has made it clear that he will not accept
claims of labor shortages as an excuse for continued
slow growth in production. He maintains that enter-
prises can operate with fewer personnel and still carry
out modernization while increasing output and quali-
ty. He has warned that workers will no longer be able
to count on lax discipline, easy bonuses, and secure
jobs. He has ambitious long-term targets to raise
productivity and accelerate shifts in employment
(inset). The main elements of Gorbachev's strategy to
overhaul the labor force include:
? Improving incentives and tightening discipline to
encourage workers to increase the quality and inten-
sity of their work.
? Improving the allocation and utilization of labor
resources through vigorous implementation of labor-
saving measures.
? Raising standards in higher education to improve
the quality of managerial and technical personnel,
thereby narrowing access to these fields.
? Allowing workers to elect enterprise managers (sub-
ject to the approval of higher organs), a move
intended to foster greater responsibility and
initiative.
Moscow has adopted numerous measures to put this
program into place. With each new measure intro-
duced, demands on the labor force have escalated.
Workers and managers are now being asked to in-
crease production, raise quality, retool, introduce or-
ganizational changes, add extra shifts, and do all of
the above with the same or fewer workers.
Temperance and Discipline Campaigns
The first step in Gorbachev's drive to raise productivi-
ty was an all-out attack on widespread alcohol abuse
in the labor force. In May 1985, shortly after coming
to power, Gorbachev unveiled draconian measures to
curtail alcohol consumption. Alcohol production was
cut sharply, prices were raised by an average of 40
percent, penalties for public drunkenness and alcohol-
related crime were increased, and liquor store hours
were reduced. To convince the populace that temper-
ance was here to stay, some distilleries were closed or
converted to other uses.'
Gorbachev has also initiated measures to raise perfor-
mance standards and personal accountability for both
workers and managers. He has used a policy of
glasnost, or "openness," to rouse the population from
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Gorbachev's Labor Targets
General Secretary Gorbachev's ambitious goals for
the labor force in the 12th Five-Year Plan period
(1986-90) and beyond include:
? A 20- to 23 percent increase in labor productivity
(for the total economy) in the 12th Five-Year Plan
(in comparison, the CIA estimates that labor pro-
ductivity increased 11 percent during 1981-85). By
the year 2000, labor productivity is to be 130 to 150
percent higher than in the 1981-85 plan period.
According to Ryzhkov, two-thirds of this increase is
to be achieved through the assimilation of new
technology.
? A release of 5 million workers from manual labor
in the 12th Five-Year Plan. All women are to be
freed from manual labor by 1990. Over 20 million
manual laborers are to be released by the year
2000.
? A release of 10 million people from agriculture by
the year 2000. In the 1971-85 period, in compari-
son, the total agricultural labor force (including
those engaged in private agriculture) decreased by
less than 3 and a half million.
? Over the 12th Five-Year Plan, a productivity in-
crease in the productive sphere a large enough to
allow the entire increment to the labor force to go
into the service sector, which includes health and
education. During 1981-85 the increment was divid-
ed approximately equally between production and
services. One Soviet economist believes that the
number of workers in the productive sphere could
decline by 13-15 million by the year 2000, if this
sphere could meet its goals for productivity and
efficiency.b
economy producing material goods rather than services.
apathy and bring public criticism to bear against
incompetent managers. Many managers have been
dismissed during Gorbachev's tenure. The publicized
closing of a Leningrad construction firm in March
and a provision in the law on enterprises ' that in
theory allows bankruptcy put managers on notice that
yesterday's standards were no longer good enough. At
the beginning of this year, Gorbachev introduced a
stringent quality control program at a number of
machine-building enterprises. The rejection of large
numbers of products has caused both workers and
managers to lose wages and bonuses and has put
additional strain on the country's ability to meet its
requirements for new capital goods
Wage Reform: A Wager on the Strong
On 1 January 1987 Moscow introduced a new wage
system designed to promote greater rewards for the
most productive workers and greater sanctions for the
least productive.
The wage reform increases wage differentiation, re-
versing the direction taken in earlier reforms. Moscow
is selling more differentiated wages as "social justi-
.ce," arguing that it is fairer for workers to be paid
according to the quality and importance of their labor.
Sharply higher wages will be paid to those with skills
vital to the modernization program-top engineering-
technical workers, foremen, designers, and workers in
machine building (figure 3). The wage reform also
widens the differences in pay between the lowest and
the highest skill grades to give workers incentive to
obtain badly needed technical skills. The law on state
enterprises passed in June 1987 goes even further,
removing ceilings on wages. Some workers, however,
may see little or no increase in pay. Under the new
system, jobs will be regraded (meaning some workers
will be demoted) and work quotas will be raised. F_
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Figure 3
USSR: New Wage and Salary Rates in
Machine- Building Enterprisesa
Worker
Rates under the old system
Foreman
Engineer
Senior
engineer
Rates under the new system Worker
Foreman
Engineer
Class 1
engineer
New senior
grades
Class II
engineer
Leading
engineer
a Bonuses are not included.
Source: Vladimir Shcherbakov, Sotsialisticheskiy
trud, Number 1, January 1987.
Bonuses. The wage reform also includes new regula-
tions aimed at tightening up the payment of bonuses
to restore their value as incentives. Bonuses and wage
supplements are to be taken away if a worker's
performance deteriorates. Moscow has strongly criti-
cized managers who use bonuses to attract and keep
workers rather than to reward exceptional perfor-
mance, charging that under the old system workers
were reaping "unearned income."
The new regulations will in effect reduce the funds
available to pay bonuses. A portion of the funds that
would have gone to bonuses under the old system will
be used to finance wage and salary hikes. Bonus
payments are to be decreased to less than 25 percent
of total income. Under the old system, bonuses made
up nearly half of the total earnings for some workers.
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The reduction in bonuses is intended to give centrally
set wage and salary rates a greater role in determining
income differentials.
Finally, the new bonus system offers enterprises and
labor collectives more leeway in distributing the re-
maining bonus funds. There is to be a transition to
payment of bonuses to labor collectives as a whole
rather than to individuals. The labor collective will
decide how to distribute bonuses among its members.
Centrally determined indicators for special bonuses
will be replaced with "recommendations" to guide
The Belorussian Railway experiment is a variation
on the Shchekino system first introduced in the mid-
1960s. Under the Shchekino system, an enterprise
was guaranteed a stable wage fund and the right to
cut personnel and use savings in the fund to finance
bonuses for remaining workers. The Belorussian sys-
tem differs in that wage savings are used to finance
higher wage rates rather than bonuses. Higher wage
rates are presumably a better incentive, because they
enterprises in distributing funds.
Staff Cuts. The new wage system is also being used as
a lever to make enterprises disgorge excess labor and
improve efficiency, an idea tested during 1985-86 on
the Belorussian Railway (inset). Under the reform, the
state is not allotting funds to cover the new, higher
pay scales. Enterprises must pay for them out of their
"internal reserves." To do so, they must either raise
labor productivity, shift money from the enterprise
bonus fund, lay off less productive workers, or employ
some combination of these measures. Moscow expects
many enterprises to lay off workers. According to a
top labor official, 3 million people could be released
from their jobs as a result of changes in the wage
system during the 12th Five-Year Plan.
One group targeted for reduction is specialists. While
many specialists and engineers are to get substantial
raises, Moscow would like to use the wage reform to
redirect the least able of these individuals to blue-
collar jobs and raise standards in the technical profes-
sions. In conjunction with the reform, periodic job
reviews are to be conducted more rigorously, and
specialists who are found to be unqualified for the jobs
that they hold are to be demoted or released. An
earlier version of the wage reform introduced last year
in research institutes reportedly led to a number of
layoffs. In Gorbachev's words, "We have plenty of
people who are engineers by education, but not so
many who are engineers by their ideas and by re-
sults ... And those who find themselves among this
body of workers by accident should perhaps think
about it and find different work. Everything we have
should be given to that most talented, most construc-
tive section of the body of engineers."
provide a permanent boost in earnings.
The Belorussian experiment was preceded by meticu-
lous preparation. First, staff cuts were made possible
by significant technological improvements made on
the railroad during 1976-83, including mechanization
of 95 percent of loading and unloading work and
automation of rail crossings. In 1984 the effort to
change the wage system began. The railway decided
that wage rates would be raised 20 to 25 percent for
workers and 30 to 35 percent for managerial techni-
cal personnel. Of 29.4 million rubles needed to
introduce the higher wage rates, 23.4 million was to
be gained by reducing the workforce, and the remain-
ing 6 million rubles from overfulfilling shipment
plans. After a two-year study concluded that 10 to 22
percent of work time was wasted, output norms for
pieceworkers were raised an average of 20 percent;
those for salaried workers on a quota system, up to
15 percent. Next came a partial hiring freeze from
December 1984 to May 1985, yielding 5,500
vacancies.
In July 1985 the experiment officially began when
new wage scales went into effect. Staff cutting also
began at this time. The experiment eventually freed
up 12,000 workers. The Soviet press hailed it as a
great success, claiming that the railway achieved a
22.8 percent increase in labor productivity for the
11th Five-Year Plan (1981-85), compared with a
planned increase of only 7.5 percent. The Belorussian
experiment was extended to 10 other railroads in
1986. The entire national railroad system is to be
operating on the new basis by the end of 1988.
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Provisions for Laid-Off Workers. Soviet economists
expect that layoffs in industry resulting from wage
reform will spur work effort by reducing job security.
Moscow insists that this does not mean unemploy-
ment, however, because workers released from indus-
try are needed to staff evening and night shifts in
factories, to take jobs in the labor-short service sector,
and to staff new production facilities in Siberia and
the Soviet Far East. The labor is to be reallocated
through an expanded network of placement bureaus.
These bureaus, originally established in the late
1960s, operate under the control of the State Commit-
tee on Labor and Social Problems. Their goal is to
minimize the amount of work time lost between jobs,
improve the match between jobseekers and jobs, and
give the state greater influence over job choice and
labor allocation. A new type of placement bureau is
taking an even more intrusive role in the labor market
by attempting to track down those not employed in
the state sector and force them to take jobs (inset). F_
In addition, Moscow is attempting to make the transi-
tion easier for dislocated workers. Workers are to get
at least two months' notice before they are dismissed.
They are entitled to two weeks' severance pay. Enter-
prises hiring released workers are also encouraged to
pay these people their former wage while they retrain
for new positions.
Giving Workers a Stake in Enterprise Performance
Moscow would like to tie workers' wages to enterprise
performance so that "any slackening in the pace of an
enterprise's production will mean a direct reduction in
the firms' resources for wages and social production
and development." Under the law on enterprises,
which takes effect 1 January 1988, many more enter-
prises are to switch to "self-financing." That is, they
are to finance their operations from profits and other
internally generated funds. With the approval of
higher authorities, a self-financing enterprise can
choose one of two methods to form its wage fund. The
first method is the one now in general use: the wage
fund is allocated by the state and therefore guaran-
teed.' Under the alternative method the wage fund is
6 The wage fund is allocated according to a ratio of wages per ruble
of output. The three incentive funds-for research and develop-
ment, for housing and amenities for workers, and for awarding
A placement system that originated in the city of
Novopolotsk in 1982 departs from the tradition of a
free labor market in the Soviet Union. The system
tracks able-bodied individuals who are neither em-
ployed in the socialized sector nor in school. With the
cooperation of enterprises, schools, the passport of-
fice, and the internal affairs department, the place-
ment bureau registers those who leave jobs or school
and those newly arrived in the area. If an individual
has not taken a job within three weeks, inspectors
from the department of internal Fairs are called in
to investigate. The individual is compelled to take a
job at this time; if he refuses, legal action is taken.
The Novopolotsk system had spread throughout
Belorussia by August 1986. A decree published in
December 1986 praised its success and recommended
the system for other Soviet cities. So far it has spread
through much of Latvia and Georgia and is being
introduced in other areas.
not guaranteed. Wages are paid from the residual
from enterprise earnings after deducting other costs.
According to one labor official, this "highly promising
if harsh principle encourages people to work more
economically and show initiative ... even if it does not
guarantee steady wages."
Workplace Certification
To make it more difficult for enterprises to hoard
labor, Gorbachev has also implemented "workplace
certification." Under this program, initiated in the
machine-building ministries in 1985, enterprises are
required to conduct a thorough inventory and evalua-
tion of each "workplace," defined as the work area,
materials, and equipment associated with the labor of
one person. They are to identify jobs that can be
eliminated or upgraded as well as obsolete equipment
that can be scrapped to free up labor. The program is
meant to provide planners with better information on
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labor requirements. In the past, planners have had
difficulty controlling labor hoarding because they had
no reliable way to determine which enterprises were
using labor efficiently and which were not. This
program is also supposed to avoid the creation of
excess (empty) workplaces by helping planners to
match plans for the construction of new capacity with
labor availability.
A key goal of workplace certification is to force
enterprises to address the problem of manual labor.
Enterprises will have to identify manual positions,
work out measures to upgrade these slots, and then
decide what equipment is needed to carry out the
improvements. The elimination of heavy or dangerous
jobs is a top priority. Moscow expects stepped-up
investment in machine building to facilitate mechani-
zation of such jobs.
Extra Shifts
Gorbachev is also asking many workers to go on late
shifts. After initial experimentation in Leningrad, the
government adopted a decree in February 1987 call-
ing for all Soviet enterprises to transfer to multishift
work schedules during 1987-88, a move aimed at
accelerating modernization and reversing a long-term
decline in the return on capital in Soviet industry.
Modern equipment is to be used more intensively,
while obsolete equipment is to be scrapped.
According to the decree, second and third shifts are to
be introduced in industry, construction, transport, and
the agroindustrial complex. Primary emphasis will be
on machine-building enterprises. The most sophisti-
cated equipment-machine tools with numerical pro-
gramed control, machining centers, industrial robots,
and computer complexes-is to operate on three shifts
a day. Wage supplements and extra leave time are
offered as inducements to work evening and night
shifts.
Education Reform
Moscow has undertaken a two-part reform program
that attempts to narrow access to higher education.
The reforms aim to get a larger segment of the
student population into the labor force earlier, while
putting the brightest students through a more rigor-
ous higher education program. The first phase of the
education reform, adopted in 1984 before Gorbachev
came to power, attempts to reorient primary and
secondary education toward vocational and practical
training. Under this reform, which began to be imple-
mented in 1986, vocational training is to be instituted
at all educational levels. More students are to be
channeled into trade-oriented specialized secondary
schools and fewer to academically oriented general
education schools, which prepare students for higher
education.
The second reform, adopted in a series of decrees
early in 1987, deals with higher technical and special-
ized education. It focuses on solving problems that
have slowed modernization: the glut of low-quality
engineers; a mix of graduates that leaves labor deficits
in key technical specialties; outdated educational fa-
cilities; and narrow, specialized education character-
ized by rote learning. The reform calls for tougher
admissions and performance standards for students
and special training programs for top achievers. New
curriculums are to be designed to give students a solid
general scientific background to allow them to better
adapt to technological change. Less time is to be spent
in the lecture hall and more time in independent study
and practical production training in enterprise-spon-
sored facilities. The reform also emphasizes closer ties
between industry and education. Enterprises are to
draw up contracts with higher educational institutions
for graduates in needed specialties and, in return,
partially defray their educational expenses. Educa-
tional institutions would use this money to upgrade
facilities and add much-needed computer equipment.
Retraining
A resolution adopted by Moscow in late 1986 aims to
improve the retraining of workers to speed the assimi-
lation of new technology. The measure encourages
enterprises to move away from informal on-the-job
training to a greater emphasis on intersectoral train-
ing institutes and study centers organized at enter-
prises, vocational and technical schools, and higher
educational institutions. The resolution calls for more
of these facilities to be established and for improve-
ments in curriculums and teaching staff.
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Democratization of the Workplace
One of the most difficult problems Gorbachev faces in
trying to promote technological progress is fostering
initiative and independence at the enterprise level
without threatening labor discipline. Traditionally
neither workers nor managers have been inclined to
take risks, resolve problems, or make decisions inde-
pendently. According to Gorbachev, workers must
"realize that it is up to them to keep their plant in
order and that everything depends on them and on
their personal involvement in dealing with various
problems that arise in industry." At the recent trade
union congress, he made it clear: "Start solving these
questions," he told the workers, " ... the onus is on
you."
To combat apathy and encourage workers to take a
more active role in modernization and restructuring,
Gorbachev is offering them more say in running their
enterprises.' According to the Law on Enterprises
adopted on 30 June 1987, workers will be able to elect
enterprise managers, subject to confirmation by supe-
rior organs. The law calls for labor councils to
represent workers' interests and act as management
advisory bodies. The law also stresses that worker
participation is to come within the framework of one-
man management. Moscow is hoping that elections
will produce more innovative managers who will be
less influenced by the ministries.
Moscow is just beginning its efforts to restructure the
economy, and many of the measures undertaken
cannot be expected to yield significant gains for
several years. Nevertheless, the preliminary results of
some programs suggest both the possibilities and
limitations of the restructuring process.
Reduction in Lost Work Time Proves Hard To Sustain
Gorbachev's drive for temperance and discipline
scored initial success, contributing to a reduction in
work-time losses in 1986, an important factor behind
improved economic performance. Industrial produc-
tion increased by 3.6 percent last year, the fastest rate
of growth in nearly a decade. The antialcohol cam-
paign reportedly helped raise labor productivity. The
Soviet Central Statistical Administration claimed
that losses of work time due to unauthorized absences
were reduced by one-third in industry and 40 percent
in construction during the first six months of 1986. A
good performance in the transport sector, which cut
supply interruptions, probably contributed to reduced
work-time losses as well.
Gorbachev counted on continued gains from these
campaigns to boost growth for another two or three
years while he put in place longer term measures to
raise labor productivity. In his 26 June 1987 plenum
report, however, he pointed out that backsliding has
already occurred, stating that "in many places the
momentum has been lost and work is proceeding
extremely sluggishly. The incidence of drunkenness
has increased again and idlers, parasites, and pilfer-
ers-people who live at the expense of others-again
feel at liberty." A report recently published in Pravda
charged that some localities are relaxing alcohol
restrictions and covering up incidents of alcohol abuse
in the workplace. According to the report, in the first
six months of this year in the Karelian region alone
more than 3,500 persons were detained for showing up
drunk at work.
The reduction in work-time losses reported in 1986
has not been repeated in 1987. The problems that
traditionally have led to the greatest intrashift losses
of work time-supply interruptions, poor organization
within enterprises, equipment shortages and break-
downs, and, to a lesser extent, discipline problems-
have been exacerbated by a number of factors:
? Abnormally harsh weather in January led to exten-
sive interruptions in supply and to some factory
shutdowns.
? Implementation of the new quality control system is
disrupting production and the supply network, as
substandard goods are rejected.
? Implementation of wage reform and resulting staff
cuts is generating personnel and organizational
problems and is making it more difficult for enter-
prises to meet production targets.
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? The introduction of multiple shifts is adding to
work-time losses, especially on late shifts, because
there is a lack of support personnel and disgruntled
workers are leaving shifts early.
The disruptive effect of these measures raises the
potential for increased work-time losses and labor
disturbances.
Wage Reform Leads to Layoffs
Moscow appears to be implementing wage reform
with the same degree of determination applied to the
new quality control system, reportedly leading to
thousands of layoffs in industry (inset). While this
effort appears to be succeeding in terms of releasing
labor, it is not clear whether the staff cuts will result
in greater efficiency or simply in confusion, shortfalls
in production, and further misallocation of labor.
An obsolete price system may get in the way of
efficient redistribution of labor resources. Under the
wage reform, enterprises with lower profits, and
therefore fewer "internal reserves," will have to re-
lease more workers to pay the new wage increases.
Under the Soviet system of administratively set
prices, however, profits are not a reliable reflection of
how efficiently an enterprise operates and how well it
utilizes its labor resources. Relatively efficient enter-
prises might have to release labor simply because the
prices of their products are set artificially low. On the
other hand, enterprises whose product prices are set
artificially high would have to cut fewer workers, even
though they might be substantially overmanned. A
price reform was announced at the June 1987 ple-
num,' but it will not take effect until 1991 at the
earliest-after the wage reform has already been
implemented throughout industry
Moscow seems determined to implement wage reform
and staff reductions, even in areas where such an
effort does not appear to make sense. For example,
staff cuts have been reported in the labor-surplus
8 This reform is to encompass all forms of prices-wholesale,
procurement, and retail prices and rates. Although prices for the
most important products will continue to be set centrally, the
number of prices that can be fixed by enterprises on their own or by
contractual agreement with their customers is to be substantially
An October 1987 report of the USSR State Statistics
Committee stated that 10 million people had been
switched to the new wage system-14 percent of the
total number slated to go to the system by 1990. The
report criticized the machine-building ministries for
making slow progress in implementing the reform
According to B. I. Gostev, USSR Minister of Finance,
as of October 1987 more than 90,000 workers had
been released by the USSR Ministry of the Petro-
leum Industry.
According to L. A. Kostin, First Deputy Chairman of
the USSR State Committee on Labor and Social
Questions, 280,000 workers had been released from
the 32 Soviet railways as of 1 July 1987. Kostin also
cites some problems and distortions that have accom-
panied wage reform:
? On "miscalculations" in setting work quotas:
"Some strange examples occur: at one enterprise
wage rates rose 22 percent, so work quotas were
revised by the same amount and earnings fell
(because workers lost bonuses they would normally
get for overfulfilling quotas)."
? On ineffective bonuses: "Three out of every four
enterprises checked in May had not changed the
workers' bonus system at all. And designers, tech-
nologists, and other specialists once again are paid
bonuses not for developing new equipment or tech-
nology, but for volume indicators."
? On wage-leveling: "The restructuring of the wage
system provides for an average increase ... of 30 to
35 percent for specialists' salaries ... but even now
the anticipated improvement has often not oc-
curred. Specialists' salaries are increasing by 20 to
22 percent. This is happening where enterprises
have failed to accumulate the necessary resources.
Furthermore, during the recertification of qualifi-
cations many specialists were downgraded and thus
there was no salary increase at all.'
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regions of Central Asia and the Transcaucasus even
as local leaders are campaigning to create more state
jobs to employ people who are currently making a
living, often illegally, in the private sector. Even
before staff cuts began, the Soviet press reported that
there were over 1 million such persons in Uzbekistan
alone. One Turkmen official recently complained that
staff cuts are "leading to an increase in the proportion
of people employed in home work and on private
subsidiary plots and prevent the problem of making
efficient use of manpower from being resolved." Mos-
cow is undoubtedly hoping that some of the workers
released in the southern republics might migrate
northward. The indigenous nationalities are reluctant,
however, to leave their homes.
The staff cuts that have been reported so far involve
only a small fraction of the labor force, and it is
possible that ministries in some cases could be shifting
labor within a sector rather than releasing workers for
other sectors. Nevertheless, the current wage reform
does appear to be leading some enterprises to shed
workers.
Bureaucratic Foot-Dragging Impedes Workplace
Certification
The 1986 plan fulfillment report complained that
workplace certification "is failing to produce tangible
results in many sectors." Evidently the program is
falling short of its goal of eliminating workplaces and
speeding the retirement of obsolete equipment. By
December 1985, 84 percent of the work positions in
industry had been examined, yet less than 1 percent of
these positions were taken out of production. At the
same time, the retirement rate of productive fixed
capital rose only slightly, from 1.9 percent in 1985 to
2.0 percent in 1986.
The problem is that enterprises themselves have the
responsibility for carrying out certification, and they
still have a strong incentive to maintain the status quo
by doing a less-than-thorough job. Ministries have
been slow in providing the necessary documentation
and instructions to carry out certification, and enter-
prises have trouble obtaining the labor and materials
necessary to upgrade work positions.
Shift Work
The multishift system proved unpopular when intro-
duced on an experimental basis in Leningrad last
year. Some workers transferred to night shifts quit,
while others responded by leaving shifts early or
slacking off. The local press also published complaints
that transport and consumer services, as well as
catering at enterprises, were inadequate to handle the
late shifts.
Nationwide implementation of the system is bringing
more problems. Enterprises are finding it difficult to
finance wage supplements for night workers because
they are already struggling to finance the wage
reform. According to labor official L. A. Kostin,
"considerable resources were needed for the transition
to the new wage rates and salaries. Then came the
transfer of enterprises to multishift working. In some
places there was no money to pay for the evening and
night shifts." Kostin goes on to say that it would be
impossible for the state to subsidize the increased
night rates because "it would cost several billion
rubles to implement such a measure."
The shortage of appropriately skilled workers also will 25X1
make it difficult for enterprises to add extra shifts.
Even though first shifts are often overmanned, the
surplus workers are relatively unskilled. Considerable
training would be required before such workers could
man the sophisticated equipment that is now supposed
to be operated on three shifts. Many workers would be
unwilling or unable to make the switch. Moreover, if
machines are run constantly, the incidence of break-
downs will probably rise, exacerbating the shortage of
trained repair workers.
Despite problems encountered in Leningrad and else-
where, Moscow is pushing hard for wide-scale imple-
mentation of multishift work schedules, and enter-
prises are scrambling to comply. As one manager
commented at a public lecture, "Look, we were
directed by the party to institute the system and not to
study whether it was appropriate or not. Our enter-
prise managers are all Communists and they proceed-
ed vigorously to implement the directive. I know of
one director who fought against it, and he was
expelled from the party."
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A Barrier to Tying Wages to Enterprise Performance
Problems could arise if Moscow chooses to push self-
financing enterprises into adopting the new method of
forming the wage fund set out in the law on enter-
prises. Until a new price system is put in place, it will
be difficult to tie workers' wages to enterprise perfor-
mance by making the wages the residual of enterprise
earnings after deducting other costs. One labor offi-
cial admitted that this method cannot be effectively
implemented under the current price system, because
it would "create conditions that are more to the
advantage of some enterprises than others." It will
take several years for planners to work out and
implement the necessary revisions in the price system,
and even then there is no guarantee that the revised
system will work effectively.
Simulating Success
The measures undertaken thus far by Gorbachev offer
only incomplete-and in some cases contradictory-
solutions to the country's labor problems. They do
very little to give the system the flexibility it needs to
modernize. Unless more far-reaching reform is imple-
mented, these early measures may fall victim to the
systemic barriers that stalled earlier efforts: taut
planning, high output targets with accompanying
waste and inefficiency, an inflexible price system,
strong incentives to hoard labor, and foot-dragging
and interference by ministries. Moreover, many of
Gorbachev's measures appear to have been hastily
drawn up and poorly thought out. This is causing
confusion and additional problems as they are imple-
mented.
Faced with growing demands to improve product
quality, modernize operations, and add extra shifts,
many enterprises will attempt to circumvent the rules,
particularly the rules for cutting staff. Gorbachev's
programs have not obviated the need for extra work-
ers: the diversion of industrial labor for the harvest
still occurs on a massive scale, output targets remain
high, and supply problems persist. Moreover, some of
the new programs have exacerbated the situation.
Work position certification is a time-consuming and
labor-intensive process that takes workers away from
their production duties (inset). Quality control has
How Many Workers Does It Take To
Certify a Workplace?
In Western Siberia, there are 11,000 [types off work
positions, each of which is evaluated on the basis of
16 indicators, including some which are made up of
several factors. According to regulations, shop-level
certification commissions are headed by the shop
chiefs. These include foremen, mechanical and other
engineers, power production personnel, specialists in
job performance standards, personnel from public
organizations, brigadiers, and distinguished workers.
If each commission of eight to 10 persons spent
between one and one and a half minutes discussing
each indicator, more than 5,000 man-days would go
into calculating the figures for and assembling the
requisite documentation alone. It would take an
office of 20 men a year to do this amount of work. F_
Sotsialisticheskaya industriya, 31 October 1986.
compounded supply problems and increased the need
for extra workers to rework defective products and
"storm"' to make up for delays.
Some enterprises are already finding ways around the
rules. Managers have falsely reclassified manual jobs
as mechanized. Enterprises have avoided cutting staff
by demoting workers. To finance wage supplements
for night workers, enterprises have reduced the pay of
workers on the day shift. The shift system is supposed
to be accompanied by the retirement of obsolete
equipment, but at the February trade union congress
Gorbachev complained that some managers have
complied with the multishift decree simply by moving
half of their workers to a second shift, leaving 50
percent of capacity unused on each shift.
' When supply disruptions or other problems cause enterprises to
fall behind on their plan targets, the enterprises compensate by last
minute "storming," or working at a feverish pace, sometimes
around the clock. This practice leads to shoddy workmanship and
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Implications for Labor Productivity and Industrial
Modernization
Gorbachev's policies could yield dividends for the
modernization effort in the long term. If Moscow can
put effective constraints on labor hoarding, and in the
process reduce job security, the performance of both
workers and managers should improve. More rigorous
standards in higher education and greater wage dif-
ferentiation could reinvigorate the engineering and
technical professions. Over the short term, however, it
will be hard for Moscow to achieve the improvements
in work effort it needs to boost modernization. The
discipline campaign is flagging, and it will be difficult
to motivate workers with higher wages until higher
quality consumer goods and services are available.
The country faces a difficult period of adjustment as
reforms are implemented. If Moscow pushes too
hard-particularly on wage reform-transition costs
could be high in terms of disruptions in production
and popular resentment.
While some enterprises introducing the new wage
system may be able to make initial staff cuts and raise
labor productivity through better organization and
combining jobs, most need better equipment and time
to upgrade workers' skills. The success of early labor-
saving experiments was largely the product of careful
preparation at the enterprise level as well as preferen-
tial access to resources, which allowed enterprises to
mechanize jobs and release workers. As staff cuts are
administered throughout the economy, many enter-
prises will not have these advantages and their pro-
duction could suffer if labor reserves are depleted.
Early this year Pravda examined problems encoun-
tered in the application of the Belorussian experiment
to other railroads. According to the newspaper, "the
first initiators of the experiment improved the supply
of equipment to all sections, upgraded technology,
introduced electronics to the management of the
transportation process, and almost completely mecha-
nized loading and unloading at some sections." Now
that the experiment is being spread to other railroads,
however, "poor material and technical supply and
other factors hinder and discredit the Belorussian
initiative."
Figure 4
USSR: Estimated Average Annual
Growth in Industrial Labor Productivity
1971- 76- 81- 81 82 83 84 85 86 25X1
As the wage reform spreads, the timely arrival and
assimilation of machinery that can replace workers
will be critical. In this respect, current problems in
machine building are a bad sign. Despite the massive
increase in investment being pumped into machine
building, the sector is having serious problems with
poor quality and failure to meet delivery schedules.
Articles in the Soviet press complain that the mix of
machinery currently being produced will not support
the planned reduction in manual labor. The output
mix needs to be adjusted toward machines for auxilia-
ry processes, an area long neglected. There is still a
severe shortage of basic materials-handling equip-
ment, such as forklifts. Apparently, not much progress
has been made in this direction. Gorbachev's push for
high output may even reinforce the bias toward
machines for the main production processes, which
produce items that count toward plan fulfillment,
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making it difficult for enterprises to release auxiliary
workers. When widespread application of the wage
reform begins in 1988, problems already showing up
at enterprises could mushroom.
Worker Resentment
Soviet workers have traditionally accepted shabby
living standards, shortages, and long lines in return
for a low level of work effort, guaranteed jobs,
egalitarian wages, and automatic bonuses. As Gorba-
chev attempts to change the nature of this implied
contract, he will have to move carefully to avoid
disaffecting blue-collar workers, who have much to
lose and little to gain.
Gorbachev's labor policies are biased toward the
technical and managerial elite, offering them sharply
higher wage rates and more status, while narrowing
access to these fields and reducing job security. In
contrast, a number of his policies will make life more
difficult for blue-collar workers, at least over the short
term:
? Alcohol restrictions. The antialcohol campaign has
caused resentment about higher prices and reduced
availability of alcohol.
? Higher performance standards. Work norms are
being raised under the new wage reform, making
bonuses harder to get.
? Wage differentiation. The Soviet press has published
letters from workers charging that the new wage
system amounts to "social injustice" (inset). Some
groups of workers write that they have been short-
changed. Others complain that enterprises severely
cut bonuses and demoted workers to lower grades in
order to introduce higher pay scales. Many claim
that they are working more for an insignificant gain
or even a loss in earnings.
? Shift work. The burden of working late shifts falls
almost entirely on blue-collar workers.
? Quality control. The measure that has had the most
immediate and negative impact on workers is the
new quality control system. When state inspectors
reject output because of low quality, it is not
counted toward plan fulfillment, and workers' wages
Three Letters Question Wage Reform: How Is This
Really Supposed To Work?
-The staff of our trust is supposed to be reduced by
25 people. The changes that were contemplated in
connection with this were not discussed in the
collective. It was all decided in secret in the office
of the deputy director of the trust, M. Kuptsov. A
few posts with a salary of 100 to 1 50 rubles were
eliminated. At the same time two vacant (300 to
350 ruble) deputy director slots on the manage-
ment staff were retained. Now I ask you, why does
a trust with a staff of 200 people need to have four
deputy directors and a chief engineer?
-In our small group the introduction of the Belorus-
sian method resulted in the release of three people.
Consequently, the volume of work increased for all
[the remaining workers]. It seems like our wages
should increase too, but that didn't happen. Before
we got 95 rubles a month with bonuses of another
40 to 50 percent. With the introduction of the new
wage conditions, our wage rates increased. But now
we get only the wage, not the bonus. We turned to
the head of the depot for an explanation ... the
only answer was that the funds aren't available ...
When they cut staff we workers feel it ourselves,
but when they give raises, we see other people
getting them.
-In connection with the introduction of the new wage
system, all the workers of the electrical mechanical
department-more than 100 people-were in-
formed that they would have their skill grade
lowered and their existing bonuses taken away.
Before grades are lowered, written agreement must
be given; that is, you must sign up on a roster put
together for this purpose. Some people did this,
fearing that they would otherwise get on the bad
side of management and lose their place on the
waiting list for an apartment. Indeed, those who
don't agree can get a request from the qualifica-
tions commission to requalify for their previous
grade. But when this happens ... they are given to
understand that they must fail the exam. Is the
goal of restructuring really to rob workers of their
legitimately earned grade?
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and bonuses are reduced. Furthermore, overtime is
often required to repair defective goods. Workers
resent being held responsible for something that
they often feel is beyond their control. For example,
low-quality goods in one factory may stem from
low-quality inputs, or from delayed supplies and the
resulting need to "storm" to fulfill the plan on time.
In general, low quality is the fault of the Soviet
emphasis on quantity over quality-until now quan-
tity has always been the chief determinant of how
much a worker earns.
Layoffs
Layoffs are potentially the most volatile issue facing
Moscow over the next few years. Under Gorbachev
the possibility of unemployment in the Soviet Union
has been openly discussed. One of the boldest state-
ments came from Nikolay Shmelev, writing in the
April issue of Noviy mir:
A real danger of losing your job and going onto
a temporary allowance or being obliged to work
wherever you are sent is a very good cure for
laziness, drunkenness, and irresponsibility.
Many experts believe that it would be cheaper
to pay an adequate allowance to people tempo-
rarily unemployed in this way for a few months
than to keep in production a mass of idlers who
fear nothing and who can (and do) wreck any
economic accountability and any attempt to
improve the quality and efficiency of social
labor.
Gorbachev publicly discounted Shmelev's statement,
saying that unemployment "won't do" for the Soviet
Union. While he acknowledges that workers will be
displaced, Gorbachev backs away from the idea of
Soviet unemployment, insisting that Moscow will
"ensure social guarantees for working people's em-
ployment and constitutional right to work. The social-
ist system has this potential." Moscow insists that
released workers can be speedily placed in new jobs.
Many workers will not have to be placed; they will
simply retire. Working pensioners and those nearing
pension age could make up a substantial share of the
required cutbacks for many enterprises through the
Figure 5
USSR: Increments to the Pension-Age
Population
Source: Godfrey Baldwin, USSR: Population
Estimates and Projections, 1970-2020 (Center for
International Research, Bureau of the Census),
November 1984.
1996-
2000
early nineties. There are currently 10 million pension-
ers working in the productive sector. The number of
workers reaching retirement age will grow substan-
tially during the 12th Five-Year Plan (figure 5). Early
experience with staff reductions indicates that older
workers are the first to lose their jobs. This was the
case in the Belorussian Railway, where approximately
40 percent of those released by November 1986 went
on pension.
they are not adjusted to the cost of living.
Dismissing pensioners rather than younger workers
probably reduces the possibility of labor disturbances
over layoffs, but it may cause hardship for some older
people. Pensions in the Soviet Union are meager, and
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Many older workers who are not dismissed will face
difficult adjustments as their jobs are mechanized.
According to a Soviet survey, middle-aged and older
workers-who form the majority of unskilled labor-
ers-often resist mechanization. They complain that
it does not make jobs more satisfying, particularly
when it results in monotonous assembly-line work.
Many such workers suffer a reduction in income as
they lose bonuses for heavy or dangerous work, or
benefits accrued over a long tenure in their former
jobs.
Although there are many unfilled jobs waiting for
younger workers who are released from industry,
available positions are likely to be increasingly less
desirable as layoffs proceed. Some workers could be
absorbed by expanding industries if they have the
requisite skills. Many of those laid off, however, are
likely to be unskilled. Many more may have to take
jobs on evening and night shifts. Eventually, the
search for a new job could become more difficult and
workers might have to settle for jobs in the low-paying
service sector or in climatically severe regions of
Siberia or the Soviet Far East. Although the state
provides two weeks severance pay and wage supple-
ments during the retraining process, the transition will
be difficult for some. Workers laid off from an
industrial enterprise lose access to any amenities it
provides: housing, clinics, stores, and recreational
facilities.
The system of placement bureaus will have to expand
and change its focus to handle the increase in layoffs
effectively. L. A. Kostin, deputy chief of the State
Committee on Labor and Social Problems, has admit-
ted that problems could arise in the future. The
bureaus are generally not well equipped to facilitate
interregional shifts in labor. They operate on a local
and not a national level, relying on nearby enterprises
for both funding and information on job vacancies.
The quality and availability of labor placement ser-
vices vary greatly from region to region. The network
of placement bureaus in Belorussia is held up as a
model for the rest of the nation. Expanded to 150
cities and districts in the republic in 1986, it played an
important role in placing the workers released from
the Belorussian Railway. In contrast, some areas
where layoffs are already taking place have yet to
establish a local placement bureau. The Soviets hope
to eventually establish a nationwide, computer-based
information-sharing system, but this is still far in the
future.
Some categories of workers will be difficult to place.
Evidently there have already been problems finding
work for specialists released last year from research
institutes. When asked in a September 1987 interview
about "management and scientific cadres left without
a job in the capital," Kostin admitted that "there is no
final answer yet" to this "complex question."
Delayed Rewards
Gorbachev is demanding more of workers in return
for a reward of higher living standards, which, he
admits, will be delayed for some years. In his Febru-
ary address to the trade union congress, he cautioned,
"It is necessary to work in a different manner at every
workplace.... However, people will not be paid more
for this." Later that month he predicted, "the next
two to three years will be the most difficult."
It will be difficult for Gorbachev to convince the
Soviet worker-made cynical by years of campaigns,
promises, and exhortation-that a more prosperous
future will indeed materialize if he increases his
effort. Members of the intelligentsia may be excited
by glasnost and the reform discussion, but the average
worker will believe in change when he sees it on the
store shelves and on the shop floor. According to a poll
published in Izvestiya, 75 percent of managers in 500
Moscow-area enterprises felt that reform was having
a noticeable effect. In contrast, half of the 6,000
workers questioned saw no signs of benefits or restruc-
turing other than increased workloads. The other half
responded that restructuring was going on, but with
many difficulties. "We are all impatient ... to get a
payoff: new goods, a higher salary, a better apart-
ment ... but today the majority of the people feel
restructuring only in the growing intensity of labor."
Improvements in the consumer sector will have to be
made if any new incentive system is to be effective.
The benefits of widening wage differentials will be
greatly diminished if higher wages cannot buy a
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productive worker a substantially better way of life
than that of his less productive coworkers. As things
currently stand, both are queuing up for the same
shoddy goods and services. Gorbachev has initiated a
number of measures to improve consumer goods and
services on the cheap, including a new law on individ-
ual labor activity that would presumably make it
easier for private citizens to fill in some of the gaps
left by the state sector. However, unless more re-
sources are diverted to the consumer sector, and
unless consumers are given more influence over pro-
ducers, major improvements will be difficult to
achieve.
A key question for the Gorbachev regime will be how
long workers can put up with increasing demands
without seeing any material benefit for their efforts.
There are already signs of growing discontent, includ-
ing work stoppages and incidents of sabotage connect-
ed with quality control, unsafe working conditions,
and proposed staff cutbacks (inset).
Moscow also runs the risk that encouraging more
democracy and greater worker participation might
unleash forces difficult to control. Gorbachev wants
workers to support restructuring more actively; he
does not want them to form an independent movement
to advocate their own interests-which in many cases
conflict with labor policies. On the other side of the
coin, if workers perceive democratization as a sham, it
may increase their apathy. Passive resistance poses an
equal, if not greater, threat to the reform process.
According to Gorbachev, "we shall make no headway
unless we completely overcome the forces of inertia
and braking, which are dangerous in that they may
once again envelop the country in a state of stagnation
and lethargy, which threaten ossification of society
and social corrosion."
For now, Gorbachev is offering workers intangibles:
"social justice," more democracy, and the possibility
of breaking with the past. He is hoping that dissatis-
faction with the old way of doing things will move
workers to support restructuring, even if it does not
serve their interests in the short run. He faces an
uphill battle to win over a conservative and cynical
work force.
Labor Disturbances: Reforms Go Over
With a Whimper and a Bang
Sabotage at Siberian Mining Complex. In the first
half of this year a series of explosions occurred at the
Norilsk Mining and Metallurgical combine. Several
of them are confirmed as sabotage. Among the prob-
lems currently causing unrest are unsafe working
conditions, delayed payment of wages, fewer bonuses,
and demotions and layoffs connected with wage re-
form. In the next two years over 8,000 workers are to
be released from the combine.
Busdrivers Protest Wage Reform. In September Mos-
cow News reported that busdrivers in the town of
Chekhov stopped work for half a day following the
introduction of new wage scales. While local officials
estimated the reform had reduced drivers' wages by
an average of 10 rubles per month, drivers claimed an
average reduction of 75 rubles. One busdriver com-
plained that it is hard to raise productivity with buses
that are always breaking down and "look like tanks
after a battle. " According to Moscow News, an hour
and a half after the work stoppage began transport
officials were on the scene and within three days local
party officials were handling the matter.
Quality Control Sparks Protests. Several work stop-
pages connected with quality control have been re-
ported, including "stormy protests" at the Kama
Truck Factory.
Developments in a number of areas will have an
impact on how well the labor force accepts Gorba-
chev's policies in the coming years:
? The consumer sector. In light of the flagging disci-
pline campaign, it becomes increasingly important
to find other means to motivate the work force.
Better quality and availability of goods and services
would improve work incentives, counteract popular
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resentment to Gorbachev's programs, and gain some
additional support for restructuring. Recent state-
ments indicate that leadership concern in this area is
growing.
Soviet workers seem to consider their unions more
as adminstrators of recreational facilities and activi-
ties paid for by union dues rather than as lobbyists
for improving working conditions. The unions may
have to be more active in representing workers'
interests to keep democratization from straying into
unauthorized channels.'?
machinery, is needed to replace the large number of ? Price reform. The effectiveness of price reform will
manual workers who will retire or be laid off in the help to determine the relative success of the attempt
next few years. Failure to produce sufficient quanti- to make enterprises "self-financing" and to tie wor-
ties of this equipment would make it difficult for kers' wages to enterprise performance. The reform
enterprises to operate with fewer workers. could also have an impact on worker attitudes.
The machine-building sector. Increased production
of materials-handling equipment, including both
simple devices such as forklifts and more specialized
? Layoffs. An increase in benefits provided released
workers might signal that Moscow aims to continue
its laborsaving policy even as jobs become more
difficult to find.
Handling of strikes. In the past, Moscow has effec-
tively managed disturbances by making quick con-
cessions to workers' demands, increasing food sup-
plies to the affected area, imposing an information
blackout to prevent the strike from spreading, and,
some time later, arresting or transferring strike
organizers. This strategy would be less effective
against more broadly based popular resentment.
Moscow apparently is trying new tactics to avert or
defuse labor unrest. Soviet sociologists are conduct-
ing public opinion polls to gauge workers' response
to reform measures and publishing their findings in
the press. Some strikes, such as the one at the Kama
Truck Factory, are also being reported in the press.
In some cases Moscow has managed to head off
disturbances over quality control by sending top
propagandists out to enterprises to "educate"
workers.
? The trade unions. Democratization, layoffs, and
other changes in enterprise organization and opera-
tion call for a different role for the trade unions,
which traditionally have functioned primarily as an
arm of the local party and the factory management.
Among other things, the new pricing system is to
reduce the state subsidies of consumer prices, includ-
ing those for some foods and rents. While some
economists believe that the gains and losses will
balance out if prices are set at realistic levels, the
possibility of price increases is already causing anxi-
ety among workers.
? Output targets. If, during the period of adjustment
to new conditions, the leadership relaxes the pres-
sure for quantitative gains in output in favor of
stimulating higher quality, more efficient use of
newer technology, and decentralized decisionmak-
ing, Gorbachev's policies could begin to take hold,
bringing higher returns on new capital equipment,
an increase in the effectiveness and productivity of
the labor force, and a progressive reduction in
economic disruptions. On the other hand, continued
emphasis on high output targets could signal a
difficult and disruptive period for the Soviet econo-
my as enterprises attempt to implement the reform
measures.
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Appendix
Constraints on the Industrial
Labor Supply
Gorbachev's efforts to raise labor productivity and
enforce labor saving measures in industry are driven
in part by constraints on the supply of industrial
workers. A combination of factors will limit the
growth of the industrial labor force well into the
1990s.
Figure 6
USSR: Shrinking Potential of
Reserve Labor
Employment as percent of able-bodied population
100 25X1
Labor Deficit in Industrialized Regions
The working-age population of the industrialized re-
gions of the European USSR and Siberia is actually
declining and will continue to do so through 1995.
During this period, most of the increment to the
Soviet working-age population will come from Central
Asia (table 4), where workers generally have less
education, fewer skills, and less plant and a ui ment
to work with than elsewhere in the country.7
In the near term Central Asians are unlikely to move
to the urban industrial centers of European Russia on
a scale large enough to offset the shrinking of the
labor pool there. Comparison of the 1970 and 1979
census results reveals that Central Asians are becom-
ing even more concentrated in their own republics or
elsewhere in Central Asia (table 5). Reasons for this
reluctance to move include: Central Asians' cultural
attachment to their homeland, the language barrier,
ethnic prejudice, the higher cost of living in European
Russia, and the absence of established Central Asian
neighborhoods in the north that could act as poles of
attraction.
Labor reserves
difficult to
mobilize
Readily
mobilized
labor reserve
`Trend line
I I I I I I I I
0 1950 55 60 65 70 75 80 85
High Labor Force Participation a Ages 16-59(men)/16-54(women).
Moscow can recruit few additional workers for indus-
try by encouraging greater labor force participation
because most of the adult population in industrialized 31487011-87
regions of the Soviet Union is already working (table
6). While in 1950 there was a relatively large reserve
of the working-age population not active in the work largely of students, housewives, pensioners, the dis-
force, by the 1970s labor force participation had risen abled, and those between jobs. As a result, the
to more than 80 percent of the working-age popula- labor force participation rate has leveled off since
tion (figure 6). When participation rates reached this
level, however, it became much more difficult to
mobilize the remaining labor reserve-consisting
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Table 4
USSR: Increases in Soviet Working-Age Population by Demographic
Region a
marked declines in birthrates, includes the Kazakh, Azerbaijan,
Georgian, Armenian, and Moldavian Republics; the Central Asian
region, characterized by high birthrates, includes the Uzbek,
Turkmen, Tajik, and Kirghiz Republics.
Working-
Average
Working-
Average
Working-
Average
Age
Annual
Age
Annual
Age
Annual
Population
Rate of
Population
Rate of
Population
Rate of
Growth
Growth
Growth
(percent)
(percent)
(percent)
8,631
10,700
1995
122,172
-0.2
22,405
1.1
19,455
2.9
2000
124,389
0.4
24,143
1.5
22,679
3.1
Source: Godfrey Baldwin, Estimated and Projected Population of
USSR: 1970 to 2025 (Center for International Research, US
Bureau of the Census) November 1984.
a The European region, characterized by low birthrates, includes
the RSFSR and the Latvian, Lithuanian, Estonian, Belorussian,
and Ukrainian Republics; the transitional region, characterized by
Table 5
USSR: Distribution of Major
Central Asian Nationalities
Population (millions)
Percent Residing in Own
Republic or Elsewhere
in Central Asia
1970
1979
1970
1979
Uzbek
9.195
12.456
96.8
97.2
Tajik
2.136
2.898
98.4
98.5
Kirghiz
1.452
1.906
98.5
98.5
Turkmen
1.525
2.028
98.3
98.5
Kazakh
5.299
6.556
90.8
91.8
Sources: Itogi Vsesoyuznoy perepisi naseleniya SSSR 1970 goda,
vol. IV, Natsionalniy sostav naseleniya SSSR (Moscow: Statistika,
1974) pp. 9-15; Vsesoyuznaya perepis' naseleniya 1979 goda
(Moscow: Finansy i statistika, 1984), p. 155.
Table 6
USSR: Labor Force Participation Rates
by Sex and Age Group
Million persons as of l July
(except where noted)
Source: L. Chizhova, "Kak luchshe ispolzovat trud razlichnykh
sotsialno-demograficheskikh grupp naseleniya," Sotsialisticheskiy
trud, No. 8, August 1984.
a Chizhova's estimates exclude private farming and part-time em-
ployment. If these activities are taken into account, the participa-
tion rate of the pension-age group becomes roughly a third in 1980.
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Table 7
USSR: Employment a
Civilian
employment b
107,186
117,560
125,998
127,161
128,263
129,052
129,829
130,300
130,900
Industry
31,593
34,054
36,891
37,236
37,610
37,830
37,957
38,103
38,200
Construction
9,052
10,574
11,240
11,298
11,299
11,315
11,349
11,492
11,660
Agriculture a
26,419
25,921
25,150
25,014
25,119
25,165
25,206
25,040
NA
Transportation
and communi-
cations
9,315
10,743
11,958
12,172
12,337
12,438
12,487
12,549
12,561
Trade and
services
29,376
34,565
38,865
39,530
39,940
40,309
40,784
41,336
41,788
a Excludes private agriculture, but includes nonagricultural em-
ployment subordinate to agricultural enterprises.
b Sectors shown do not add to the totals.
Includes trade, public dining, material-technical supply and sales,
procurement, housing, communal economy, and personal services,
health services, education, culture, art, science, and scientific
services, credit and insurance organizations, and government
administration.
Table 8
USSR: Average Annual Employment Growth a
Civilian employment b
1.9
1.4
0.7
0.6
0.6
0.4
0.5
Industry
1.5
1.6
0.6
0.6
0.3
0.4
0.3
Construction
3.2
1.2
0.4
0.1
0.3
1.3
1.5
Agriculture c
-0.4
-0.6
0.2
0.2
0.2
-0.7
NA
Transportation and communications
2.9
2.2
1.0
0.8
0.4
0.5
0.1
Trade and services c
3.3
2.4
1.2
0.9
1.2
1.3
1.1
a Excludes private agriculture, but includes nonagricultural em-
ployment subordinate to agricultural enterprises.
b Sectors shown do not add to the totals.
c Includes trade, public dining, material-technical supply and sales,
procurement, housing, communal economy, and personal services,
health services, education, culture, art, science, and scientific
services, credit and insurance organizations, and government
administration.
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1970. Some Soviet economists are now advocating a
reduction in the number of women and students in the
work force, citing the substantial costs the Soviets pay
for high labor force participation in terms of de-
pressed birthrates and loss of instruction time for
students.
Slow Decline of Agricultural Employment
The low productivity of the USSR's vast agricultural
labor force has kept demand for farm labor high and
has markedly slowed the transfer of labor from
agriculture to industry." Employment in socialized
agriculture decreased at an average annual rate of
less than one-half of 1 percent during 1971-85 (tables
7 and 8). In 1985, state and collective farms account-
ed for a 19.2-percent share of total employment in the
socialized economy. If private agricultural activities
are taken into account, this proportion grows to 25.2
percent, compared with less than 3 percent in the
United States. To accelerate the movement of labor
out of agriculture, the Soviets would need a break-
through in raising the productivity of farm labor-
major improvements in the quantity, quality, and
assortment of agricultural machinery, storage and
maintenance facilities, and incentives for farms to use
equipment effectively. Because such a breakthrough is
unlikely to occur in the next few years, the outflow of
labor from agriculture will probably remain sluggish
for the foreseeable future.
Service Sector Absorbs New Entrants to the
Labor Force
Employment in services has grown faster than em-
ployment in industry-between 1970 and 1985 it
increased at an average annual rate of 1.2 percent
compared to 0.8 percent in industry. In 1981-85 half
of the new entrants to the labor force went into the
service sector. In 1986-90 the entire increment to the
labor force is slated to go into health, education, and
other sociocultural spheres to alleviate labor shortages
that have hampered efforts to raise the Soviet stan-
dard of living and improve work incentives.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/14: CIA-RDP08S01350R000401380001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/14: CIA-RDP08S01350R000401380001-1
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/14: CIA-RDP08S01350R000401380001-1