Thursday, January 17, 2008

Estonia is turning the tide in workforce battle

EU accession exposed labor markets of the former Soviet satellite states to the dangers of competition. With enormously better working conditions in Western part of our union, notably in countries like the UK, Ireland and Sweden, which were the first to open up for EU8 workers, and on the other hand with unprecedented ease of movement across borders, countries like Estonia felt the pain of losing the competition for main d'oeuvre.

But in Estonia today this may have already turned around. Transitions Online says:

Migration is wreaking havoc on the Baltic labor market, as native workers leave and foreigners arrive. Only Estonia seems to be reining in the problem.

Amazing improvement of the economic situation, which took place in the recent years is finally able to breach one of the last major differences, that is difference in incomes between Estonia and Western Europe, though this process of readjustment will still take many years. Estonia's balance with Europe in terms of people moving around has been in red, with more leaving than coming for many years. Indications show it isn't anymore.

2007 brought a breakthrough in that trend and even reversed it in some occasions. A story in major daily Postimees noted the comeback of the former police force personnel, which went abroad to work as construction workers, but are now coming back, as salary increased. Indeed, the government claims it is increasing the average salary in the force from some 14 thousand kroons (900 EUR) in 2007 to about 19 thousand kroons in 2008 (1200 EUR) or 35 per cent up in 2008. It is important to understand that to stop the trend of negative labor balance between different countries one doesn't need to make salaries equal, it's enough that differences aren't seen as cosmic, but rather cosmetic. In this piece from 2006 in a local daily we can find Hansapank's chief analyst opinion according to which average Estonian would give up working abroad if he or she earned locally 11 - 12 thousand kroons. In 2007 this level was generally achieved.

The movement is not one-sided, however. Westerners come to Estonia too. And the numbers aren't neglectable. Business daily Äripäev (staunch market liberal) revealed that about 10 000 EU nationals came to Estonia in more or less settled form. Albeit hardly comparable to the masses which moved from the Baltic states alone to countries like the UK, this number of EU nationals is nevertheless already about 0,7 per cent of Estonia's population.
I checked the data earlier this year so my numbers may differ from Äripäev's. According to official estimates at the beginning of 2007 we've got 3 thousand citizens of Finland, settled, some three quarters of a thousand of Germans, around 500 Swedish citizens and roughly 400 people from the UK. Doesn't seem much, but can't say it's nothing, it's 0,7 per cent.

Now let's turn to Russia, which is ancestral home of whole lot of our people, 25-30 per cent of Estonia's population. The historic collapse of the USSR did not deprive Russia of love for setting ambition goals, however it took away much of the means to achieve these goals. Competition for labor isn't exception.

By 2005 Russia fixed her eyes on highly visible ethnic Russians living abroad, known in Russia as "compatriots", numbered some 25 millions, which were seen as possible solution for labor shortages without the costs associated with Central Asian immigrants (not ethnic Russians), employed on Moscow construction sites today.

Thus the top executive of the Federation, Mr Vladimir Putin made priority attracting Russians back to the Homeland, issuing a federal program. This program of attracting Russians to various Russian regions was put into practice in 2006.
According to the program, in 2007 Russia was set to obtain 50 thousand returnees, a modest account given the total estimates of Russians living abroad (see these pieces in Russian 1, 2, describing the outcome). 4.5 billion roubles ($180 million) was allocated in Federal budget, additional sums in the budgets of the regions. This means the state was willing to offer these people money; each one of the 50 thousand would have received $3600 from the state budget alone. In addition various other measures were offered including housing opportunities, vacant jobs and I believe also tax breaks.
3600 dollars per settler can be questioned, but it's Russian decision based on Russia's view. Knowing the attitude on the ground this number, 3600 dollars, can hardly be considered insignificant. For example this piece by Russian edition of BBC NEWS claims that Moscow city authorities agreed to pay the relatives of the victims of poison gas used by special forces during Dubrovka theatre siege just $3000. State compensation for terrorist attack victims’ relatives is similarly just 100 thousand roubles paid once per dead, which depending on current exchange rate can amount to 3000-4000 thousand dollars, as reported in the media. Sadly, in Russia 3000 dollars is widely seen as the price of human life.
But in so far as we are discussing labor market competition, as the federal program itself implies, it is not the subsidy, which is the main incentive for the people to move around. The working conditions such as salary as well as general living conditions in the country are the incentive or disincentive. If, on the basis of comparison, conditions are good enough, people themselves would pay to get into the country as we can see in many areas around the globe where immigrants pay considerable sums to get smuggled into more developed social and labor markets.

The plan failed.

The annual figure of those who returned in 2007 was just 400 (four hundred) persons, reports (see the links above). This is a "healthy" 0,8 per cent of the number set by the plan for that year. In other words, the plan failed 99,2 per cent, succeeded 0,8 per cent. This figure shows how realistic are expectations and perception in modern Russia about herself and about the World surrounding it. In other words Russia's plans, not backed by sociological research, pilot projects or earlier experience like it is suggested by the principles of sound public management, can be random or even delusional. It goes without saying that for any state, Russia in particular, a federal program is one of the most important policy objectives for state executive branches, including the president if a country has one, federal state apparatus as well as regional administrations. In Russia, however, the institutions of the state aren't held responsible for the success of their policies, thus the failures are noticed, but have no direct political consequence.

Mr Putin, answering to a question about the program for return of compatriots (major news portal

"I can't say that the program has begun working well".

It is noteworthy, though logical that Estonia, one of the countries with highest concentration of Russians outside Russia failed to take advantage of the program. Despite continuous streams of accusations and allegations of bad treatment of local Russians, Estonia managed to produce just 19 expected returnees by middle of 2007 ( with other 21 persons expressing some interest in the move. This is neglectable figure given some half million (340 thousand by official estimates) of ethnic compatriots in Estonia. According to what I've read in the press, later into the year this number, 19 dwindled to just 6 (six), though I am not able to recover the news anymore.

Russians are voting Russia out, Estonia and Europe in. They are aware of the facts on the ground so they prefer to adjust themselves to the conditions in countries like Estonia and Germany instead of false hospitality of their "precious Motherland".

UPDATE 25th of Jan, 2008

Estonian Daily Päevaleht reports updated numbers on the success of the plan. In total 143 Russian families returned to Homeland in 2007. According to the paper 50.000 returnees wasn't the initial figure for 2007, in fact the government's original plan foresaw 100.000 people returning that year. The number widely reported by the press, 50.000 was adopted later. Sometime in 2007 there was third cut, this time to 25.000. However, that number, too, proved delusional compared to the final results.


Giustino said...

This is neglectable figure given some half million of ethnic compatriots in Estonia.

Ah, the days of old, 1989. Today, the number of ethnic Russians in Estonia is around 340,000.

145,000 Estonian Russians live in Tallinn, 120,000 live in Ida Virumaa county, and 98 live on the island of Hiiumaa.

You have to admit, it's got to seem pretty stupid for someone living in Narva to contemplate moving across a bridge to Russia for a limited amount of cash.

Estonia in World Media (Rus) said...

1. Thanks for the numbers, they are probably more precise.

2. It can seem stupid to us, but in the Russian press we find expectations voiced about attracting people, including from the Baltic states. Incentives? In what is available on the surface I can find money, tax breaks, housing and jobs.

But as results become clear it more and more seems that our comprehension of what people think in Narva is more adequate than of those who made the program, put on the target numbers and said in the press that people would move from the Baltic states.

Baltic states has already got access to huge and luxurious job market and Russia has horrible living conditions, that kills the incentive.