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Labor Market Overview: A Professional's Perspective

Trends of Labor Market in 2008

In many industries, the financial crunch has brought about changes in the labor market, which is now shifting from being candidate-driven (with demand for skilled staff exceeding supply) to being client-driven (with employers starting to dictate their terms). The labor market, which in the middle of 2008 was so hungry for qualified staff, may now see an excess of work force in certain industries and for some jobs.

However, personnel will still be in deficit to a certain extent, because this year 2008 is effectively Russia's last year with a zero net balance of human resources, when the natural decline in its employable population was offset by the natural increase. According to demographic institutions, starting from 2009, Russia will be facing a negative net balance of the labor force with the employable population expected to considerably decrease. For example, the Ministry of Economic Development predicts that the population of Russia will decrease to 137 million people (142.1 million in 2007) by 2020 with its age profile significantly deteriorating starting from 2009. Senior ages (above 45 years old) will account for a larger part of the employable population, while the share of younger ages (below 29 years old) will decrease. This means that qualified candidates will be sure to find a job, even in the current economic unease.

Professionals are always highly valued, which is especially true in the time of crisis. Now, though, employers are gradually raising their requirements to the experience and knowledge of potential candidates. Reassessment of employees is already under way -- with incentive and retention programs being developed for the most precious staff, while inefficient personnel may be displaced with stronger determination than it was the case during a good, growing market.

The crisis is already affecting the growth and size of salaries, and this slowdown / downward trend will persist in early 2009. This situation favors real-economy companies, which can now strengthen their teams and hire the best work force without stretching their budget. In addition, there is a chance that the critical imbalance in the economy will be eliminated, and salary growth rates will be aligned with the dynamics of labor productivity.

The Russian labor market can today be considered promising: It has grown mature enough, there is a certain equilibrium between demand and supply across many industries where volumes are critical.

For specific industries, the picture is as follows:

1. The labor market in the real estate, metallurgy, and energy sectors is undergoing significant changes. For example, up to past August, businesses were growing fast, thus creating a candidate-driven market. Candidates were in focus, they dictated their terms, which employers were constrained to accept. Today's shrinking business, however, has reduced in many companies the need in core staff, leading to a bigger number of candidates competing for one job. Most businesses in these sectors are optimizing their work force structure, adjusting their headcount, suspending recruitment of new specialists or displacing those taken in anticipation of future growth.

2. The banking and retail sectors are demonstrating slightly different patterns, though optimization of costs, including staff costs, is on the agenda in these companies too. Banking staff are now more actively migrating between financial institutions -- key employees from investment banks have already joined larger universal banks. The next logical step will be a certain part of financial sector staff leaving for related nonfinancial industries. This process will involve specialists and managers of all levels. As for retail sector candidates, the unstable financial conditions are certainly affecting developments in the labor market, though not as dramatically as one could expect. The layoffs initiated in some businesses are mainly involving support office personnel, while the number of candidates actively looking for a job has not significantly increased.

3. Professional services companies -- marketing, consulting and law firms, consultancies -- are traditionally having bad times during the crisis. They are generally trying to retain their best staff, but if they fail, consultants move to the in-house positions.

4. As for sectors like industrial production, engineering systems and sales of technological equipment; chemical industry; medicine and pharmacy; logistics – one could not say the financial crunch has had a material effect on them so far, these industries keep developing rapidly.

Salaries, compensations and benefits overview

In 2008 as a whole, salaries in Russia grew by 21% against 2007, according to an ANCOR Research Center data of 490 companies in 33 cities and towns.

The fastest growing were salaries in the central Russia (which had traditionally fallen behind the others in terms of salary size and growth rate), in the south (driven by the preparations to 2014 Olympic Games in Sochi), in Siberia and in the northwest (due to a large number of industrial investment projects being implemented).

However, the economic downturn caused salaries to start falling in October-November 2008.

Obviously, no negative gain in salaries was observed within the period analyzed due to two factors:

•The period analyzed was September, when the crisis was in its early stage and many companies had not responded to it yet in terms of cutting personnel costs;

•The labor market is a large, slow-to-respond mechanism and, even though the salary growth rates decreased in the second half of the year, it cannot stop dead or fall below zero right away.

All the regions analyzed showed similar trends: active development in the first half and a downturn in the second. And those factors could be felt as early as in June-July last year.

Forecasts for 2009

Cross-industry migration of employees along with expansion of their functions in the coming year 2009 can confidently be predicted for the human resources area. Employees willing to continue their development within a certain industry should be more mobile, prepared to learn new skills and see the area of their responsibilities widen. Of course, not every specialist will find it professionally appealing, and for many, changing their core activity will be a matter of necessity, but this can be a good alternative in the crisis time.

•We expect salaries to decrease in 2009. Many companies have not resolved on such measures yet, but the adjustment, which is very likely to occur as soon as in the first quarter of 2009, will imply both smaller fixed and lower bonus parts. In anticipation of these changes, many companies are now decreasing the level of compensation offered to candidates. It should be noted that candidates, on their part, also tend to adequately evaluate the situation and are willing to lower their financial expectations by 15 percent to 20 percent.

Delays in salary disbursement are already taking place in some companies with bonuses being cut or paid in installments. However, we do not believe this will become a mass practice. In companies with stable and transparent financing system all agreements achieved before the crisis are preserved and disbursements are made without delays.

•It is quite obvious that migration of specialists will be gaining momentum in the Russian market. If an attractive offer from a different region comes about, candidates will be more open to and interested in relocation.

•HR management and development will see the following trends rising. After analyzing the market, most companies will focus on the professional skills and competence of their employees, leading to tougher requirements to staff of all levels. For many jobs, employers will be most interested in such employee qualities as mature leadership skills, enthusiasm, vivid personality, flexibility, mobility, versatility in approaches to addressing a range of tasks.

•We also expect that in the coming year HR practices in companies will continue to develop. In the recent 2-3 years, when business managers and owners started to realize the importance of proper people management, companies have been extensively setting up and improving human resource management policies. This will lead to setting up various assessment and development techniques: KPIs, grading systems, incentive systems, training programs (of course, for budget saving reasons, preference will be given to programs which can be implemented using internal resources).

•There are positive aspects to crises, too: For instance, adjustment of distortions in the previous, "overheated," market and elimination of the established inadequate ambitions of many candidates. Unskilled specialists, who emerged in the market by accident, without sufficient expertise in a relevant industry or profession, will quit the stage. Similar to the less professional employees, less effective companies will evidently be the first to leave the market. Genuine professionals, on the contrary, during the crisis will be able to improve their skills and develop their professional competencies. When early positive trends in the market come about, those professionals will be even more experienced and mature.


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