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The World's Hottest Labor Market
A skills shortage in Moscow is causing spiraling wage increases, as employers find it difficult to find qualified job candidates. Disinterest in employee development and skepticism about the country's educational integrity are two reasons why the pool of candidates is so small.
Here's a surprising finding from the world of international business: The most expensive location in the world at the moment is the former ground central of communism, Moscow, where the official unemployment rate is -- get this -- 0.9 percent. Those who don't trust official statistics speculate that the actual rate might be as high as 1.8 percent! Wages are spiraling upward, and in many cases, are already beyond the levels of Western Europe. And the hottest job in Moscow at the moment? It appears to be the position of human resource executive. A recent survey calculates that the average HR director stays in his or her job less than 18 months before they are hired away. My first visit to Moscow was 20 years ago, where I was part of a U.S. delegation. I recently went back to spend a few days working with a group of local executives on topics around employee management. It would not surprise anyone to say that a lot has changed in those 20 years. One surprise, something my expat friends confirm, is that the people running Russian businesses today are more likely to be in their 30s than in their 40s or 50s, as is the case in other countries. You won't find a younger-looking group of leaders anywhere in the world. Business seems to have skipped over the generation that was poised for leadership when the Soviet Union fell. More on that in a minute. What is most striking, though, and something of a puzzle, is that the economic boom going on around Moscow is so intense -- yet, most of the rest of the Russian economy stagnates. Once one gets beyond commuting distance from Moscow, the boom stops, wages drop to subsistence levels, and unemployment and, certainly, under-employment is the norm. The intensity of Moscow's economy and the stagnation in the rest of the economy are related. Despite having a population that is, by world standards, highly educated, the Russian economy is being held back by an apparent skill shortage. One of the necessary conditions for an effective economy is to have good information about what is being bought and sold. Nowhere is that more important than in the labor market, as labor is far and away the most important factor of production. The employees who are in hot demand are the ones who already have some experience in multinational companies or in the leading Russian firms that operate in the multinational market. The reason that experience is so valuable is because it offers employers a reasonable sense of what they are getting if they hire one of these people -- a sense that such employees will understand how to operate in Western-style businesses. The reason unemployment and underemployment is so high in the rest of Russia, even among those who appear to have skills, is that most workers have no way to indicate whether they can work effectively in modern businesses. And precious few employers are willing to train and develop employees. We see this in most countries as well now, but it is much worse in Moscow because most of the companies are small, and there is no history of employee development. They rely on outside hiring, which is why wages are spiraling up. Another factor is that the standards around education have eroded, so it is no longer clear what a degree from a particular university conveys in terms of abilities and competencies. Curricula have not kept up with the changing economy, and there is a widespread belief that bribes are as important to graduating, as is ability. Given this situation, the economy can only grow as fast as the "credentialed" labor force can grow. That is why the boom has not expanded much beyond Moscow, where the international employers are congregated and the hot labor market for their skills operates. About the only way the credentialed labor force expands is when Russian students get educated abroad, where standards are clearer and, therefore, the signal about competencies is more reliable, or when informal social networks bring a few untested workers into local firms. This may explain why the older generation has been bypassed for business leadership: They were already too old to get educated abroad or get entry-level jobs and experience in the international economy when Moscow opened to world business. This is a reminder to countries elsewhere about the importance of a credible infrastructure around education and training. There are things that employers could do to help themselves in a situation where information about candidates is poor, and that is, to get better at recruiting and selecting candidates who do not have the credentialing experience of working for peer firms. Such candidates are obviously much cheaper to hire, so it makes a lot of sense to try to find them. In Moscow, knowledge about how to do this is not at all widespread. Indeed, the very idea that one could find diamonds in the rough among applicants is hardly acknowledged. Here, we see some similarities with business in the United States, where most employers chase the same relatively small pool of applicants, spending little time trying to identify candidates who are outside a well-established pool. The other lesson, of course, concerns developing talent, something that is absolutely not happening in Moscow and is happening less and less in the United States. In Moscow, it is not happening because the very idea that it could be done, let alone knowledge of how to do it, is unknown to most employers. Why it is not happening in the United States is a more complex story, but a problem for our economy as well.
July 21, 2008 Copyright 2008© LRP Publications |
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