Analyzing changes in the labor market since the publication of our previous overview, judging by the data on real wage growth of 2.3% and employment growth of almost 1% in 2018, we can conclude that the labor market has finally got out of the crisis. However, the past crisis, when real wages continuously declined for three years in 2015-2017, did not give way to serious positive changes, the share of self-employed remains high and close to a quarter of all employed, the share of those employed in SMEs didn’t change, the brain drain increased The salaries of ordinary specialists are rather low by world standards, the growth of the economy has broken away from the growth of real wages, as a result of which they have to be raised, including at the expense of the National Fund and administrative measures to suppress inflation.
In the last 5 years since 2013, the working age population (15-64 years old) has stabilized at the level of 11.6 million people. Against this background, a small increase in the employed population by 1% to 8.7 million people in 2018 led to an increase in its share in the total working-age population to 75% from 74% in 2017. This change is due to a combination of increased demand for workers due to economic growth and a decrease in the number of young people entering the labor market for the first time due to the demographic decline in the 90s.
As we noted in the previous report, the official data on the self-employed are questionable, since they are calculated by statistical bodies on the basis of population polls. In this case, it is likely that their number is derived according to the residual principle in order to maintain an acceptable level of unemployment. For example, with the launch of medical insurance of the population, government agencies had serious difficulties in identifying and counting the exact number of all categories of the population.
With the gradual reduction of employment in agriculture, the number of self-employed decreased to 2.1 million in 2018, or 24% of the total employed population from 25% a year earlier. As a result, the share of hired employees increased to 76%, which can be characterized as a positive change in the direction of greater transparency in the employment market.
At the end of 2018, the statistics records a steady decline in the unemployed to the succeeding minimum of 440 thousand or 4.9%. Nevertheless, against the background of low unemployment and external appearance of stability of the labor market, 3.8 million people, according to our estimates, do not have permanent, official work.
The service sector is increasing its importance for employment in the economy: in 2018, the proportion of people employed in it reached 73%, an increase from 59% in 2008. In overall industry, employment slightly increased to 13% from 12%, while in agriculture it decreased from 30% to 14%. As a result, there is an movement of workers from backward agriculture to inefficient service industries, but the service sector is completely dependent on the redistribution of funds from the resource sector of the economy and the state budget and cannot be an independent driver of economic growth.
Employment in small and medium business since 2014, despite the growth in absolute terms, shows stagnation in relative terms – the share hasn’t changed from the level of 37% of total employment. This indicates obstacles to the development of SMEs, although in developed and developing countries the share of employed in SMEs is about two times higher than in Kazakhstan.
After three years of recession, real wages eventually showed an increase of 2.3% in 2018. Over the same period, inflation slowed down by almost 2%, which is most likely determined such an increase. Real wages increased in almost all sectors, with the exception of only the health sector, the real estate transaction sector and other services. Comparison of wages in CIS countries in recent years speaks against Kazakhstan’s advantage – the gap with most countries has narrowed, while the gap with Russia has increased.
The difference in the level of remuneration of managers and middle-level employees in Kazakhstan is at a rather high level. For example, in metallurgy, the difference between the salary of the head and the average differs 10 times, in the financial sphere – 8 times, in construction – 4 times. In the public sector, the gap is the smallest – about two times. At the same time, a comparison of the salaries of these workers in developed countries indicates a low salary for ordinary employees, that, for example, are 8 times lower than those in Germany, while the difference in pay for managers is about two-fold.
Following the prices of raw materials, labor productivity in both the primary and non-primary sectors showed growth in 2017 and 2018. At the same time, in the service sector, growth is still very weak, limited to the low-performing public sector – education, healthcare, public services. Taking into account agriculture, 40% of all workers are employed in these sectors, while labor productivity is three times lower than the average for the sectors.
Imbalances in the labor market, in our opinion, are due to the commodity structure of the economy, the low competitiveness of private sector, the huge shadow sector and the ineffective state intervention in the economy, which through state programs subsidizes low-quality employment. The problem of the labor market is aggravated by the lack of progress in urbanization – the proportion of the rural population has not changed since the collapse of the USSR.
Since 2012, Kazakhstan has also been experiencing an increasing outflow of population — the negative balance of migration is increasing. The Republic suffers large losses of qualified specialists, while people mostly with a lower level of education and in a smaller number come in.
The economy showed a good growth rate of 4.1% in 2017 and 2018, with the decisive contribution of the commodity sector, helped by oil prices, which showed an increase of 30% annually. Statistics shows a faster growth in employment in the services sector compared to industry, where labor productivity is low, which is reflected in a weak growth in real wages. Against the background of a positive growth in the economy in the last two years, the state mainly spent money on saving the banking system, which exceeded 6% of GDP. However, lending to the economy did not restart, the share of loans to GDP decreased from 24% in 2017 to 21% in 2018. As a result, in the non-primary sector of the economy even with improved macroeconomic indicators, business activity remains limited.
As a result, we can conclude that a fairly good economic growth in Kazakhstan over the past 2 years has not transformed into real wage growth, as a result the government has to, among other things, use the means of the National Fund and use the mechanisms of non-market administrative measures to hold down inflation to improve the welfare of the population. New initiatives to increase the compensation of low-wage state employees, according to our estimates, will contribute to the growth of real wages by 3.5% in 2019 and 2020.
