USSR: SOME IMPLICATIONS OF DEMOGRAPHIC TRENDS FOR ECONOMIC POLICIES (ER 77-1001

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USSR: SOME IMPLICATIONS OF DEMOGRAPHIC TRENDS FOR ECONOMIC" POLICIES

SUMMARY

The Soviel economy, hobbled since ihcy sluggish technological advance,lowdown in employment growth throughhai could further arrest the pace or its economic development. The employment slowdown seems inevitable: growth of the adult population will drop because of declining birth ratesnd the employed share of that population already is unusually high by international standards. Moscow probably hopes that Ihe tight labor market will prove to be the catalyst for accelerated productivity growth if incentive systems are altered so as to encourap? more labor-saving innovations.

Augmenting employment growth with housewives, students, mililary personnel, and retirees is possible, but of limited potential or unlikely for policy reasons. The share of females in the primary working ago groupoears employed is already about nine-tenths and probably cannot be maintained in the face of rising family income levels. Reducing the school-leaving age or demobilizing some of tbe armed forces would yield only one-time windfalls and would not reverse the downtrend in employment growth The retirement syslem probably will be altered either by rusing the minimum age from its current SS years for women andean for men or by increasing incentives for pensioners to work. This would probably be offset, however, by the likely withdrawal of some housewives from the labor market.

The need for increased internal migrationeparate dimension to the challenge faced by Soviet planners. Because of higher birih rates. Central Asia. Kazakhstan, and the Trunscaucasian regions do not face asabor problem as the rest of the country. Planners will therefore try to accelerate migration from those republics. In addition, population movement! from farms to dues will speed uphifting labor shortages from urban to ruralnless the government deliberately limits such migration and restricts the rale of urban hiring.

A. In facing the challenge, Soviet authorities arc looking first to the industrial sector io restrict hiring sharply during the the current plan. They also arc experimenting in that sector with an incentive syslem thai encourages managers to release redundanthe Shchckinoyslem that may well be extended to other purls of the economy to cope with lhe tight labor market.

slowdown in economic growth seems certain bys unlikely to increase sufficientJy to offset theNP growth rate% per year would require anoutput per manhour% annually, compared with. The required productivity increase would%hen increments in the labor force slowrickle. Thisthe growth of labor productivity would have to overcome the resistancedccUning rates of growth in the amount of capital per worker. Soviettherefore nicknamed the Tenth Five-Years "the planandnd have exhorted workers and management tolabor and capital utilization. The unusually wasteful use of labor in theextensively in Western commentary, and Soviet history suggestsuccess can be achieved under pressure. But higher productivitycannot be sustained without drastic changes in existing incentive systems,

DISCUSSION

Introduction

A specter is haunting Soviet economiche specter of labor shortages throughoutlowdown in growth of the working-age population is already under way, and6 the growth rate will have slowed steadily% annually for that year compared%nless the employed share of the population increases, employment growth will slow accordingly.

The prospect is especially painful for the planners because of their past heavy dependence on labor for economic growth. Labor's contribution to Soviet economic growth has generally been larger than in other developed economics, while the contribution of productivity growth has been smaller. To sustain economic performance through, therefore, will require more emphasis on productivity and less on labor supply.

The uncharacteristically low production plansndicate lhat the planners abeady are bracing for lhe slowdown in employment growth.eparture from normal practice, overall employmeni goals for the new plan period have not been made public, suggesting government concern over popular reaction lo the "bador industry alone, however, output and productivity goals imply that employment growth will be less than half the rale.

9

According io Murray Feshbach and Stephen Rapawy, in an article appearingompendium on the Soviel economy published by (he Joint Economic Committee of the US Congress, major Soviet policy decisions will be required to cope with the resulting manpower problems. They also predict that labor shortages will be exacerbated by competing civilian and military demands for skilled young people, Finally, they conclude that more rapid population growth in Central Asia. Kazakhstan, and the TranscaucasJan regions than elsewhere in tbe USSR nuke likelyrisis management approach involving various legislative and administrative expedients to cope with the labor, investment, political, and military implications of these changes."1

This report will (I) describe Ihe nature and magnitude of the demographicnalyze its implications for employment in the perspective of past trends in population and employment,valuate its potential impact on economic growth

The Demographic Probkm

increments to the Soviet population of workingillion. will declineillion0 andlessillion in the. Two developments willequally to the slowdown: fewer persons reaching working age andn-tircment age (seehe deebne in the number of newthe falling birth rates of, and the increase in the numberis Ihe result of Ihc rising birth rates of Iheperiod of.

more severe but shorter ictardation occurred in thes (icehe cause was the unusually sharp drop in birthshigher infant mortality during World Warhe numberbomess than Ihc numberetweennd Ihe troughn contrast, tlie number of newdrop by.

The Geogniphic Problem

of ihe working-age population not only will be smaller butconcentrated during the in Central Aaa.' Kazakhstan, and the

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3

Tabk- I

USSR: Population p( Working Agt'

0

9

I

4

s

s

u

t

5

9

J

1

S

1

!

i

"

r,

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4

Transcaucasia ii region9 (sec theirth rates in these republics remained relatively high during, apparently less affected by the social and economic forces reducing fertilityhe country and the impact on births of World War II. Indeed, population growth rites in Central Asia, Kazakhstan, and the Transcaucasiaii regions traditionally have been higher than in the rest of the nation., for example, those areas accounted for almost one-third of the increase ofillion in the nation's able-bodied population, although tliey included less than one-lift li of (bat population.

In the RSFSR, the working-age population will actually decline during, while remaining essentially unchanged in the Ukraine and the Baltic region. These areas currently account for about four-fifths of non firm employment and an even larger share of industrial employment.

If Ihe historical pattern of internal migration continues into, problems associated with differential population growth will be compounded by net inflows uf persons from other regions of the USSR into Central Asia. Kazakhstan, and live Transcaucasian regions. Workers migrated into these less-developed areas primarily because the indigenous population failed to supply the labor required by the growing urban-industnal economy. The southern climate apparently hasajor attraction for unskilled labor from olher areas, particularly from the far east and north.

Government Influence over Employment

the Soviet government does not directly control theallocation ofs it conlroh the allocation of investmenttecisive influence nonetheless on employment growthThe leversariety of plans, policies, regulations, and special

institutions.

nnual and quinquennial plansJirgels in landcm wilh Output and other performance goals.larjKU are based largely on demographic expectations, withvarious industries lhat are consistent with plans for each industry'slabor productivity. Thus, employment targets specify the economy'slabor in the plan period. Limits on labor costs that are imposed by Ihesupposed to force enterprise managers to adhere lo the employment targets.

J. Aimcnui. Afiluvdihan. ind Gcnrpit.

A policy of fullfficial Soviet employmcnl policy envision* not only the provision or jobs for ill person! who warn to work, but also the requirement that all able-bodied patens work whether they want to or not. Thn policy of full employment accounts for the unusually high proportion of the population in lhe labor force, as well as the large amount of redundant labor in Soviet enterprises.

Controls over wages, hours, and workinghe government's conlrol over hours of work permils it lo Influence Ihe growth of the labor supply by changing scheduled hours, either selectively or throughout the economy. By com rolling wage rates and working condiiions. Ihc governmenl can influence the distribution of lhe workith differential wage rates and other amenities for priority and nonprionty industries, for example. Labor laws also impow restrictions on layoffs and dismissals, compounding problems of redundant labor.

Control over the educational and retirementdmissions pobcies for secondary and higher whoob influence Ihc average school-leaving ape and thus the share of school-ajar youths available for the Labor force. Similarly, statutory retirement5 for women andors well as ceilings on supplementary earnings for pensioners in Ihe principal determinants of the share of older persons in the labor force.

Internal passports and mandatory registration with local police -Although no statutory restraints are imposed on inlemal migration, new arrivals miMi- with the local authorities nnd normally produce evidence (hat employment lus already been arranged Tht system has been relatively effective in controlling rural-to-urban migraiion and avoiding buildups of unemployed migrant workers in urban areas.

A nationwide network of labor atmagu Developed only since the, labor exchanges involve lhe government directly in matching jobscckers with Jobs. Labor exchanges had been dosed by Stalm0 when unemploymenthe current pragmatic approach by the government recognizes lhe need lor .such intervention in Ihc hibor niaikcl. allhough Moscow still insists there is no unemployment in Ihc USSR.

Maintaining Employment Growth Policy Options

tlie face of declining increments to ils labor supply, lhewill try to keep employment growing as rapidly as possible by attracting

i

more persons not currently employed into ihc workforce and by discouraging early retirement. At the same time, it is likely toajor effort to reduce boor demand and promote labor-saving innovations throughout the economy.cenario wouldramatic departure from past growth strategy, which depended predominantly on rapid increases in capital slock and employment. Nevertheless, the potential for labor-saving innovation in (lie Soviet economy is large, while the potential for maintaining employment growth at past rates is small.

he potential for maintaining employment growth is limited primarily by the unusually high proportion of the population already in the work force (seeccording to0f malesf females of prime working ifc. males, females) were in the work

Table 2

Economically Active Population. Tweniy Year* of Atr anil Older.Percent ol Total Population. Selected CuunlrlcV

Percent

.

im! Ovrr

and Over

)

)

)

7

)

Source Inirtniiunjlrtmrbnok of

force, .uid these share* may be even higher now. Persons of prime working age outside the work force are mainly full-time students, disabled, or residents of institutions. Practically the only potential sources of additional labor, therefore, are among thend the retired.

Women Workers

n Us extensive use of women workers, the USSR has gone well beyond other developed nations and even other Communist nations (seentil, the participation rate of womenoears in theas about in line with other Communist nations. The large increaseercentage0 was the principal reaction to the unusually high demand for labor during those years. As shown in Tabic 3.

In Mr

I ncrcrr.cn ti Io ihe Popuhtion of Working Age and to Population Employed1

Person* (Midyear)

Working Age Population

5

0 Negl

111

3

I

i

u IJ

2.7

:o

22

: i

2.1

Nm)

egl.

jiv iday noloiah thown

Increments to employment actually exceeded increments to the population of working age in every year8

Older Workers

relatively low participation rates for both men and women inages shown inre probably illusory for the most part Inpopulation census, each household member was asked to specify his orof subsistence" from among the following;

Employedtate enterprise

Employedollective farm

Self-employed

Employedrivate individual

Private subsidiary agricultural economy (private plots)

Pension

tudent stipend

ependent on oilier family members

Census enumerators were instructed to include under "pension" those persons receiving pensions who were not employedegular, full-time job. Because of the statutory limitations on combined monthly incomes from pensions and wages, most working pensioners have part-time jobs. Consequently, they would not have been counted as employed.

The sharp decline registered in participation rates among retired persons9or menor women -is thereforeronounced decline certainly occurred, however; the number of pensioners increasedillion9 lo almostillionf the retirement-age population. Participation rales for this population, although not as low as reported, may have dropped below the rates prevailing in other Communist countries. If so. this populationabor reserve (hat could be tapped if necessary by modifying pension laws and/or providing incentives for delayed retirement.

Soviet pension laws aie relatively liberal even by Communist standards, as they now cover collective farmers in the same progiam with state-employedtep no East European country has yet taken. Retirement 3ges are higher in Poland and Eastor men,or women) and participation

!0

rales of older persons lend lo be relatively high in the predominantly agricultural countries (Bulgaria, Poland, Romania, andhe unusually high rales in Poland also reflect the absence of pension coverage for private farmers, who still dominate Poland's agriculture.

incentives already encourage retired persons lo continuedemand for their services probably will increase as the "natural"the work force dwindle. Because of limitations imposed on totalpensioners probably tend to be those wilh relatively small pensionswith little education andost collective-farm pensioners,tend to continue working at leasteasonal basis. Bul ain pensionostponing retirement or removing the- is essential if the retirement-age population is to be used toforce growth substantially. Any change would have to be aimedurban workers, who generally have bttlc incentive to continue workingregulations.

Younftr Worken

slowdown in the growth of enrollment in secondary and higherincrease the supply of labor among teenagers. The Soviels tinkereda schemey encouraging school-pi us-work arrangements forbut educational quality deteriorated and the program was abandonedSince then, educational policy has emphasized universal secondarylabor force participation rates among teenagers declinedhis rate apparently has remained steady since then,enrollment growth at secondary and higher schools has roughly keptpopulation growth in the relevant age cohorts. Plansallprogress toward universal secondary education.

The Armed Forces

partial demobilization would augment civilian employment onbasis by sliifling some military personnel into civilian occupationsreducing the draft contingent required toiven level of the armed

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forces. Demobilizaiion. however, would require changes in boih Soviel perceptions of defense requirements and in the current policy of universal military service. Furthermore, any reduction would have to be substantial toignificant impactivilian work force thai currently numbersillion persons on an average annual basis.

Timing would be crucial in any event. When Ihc USSR reduced its armed forces fromillion5illionhe windfall gain for civilian cnterpri-ses was negated in part by rising unemployment among teenagers. The planners apparently had not considered Ihc impact of the reductions on the labor supply, and the managers tended to choose seasoned veterans over inexperienced youths. The unemployed were absorbed only when population growth slowed while labor demand remained high.

The armed forces could be reduced gradually by reducing the number of draftees while holding the discharge rate unchanged. This wouldeversal of the policy of universal military training explicit in7 military draft law. At that time, when the number of persons reaching draft) was increasing rapidly, the USSR reduced mandatory serviceears on the average.onsequence, the number of youths drafted annually increased by. In the nextoears, the opposite will happen. The numbers reaching ageill declineillion8illionaintaining the size of the armed forces in Ihe, therefore, will require some reduction in draft standards, such as tightening deferment policies or recalling older men. To avoid such measures (and maintain the principle of universal militaryhe USSR could revert to theerms of service. Alternatively, the decline in available draftees would provide an appropriate opportunity to oil back on the draft and thereby reduce the armed forces.

Longer Workweek

earth of new entrants to its work forcehe USSR could choose to increase its labor supply byworkweek from its currentours. This wouldesperate measure.of the workweek fromoours0 stands as ihe onlyin modem times. At thai time, most workers had been onhour week,six-day" week that meant five days on andoff. the latter changing from week to week.houi week, inenerally involvedour days weekly.

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The reduction of weekly hours fromoas accomplished wilh great ran fare. When completed, woik schedules generally Involvedour weekdaysour Saturday. Thenhour workweek was compressed into live weekdays, eachours andystem that remains in effect to this day.

Short of formally extending the workweek, scheduled overtime could be introduced selectively, say in priority sectors, especially by taking advantage of the availability of Saturdayay off. But this would be an expensive procedure; labor laws dating back to theequirealf for thewo hours of overtime, doubleer rafter and for work on holidays and days off. Furthermore. Soviet workers have grown accustomed to the current pattern of woik and leisure and would be unlikely to acquiesce placidly lo any drastic change *

Likely Employment Trends

lhe population and other constraints on employmentthe USSRlowdown seems inevitable. Labor forceby Stephen Kipawy and based on0 participation ralesslcady growth retardation Irom% annually during theone-half percent per year toward thesee

Table 4

rarr Annual Ratesh ol rorniUhon and Labor Force

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pt I

1

.

1

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'V

*

'

I

i,

* a faaajaiSB

fiii riiafcaiLluiiaii MM

i I* mi. Mh WliMr- IM.wkdklm..

ana MM* aaafHap

13

Participation Rates

assumption of constant participation rates seems reasonable.among persons in the retirement ages is likely to be offset byamong womenoears of age. while Ihe employmentteenagers remains unchanged. The government can be expected tofor older workers to remain employed or return to their jobs.however, arc likely to induce more Soviet women to opt for arather than paid employment Furthermore, no appreciable change isthe size of the armed forces. Some modification of the conscriptionlikely8 or soon thereafter to accommodate shrinking cohortsbut this wouldelatively small one-lime windfall lor Ihemarket. Nor is any deliberate reduction in the school-leaving agegovernment is not likely to reduce the educational attainment of newenlrants or expand work sludy programs after the unfavorablethe.

Agricultural Employment

The accelerated decline in agricultural employment projected by Rapawy. consistent with past trends, could jeopardize farm output goals. Despite deliberate government efforts to slow migration by reducing rural-urban Income differentials, farm incomes still arc relatively low.esult, farm workers have responded to the excess labor demand in urban areas, and farm employment lias continued to decline.

The movement of labor from farms to cities has oftenrucial role in sustaining relatively high manpower growth in non agricultural sectors. Agricultural employment dropped5 million82 millionor example, as employment opportunities swelled in urban areas because of the slow growth of lhe working-age population. Farm employment has continued to decline, although much more slowly, into lhe.

Migration from farms involved the young pnmanry and leftopulation predominantly outside of the working ages.9he rural population ineclined. while the urban, population in those agesseelmost half the rural population0 was underrompared wilh about one-third in urban areas. Available demographic data suggest lhal migration may have accelerated

The toial rural population, which declinedillion9illionell further tonillion by

Table 5

USSR: Urban and Rural Population by Age'

Million Persons

ind over

"ii. ii ofanuary foigiven year

Employment

accelerated migration to cities, should it occur, will helpimpact of the labor force slowdown on the nonfarm sectors of lhenonfarm employment growthill average less thanrate. Soviet planners already haveharpindustrial employment for the Tenth Five-Yearut havetheir employment plans for Ihe nonindustrial sectors The planemployment calls for average growth% annually, comparedper year.

Migration of Ijibor

Ihc population of working age increasing more rapidly in theareas of Central Asia, Kazakhstan, and the Tranacaucasus than inSoviet planners are confronted by the need for accelerated internalforces alone should stimulate some additional movement asshift to where the jobs are more plentiful and lucrative. In addition,still maintains an organization to handle organized recruitment and

IS

resciilcmcfii and toetwork of labor exchanges throughout the country. The resettlement effort, however, would have to be formidable to behift ofillion persons in the workingresumably accompanied by theirut of Central Asia, the Transcau casus, and Kazakhstan would be necessaryo make the growth of its working-age population equal to the growth in the rest of the country.

from these less-developed regions will have to beproperly accomodated. Bul, the orientation of minority nationalitiesagriculture, warm climates, early marriage, and large families makesthat they could quickly adapt to the living conditions andof the European or Siberian regions of the country. Theand educational constraints make it all the more unlikely lhatand northward migration can be successfullyithervoluntarily.

Implications for Economic Growth

impact of the employment slowdown on growth of GNP willunless labor productivity growth accelerates substantially. To maintain arate% annually, for example. GNP perhave to increase at an average annual rate% comparedsecs employment growth slows even further inIhe required increase in output per manhour rises to an averageor the same GNP growth rate.

Factors Retarding the Growth of Labor Productivity

balance, il seems doubtful that rates of growth of%% per year for the whole economy can be sustainedperiod ofears First of all, the capital-labor ratio probably willa slower pace in the future, which should retard productivity growth.calllowdown in investment growth from an average%. as planners hope lonvestment intentions are uncertain, andhave not yet been made by the planners themselves. Tradeoffsand the relative availability of labor for investment sectors, will loom

howii in Tablete dowing of powlh in ihe lolal ilock of planl andiom%lthough lew dramatic than Die decline in growth of uivcttirtttitill he lubiiantitl.

16

Tabled

USSR: Selected Aspects of Economic Growih

Ave raw Annual Rales of Ciowth in Per cent

national product

0

worked

per manhour

capital

capital per manhoui

:i

capital in labor force'

capita! per manhour

Buted on official pbn* and rounded to neareM on" Manliouitaaunwl lo rnereaie at unif Hie aibite.

by (jlunatrd rrlatnr com5

large in those decisions. Shifts of investment funds from plant and equipment to housing, for example, would depress economic growth because of differing output-capital ratios.

direct effect on labor productivity of (he increased emphasis on.mil services sector would also be unfavorable/ More important, thenot again attain the rapid growth in liujiun capital lhat il enjoyed InThe rate of increase of enrollment in high schools, universities, andwill dwindle if only becauseess room for growth. Inauthorities will be tempted al live margin lo push young people into therather than pcimit ihem to go on tn universities.

Sourer* of Accelerated Growthlabor PruduciMty

Ihc other side of lite balance, tcclutology imports from (hetend lo promote productivity growth. In CUffcnl prices. Iheir growth hasEven in constant prices the rateIncrease of machinery' importsaccelerated. Balance-of payment* constraints, however, will limit the

7 to pan,aberration redee-iin*cwrt-iwrt. Many

1

direct contribution of imports to the general level of productivity. The impact of technology transfer over the medium-to-long term is still veryontroversialn large part, the results of imported technology depend on tlie kind of demonstration effect it has on research and production beyond the immediate point of appbeation.

The bureaucratic response to the expected slowdown in employment growth was not long in coming. The Tenth Five-Yearas been given the title, "the plan of efficiency andargets for accelerating the improvement of labor utilization, such as reducing manual work through mechanization and increasing the capital-labor ratio, are included in the plan. In addition, the plan calls for altering the wage system so that payments are related more closely to results.

Lacking direct controls over hiring and firing, the government will have to use its planning and incentive systems to influence labor allocation and utilization. In the USSR, workers are expected to find jobs on their own, with help from the labor exchanges, while enterprise managers are expected to recruit workers in accordance with plan goals. These plan goals, in turn, can be expected to reflect tlie growing scarcity of labor, and workers and management alike will be under considerable pressure to improve labor utilization.

The industrial sector of the economy has already demonstrated that slower employment growth need not necessarily resultommensurately slower growth in output (seen upsurge in labor productivityay haveelayed consequence of5 economic reform, which gave managers greater control over the size and structure of their workn addition, the "Shchekinoegun7 as an effort to eliminate redundant labor, is now standard procedure inndustrial enterprises -compared withnderages saved by reducing employment arc distributed among the remaining employed workers. Usually, redundant workers arc transferred elsewhere in the enterprise, or else employment is reduced by attrition, to avoid actual dismissals.

a Rcieaich curicntly under way in fhii office will aitenii* in reconcile major dSITereneM in ihe letulli olfinding* in Wcttem academic circle* conccinjnx ihe compamltc productivity oiluced planl and equipmeni aa opposed lo lhat imported Irom the developedhe wortwwk reductionlw showed thai unrealised eflicieney could be upped. at leanrief period. Productivity growth pR-Vtd up at lhal lime Uiarked slowdown iotcicaw oi manhouij. Then, at the labor picture improved, labor-hoardine. became pre^knl acain.

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The incentive to eliminate redundant labor will grow stronger, especially in, as increments to the labor force dwindle rapidly. The major contributing factors to "over-full employment" in the Soviet economy haven the supplyovernment policy insuring jobs for all who want them,n the demandendency on the part of managers to hoard workers and an aversion on the part of policy makers to the social and political consequences of technological unemployment.ight labor market, hoarding of labor will becomeingly difficult and technological unemployment lessoncern.

Labor-saving innovation offers another means of keeping growth rates up. To assure an incentive structure that encourages labor-saving innovation, the "Shchekino Experiment" or some variation of it might be extended insofar as possible throughout the economy, encountering diminishing resistance as the labor market lightens. The government and enterprise traditions that have perpetuated overfull employment underlie most of the resistance to the "Experiment" encountered thus far. Given those traditions, an incentive system designed specifically to save labor could be most effective during periods of relative labor shortage.

Even if planning and tinkering with manigrmcnt Incentive systems can bring redundant labor down to reasonable levels, the motivation of the labor force would remain as the principal uncertainly with respect to forecasts of labor productivity. Official complaints about the pace and quality of work arc abundant. Some Soviets have argued that more consumer goods and better housing are as important or more important to higher labor productivity than additional capital

19

stock. Krai per capita consumption has been rising steadily in the USSR; the problem accms to be how to tie the rate of increase more directly to performance in the factory or on the farm.

n any event, the quest for productivity growth, especially through labor-saving innovation, willritical role in Soviet economic policy for Ihe foreseeable future. The unusually wasteful use of labor in the USSR has been documented extensively in Wesiern commentary. In the past, the labor supply apparently expanded whenever necessary to permit enterprise managers to meet plan goals with existing technology and work organization. Planners apparently are hopingighter labor supply will force managers to surface what the Soviets euphemistically call 'hidden reserves" and use their labor more efficiently. These hopes may be realized in part, but not to the extent necessary tolowdown in economic growth.

20

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