Kazakhstan labor market

Halyk Finance ResearchJanuary 26, 2018

The slowdown of economy in recent years has been accompanied by not only a drop in the price of oil and other raw materials, but also by a reduction in the number of employed in the economy. The number of employed decreased by 8 000 per year on average since 2014, while in the period from 2010 to 2013 employment grew by 170 thousand per year on average. Thus, the number of employees has now returned to the 2013 number at 8.6 million. The reason for the decrease in the employed population have become the demographic changes, the inflexibility of the labor market and economic problems.

The slowdown of economy in recent years has been accompanied by not only a drop in the price of oil and other raw materials, but also by a reduction in the number of employed in the economy. The number of employed decreased by 8 000 per year on average since 2014, while in the period from 2010 to 2013 employment grew by 170 thousand per year on average. Thus, the number of employees has now returned to the 2013 number at 8.6 million. The reason for the decrease in the employed population have become the demographic changes, the inflexibility of the labor market and economic problems.

By international standards, the proportion of employed population relative to those of working age 15-64 years in Kazakhstan is at a high level at 73%, which corresponds to the level of developed Western countries. This high level of employment is, however, related to the high percentage of self-employed persons, which reaches 25% of the employed population, while in developed countries the self-employed accounted for only about 10% of all employees.

The proportion of self-employed population consistently dropped since the early 2000-s, when it reached 45% in total employment to 25% presently, at the same time, there is no confidence in the accuracy of figures on self-employed.

The problem of self-employed is most acute in the countryside, where its share is close to 40%. At the same time, due to the institution of residence permit, assignment of self-employed to the only possible sector in rural area, which is agriculture, raise doubts due to the lack of official registration of self-employed persons.

In addition to the self-employed, not less significant problem of the labor market is illegally employed in the economy, the number of which exceeds one and a half million. It may be noted as positive that their number has decreased by almost half since 2010.

The growth of employment in the public sector amounted to 10% in 2010-2016, partially offsetting the weak growth at 4% in the private sector, but considering a significant increase in the government spending in the crisis period, the role of the state was stabilizing for the labor market, without taking into account the efficiency of employed in governmental structures.

The main trend of recent years in the labor market was the shift of employment from manufacturing to services. If in 2007 the number of employees was evenly distributed between the services sector and the real sector, the share of services to date has risen to almost two-thirds.

The number of employees in small and medium business has reached 3.1 million people, which is 0.5 million more than in 2010, the share of these employees in total employment in the economy makes up 37% since 2015.

The data on the distribution of the number of employees by salary size indicates that almost three-quarters of employed receive salaries below the average monthly pay, which was T144 thousand. By industry, the wage situation varies considerably. For example, in agriculture, almost 90% of workers received less than T150 thousand, slightly better situation with salaries in trade, education, public administration. Regionally low salaries are prevalent in regions with a high share of agriculture.

The median salary stood at T83 thousand and lies exactly in the center of the distribution of wages. Median salary range at 53%-58% of the average monthly salary in recent years. It is necessary to add that the data on wages in the Republic does not take into account salaries in small businesses and the self-employed whose wage is substantially below the average for the economy, which means that real wages may be significantly lower. For example, by government agencies’ estimates the number of self-employed and unemployed persons with incomes below T60 thousand is 853 thousand.

Under the current approach to the labor market, when predominantly rural population remains a kind of a buffer hiding the real situation at the expense of the self-employed, it is difficult to expect changes in the labor market. In particular, the unemployment rate perhaps will continue to decline and fall to 4% in the coming years. But the value of this indicator from a practical point of view, is low. So, on the one hand, by attributing a certain category of people to self-employed persons, external labor market indicators look pretty well. On the other hand, there is a shortage of qualified personnel, but it could not be satisfied at the expense of the self-employed, because of their weak competenciy and other factors.

After nearly 20 years of functioning of the private pension system, only 70% of the employed population carry out accumulation for retirement. The launch of accounting for years of labor activity for calculating the basic pension since 2018 should encourage self-employed to exit the shadow economy, though the effect of this measure will be low, given the size of the basic pension, which is linked to the subsistence minimum, that slightly exceeds T20 thousand.

The labor market efficiency in Kazakhstan within the framework of the evaluation of the global competitiveness index stand high and at 35th place in the world, however, in 2014, Kazakhstan by this indicator was 18th that signals the trend of deterioration of the rating.

The situation with real wages continues to remain complicated, its fall is observed for the third consecutive year, contrary to weak, but positive growth of the economy. The average fall in the first three quarters of 2017 is approximately 2%. In our view, the fall in real wages in 2018 will ease to -0.5%. Faster recovery in real wages hamper low oil prices, tough conditions on the money market, the gradual transition of government away from considerable injection into the economy and the overall suppressed private sector.

To access the full report please download pdf.