A snapshot of Kazakhstan’s economy

Smile for the camera...

Since independence in 1991, Kazakhstan has been in one long business cycle, according to World Bank data. Annual output fell 60% until after the crash of the Russian ruble in 1998. Then output recovered, in tandem with rising oil prices. Some private estimates assert that Kazakhstan was in a mild recession in 2008-09, due to collapsing banks and falling oil prices. World Bank data indicate that income stagnated in those years but did not fall significantly.

Real wages in Kazakhstan have risen 7.5% per year since 2003, according to raw data from the government's statistical agency. At that rate, the worker's purchasing power would more than double every decade. Wages in Almaty and Astana are 40% higher than the national average, but the urban wage premium has been diminishing.

The unemployment rate has been dropping slowly for more than three years (Note 1). The rate was 7.3% for 2007 and 6.6% for both 2008 and 2009. The first half of 2010 improved upon that of 2009: The rate dropped from 6.9% to 6.2% in the first quarter and from 6.7% to 5.8% in the second.

What is most visible in the unemployment rate is not its sectoral decline but its strong seasonality. The rate is highest in the first quarter of each year, probably because of winter.

Most striking is the steep decline in unemployment among youths aged 15 to 24. Winter unemployment of youth fell by nearly half from 2007 to 2010, from 11% to 6.1%.

Over the long haul

The economy’s capacity to produce may be growing. The “long-term” rate of unemployment – referring to those who have looked futilely for work for a year -- is falling more sharply than is the general rate. The long-term rate reflects the difficulty of matching workers to jobs (“structural” unemployment), so the allocation of labor may be improving.

If indeed labor is becoming more mobile in Kazakhstan, then we should see a decrease in the dispersion of unemployment rates across oblasts and cities over time. Workers unemployed in one region would have an easier time than before of finding work in another region. As it happens, one measure of dispersion in unemployment rates across oblasts and cities – the standard deviation -- has fallen by more than two-thirds since 2003, with most of the decline occurring before the 2008-2009 slowdown of the national economy.

As the economy becomes more efficient, the relative importance of short-term unemployment grows apace. It accounted for nearly two-thirds of all unemployment by early 2010.

Most short-term unemployment – which has comprised about 4% of the labor force since 2007 – probably arises either from the business cycle or from economic “friction.” Sources of friction include logistical delays in beginning a job as well as short searches for better jobs. As a matter of fact, the rate of short-term unemployment has been relatively stable across phases of the business cycle. Since early 2007, it has varied only from 3.6% to 4.2%, with most values clustering around 3.9% (Note 2). This indicates that most short-term unemployment may be frictional. The government may want to take a closer look at the short-run labor market.

Urban doldrums

Kazakhstan’s major cities, Almaty and Astana, have not recovered from the 2008-09 slowdown as fully as has the nation. The unemployment rate in Almaty was one-sixth higher than the national rate in 2009 – and this ratio has been increasing steadily since 2003.

Unemployment rates are also higher in Astana than in the nation, and the trend since 2003 has not been in Astana’s favor. Perhaps migrants to the two cities are over-estimating their chances of employment there.

Wage trends also indicate a sluggish recovery in the cities. While real wages remain higher in Almaty and Astana than for the entire nation, the urban wage premium is diminishing. For Almaty, the premium has fallen from nearly 50% in 2007 to 40% in early 2010.

In most years since 2003, real wages have been higher in Astana than in Almaty. Is the government becoming a more lucrative sector of the economy than are finance and education? – Leon Taylor, tayloralmaty@gmail.com


Notes

1. The source of GDP data is the World Bank (www.worldbank.org). All other raw data are from the statistical agency of Kazakhstan (www.stat.kz).

Government data for monthly wages that are ostensibly real, from 2003 through 2010, suggest an annual rate of increase of 16.4% over that period, but the statistical agency has apparently confused nominal wages for real wages.

2. One measure of dispersion in a given variable is the ratio of the standard deviation to the mean. This measure is .04 for the rate of total unemployment, .071 for the rate of long-term unemployment, and just .018 for the rate of short-term unemployment.