How will two oil-worker strikes affect Kazakhstan’s economy?
Since May 10, more than a thousand workers have been on strike against an arm of the state oil company, KazMunaiGaz Exploration Production (KMG EP), according to a Web news gatherer, Silk Road Intelligencer. The company reports a potential loss of 600,000 barrels, roughly 4% of its planned annual output at the Uzen field. The strike began at the Karazhanbas field, where the company claims that it has lost little output.
At issue is whether the purchasing power of wages is too low in the Mangistau region, east of the Caspian Sea, where the strike broke out. Mangistau wages remain well above the national average, but the gap is diminishing. Without price adjustments, wages in Mangistau grew at an annual average of 16% from 2003 through 2009, according to data from the national statistical agency. The Kazakhstani rate was 19%. In 2009, Mangistau wages were two-thirds higher than Kazakhstani wages; they had been nearly twice as high in 2003. (I don’t have wage data for KMG EP.) But the rate of consumer inflation in Mangistau is usually below the national average, according to data from the national statistical agency. Since 2003, Mangistau inflation has exceeded the national rate in only one year (2007).
What matters to the worker is the purchasing power of his wage, called the "real wage." Is the wage high enough to cover inflation, with enough left over to let him buy more goods and services than before? In Kazakhstan, yes. From 2004 through 2009, the real national wage grew by 9.7% per year, judging by data from Kazakhstan's statistical agency. In Mangistau, the answer is a fainter yes. The real wage in the region almost always grows from year to year, but not as rapidly as in the nation -- just 7.4%. In 2007, Mangistau inflation was so high (21%) that the real wage fell 7%. Striking workers may have memories of that.
Since the national real wage is lower, but growing faster, than the Mangistau one, the two are converging. This may indicate that the labor market is humming. People in low-wage areas move to Mangistau for higher pay. Competition for jobs there grows, driving down the area wage. Meanwhile, the loss of workers in low-pay areas increases the wage there as bosses vie for hired hands. The national economy gains, because workers are going to where they'd be most valuable -- Mangistau. (That workers would receive higher pay there reflects their value.) Understandably, longtime workers in Mangistau may not see it that way.
Workers are particularly sensitive to food prices, which are rising rapidly. Throughout Kazakhstan, prices of agricultural products in the first half of 2011 were more than a third higher than in the first half of 2010, according to the national statistical agency. Crop prices were more than half as high as before.
Prospects of propagation
Might the strike spread? Few long-run trends suggest that it would. The unemployment rate in Kazakhstan has been declining fairly steadily since 1999. Despite the slowdown of 2008-9, unemployment in the first quarter of 2011 was just 5.5%, according to the national statistical agency. This is well below the annual unemployment rates of the late 1990s, which had ranged from 11% in 1995 to 13.5% in 1999, according to World Bank data. The rate of increase in consumer prices in general has been rather volatile over the past decade, ranging from 13% in 2000 to slightly declining prices in 2008-9. But this is nothing compared to the hyperinflation of the mid-90s -- nearly 1,900% in 1994, according to World Bank data. The 2010 rate was 7.1%, according to data from the national statistical agency.
Growing inequality in the distribution of income can frustrate workers to the point of protest. By one measure, income equality in Kazakhstan has followed an erratic pattern but seems to have improved since 1996. In that year, the poorest fifth of the population received only 16% as much national income as did the richest fifth. By 2007, this fraction had risen to 22%, according to World Bank data.
The most worrisome trend is a slowdown in the national rate of economic growth. In terms of purchasing power, income per capita grew at 13.7% in 2001 and at 8% to 10% in subsequent years until 2007, when growth began diminishing. Real income per capita dipped slightly -- by about a seventh of a percentage point -- in 2009, according to World Bank data. The current rate is about 7%.
Workers may strike if they sense a narrowing of their economic options: What, after all, would they have to lose? An indirect measure of the economic choices of Kazakhstani workers may be the pay to Kazakhstanis who work abroad, relative to the size of Kazakhstan’s economy (GDP). A larger share may indicate that Kazakhstanis are more dissatisfied with their own economy and so choose to work elsewhere. This ratio has fluctuated from .8% in 2002 to .1% in 2009, according to World Bank data (see the Notes below). But it has been falling, steadily and sharply, since 2002. Moreover, it tends to be low in years of economic slowdown (.3% in 1998, .1% in 2009). These figures do not suggest that typical Kazakhstani workers are becoming so disgruntled as to vote with their feet, even in hard years.
On the other hand, consider the share of Kazakhstan’s GDP that is paid to immigrants. A larger share may suggest growing competition for native workers, sharpening their discontent. As it happens, immigrants' share of GDP here has doubled from 2% in 1996 to 4.1% in 2007, according to derivations using World Bank data. But these numbers remain small. They provide no grounds for fearing a national labor strike.
The big picture
How might the oil-labor strikes affect Kazakhstan’s economy?
A large strike in a key industry may raise prices throughout the economy. Firms in Kazakhstan must pay more than before for the now-scarce oil, so they’ll raise prices to recover costs. The higher prices will discourage consumers, so purchases will fall. Producers will cut back accordingly. On a small scale, the strike may induce stagflation -– a combination of higher inflation and unemployment.
Whether these effects will outlive the strike is unclear. If workers simply return to their jobs, then the strike will not affect the long-run performance of the economy. Long-run output depends not on prices but on means of production -– workers, machines, land and knowledge -- since firms will eventually put these means to work rather than let them waste away. If the strike doesn’t affect these means permanently, then it won’t affect output. Conceivably, the strike could result in higher pay that raises eventual output by improving worker morale and subsequent productivity.
But reports of police abuses of workers -– not to mention Sting’s cancellation of a concert here -- may raise questions in the minds of foreign investors about political stability in Kazakhstan. Workers at the Uzen field complain that “their salaries had been cut and their lawyer imprisoned on false charges,” reported Reuters. Some news reports indicate that Mangistau residents feel intimidated by jet fighters at a new air base in Aktau, wrote Joshua Kucera of EurasiaNet.org. A loss of foreign direct investment -– of factories that could have been built or oil fields that could have been developed -– reduces permanently the amount that Kazakhstan could have produced in the long run. Foreign direct investment now amounts to more than a tenth of the economy (measured as gross domestic product, with adjustment for prices), according to World Bank data.
In short, while the strike hinders the economy in the short run, its permanent effects are not clear. -- Leon Taylor, tayloralmaty@gmail.com
Notes
1. For the emigrant share of GDP, I use “workers' remittances and compensation of employees” received by Kazakhstan, in the words of the World Bank. These “comprise current transfers by migrant workers and wages and salaries earned by nonresident workers.”
2. For income per capita, I use real GDP divided by the population.
Good reading
N. Gregory Mankiw. Macroeconomics. Seventh edition. New York: Worth Publishers. Chapter 7 develops a simple model of the national economy.
References
Kucera, Joshua. Kazakhstan opens naval air base, intimidates strikers? The Bug Pit. July 6, 2011. www.EurasiaNet.org
Reuters. Sting cancels Kazakh concert over oil worker dispute. July 3, 2011. www.silkroadintelligencer.com
Silk Road Intelligencer. KMG EP reduces output forecast due to strike. June 29, 2011. www.silkroadintelligencer.com
Silk Road Intelligencer. Number of striking workers increases at KMG EP facility. July 14, 2011. www.silkroadintelligencer.com
Silk Road Intelligencer. Strikes cripple oil production at major KMG EP oil fields. June 23, 2011. www.silkroadintelligencer.com
Statistical agency of Kazakhstan. Wage and price time series. www.stat.kz The Russian-language pages have more statistics than the English-language ones.
World Bank. World Development Indicators. www.worldbank.org
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