Labor productivity in Russian companies: How to foster sustainable growth

Abstract

In this paper, we study the factors, motivations and barriers for productivity growth in Russia. The data is based on a survey of 700 companies of Russian basic non-resource industries. We find inter- and intra-industry divergence of companies by labor productivity level and discuss the evidence for further divergence. Revealed are the factors of high labor productivity level, among which are scale of business, investments into fixed assets and human capital, application of modern digital technologies, export activity and training of employees. The growth of labor productivity is positively associated with firm size, investment activity, digitalization and R&D spending. There is no positive and significant impact of innovation activities on productivity level and its dynamics, which may be a result of low innovation intensity and time lags in effects of innovation activities on revenue. The evidence suggests that innovative firms with positive dynamics of innovation performance are followers of foreign competitors. We find that firms with the leading and lagging levels of labor productivity have different strategies for human capital accumulation. Leading firms combine significant staff turnover with intensive professional development of existing staff, while lagging in productivity firms are not involved in staff turnover and investment in training. While leading in productivity firms compete for the best personnel, lagging firms compete for financial resources. In addition, leading companies find among the highest the risks that qualified personnel would be diverted, while the lagging companies find among the highest the risks of employees’ low motivation. Most of the leading in productivity firms are interested in continuous improvements of labor productivity, while among lagging in productivity firms this problem is important only for one fourth of them. Lack of internal motivation to improve their productivity may reflect failures in the corporate governance system. At the same time, the established model of relations with the state has a significant impact on the respective motivations of companies.