Mar 01, 2014

The Winter Olympics’ Unseen Contestants: Russia’s Temp Workers

For the past month, all eyes have been on Russia as some of the world’s best athletes compete in the XXII Olympic Winter Games. At the torch lighting in Sochi’s Olympic stadium, three years of hard work by workforce companies and contract workers was finally seen.

Adecco Group Russia Company and Kelly Services, along with Russian company Exect Business Training, were jointly responsible for the recruitment and staffing services for the event. The official suppliers of the games were asked to source 150,000 workers - both permanent and temporary - along with more than 25,000 volunteers. These workers were employed in over 30 fields including sports, medical care, education, transport, hospitality, and more. The entire workforce was expected to be given training in the English language and in cross-cultural collaboration.

“Olympic Games are all about the teamwork that puts it together, and that’s why we are welcoming three biggest players of the recruitment and training services market on board the Russia’s Olympic project. These are companies that possess international expertise and experience in the Russian market.” ~Dmitry Chernyshenko, President of the Sochi 2014 Organising Committee

Adecco Group Russia Company provided temporary staff recruiting services, Exect Business Training was responsible for staff training, and Kelly Services handled permanent staff recruitment, as well as the establishment and management of the Sochi 2014 Career Center. The Career Center is an innovative online forum and recruitment program to select and train 65,000 experts.

To meet this volume of demand, various hurdles posed by the economics in the country, and labor laws regarding contingent workforce, needed to be overcome. At the Opening Ceremony of the Olympics, the world saw the gleaming new sports arenas, the web of highways, and the infrastructure upgrade of the region. The workers were in place and the job was done, however the conditions to which they were subjected were poor at best, bringing to light the issues that many staffing agencies deal with daily.

Russian Economy Snapshot

“The Russian economy is at a crossroads. It has tremendous potential but is still heavily reliant on volatile revenues from natural resources. It would do well to invest more in infrastructure, human capital and innovation, so that larger segments of society can partake in Russia’s transformation.” ~Angel GurrÍa, OECD Secretary-General

The International Monetary Fund and World Bank label the Russian economy as a developing one. With a population of 141.9 million, the country has a GDP of $2.5 trillion with a 1.8 percent 5-year compound annual growth.

In 2012, while the Eurozone was in a recession, the Russian economy remained strong. In 2013, the growth outlook was positive but far below the GDP growth in 2012. The World Bank projects a positive growth of 3.1 percent for the country in 2014.

Hosting the Winter Olympics was originally expected to give the Russian economy a boost, but the costs associated, more than $50 billion, will make this unlikely.

Employment in the Russian Federation

Employment in Russia, 2000 to 2013

Russia is a very large country, consisting for 83 federal districts. Each district has its own history, resources, economy, and unemployment rate. The unemployment rates in the federal districts are highly differentiated, varying by four times among the districts and up to 49 times among individual regions. The lowest unemployment rate is in the Central Federal District at 3.3 percent, and the highest is in the North Caucasus Federal District at 13.7 percent.

The overall unemployment rate in Russia in January 2014 was 5.6 percent. The number of unemployed people remained steady at 4.18 million.

A recent report by the American Enterprise Institute highlights the decline of the Russian population over the last 20 years, and the compounding of this demographic shift in the mismatch between the skills the country’s education system offers and what is required by the domestic labor market.

“They need workers from outside Russia in the construction and agricultural industries, among others. Pathways to legalization, and the creation of urban infrastructure to accommodate migrant populations (both legal and illegal) are Russia’s major challenges.” ~ ”Addressing Russia’s Mounting Human Resource Crisis”, American Enterprise Institute

Employment Percentage, by Sector

Russian Temporary Workforce Market

Following the global trend, temporary staffing is having a greater impact on the Russian labor market. Currently, the only way for Russian companies to source temporary workers under Russian law is by completing “service agreements” with recruiting companies. Under these agreements, the recruiting company has to provide certain services to a client and assign certain workers to that client. There is much ambiguity for the engaged contractors, service agencies and client companies under the Labor Code.

Russian employers consider temporary staffing to be advantageous with the key benefit being flexibility. Workers, especially young workers (about 69 percent of Russian contractors are young), prefer the freedom and flexibility that temp work offers, along with the wide range of access to industries, companies, roles, and opportunities.

In 2011, Staffing Industry Analysts estimated that the Russian staffing market was worth approximately €1 billion. A black market comprised of small operators who pay workers in cash to avoid taxes and social charges, adds another 30 to 40 percent to that number. Many large companies do make use of these illegal staffing providers, prompting Russian trade unions to oppose temporary staffing.

Over the last twenty years, the share of temporary employment has increased dramatically from 2.5 percent in 1992 to about 12 percent in 2007. In 2012, more than 8 million people were working on a temporary basis in the country.

According to the Survey of Russian Enterprises (RES), about two-fifth of Russian enterprises used non-standard labor contracts in 2009 and 2010. Fixed-term contracts are signed by companies and workers for a specified period of time, and agency work contracts are signed by a company and an employment agency.

Non-Standard Labor Contracts 2009 vs. 2010, %

There is also a large migrant population in Russia working on a short-term temporary basis. The Russian Federal Migration Service estimates that the number of people staying temporary in the Russian territory and who are employed for at least six months is 1.2 million.

How Olympic Workers Were Staffed

In order to overcome the hurdles presented by Russia’s economy, geography, labor laws, and temporary workforce market, along with issues of cost, availability of skill, and time, the official staffing agencies turned to outsource much of the recruiting process to various employment agencies within both Russian and neighboring countries.

In September 2013, Adecco Group Russia Company was finding it difficult to recruit the volume of people with specialized skills needed, including more than 1,000 workers in logistics and 5,000 in transport. On Adecco’s website, candidates were guaranteed decent wages, housing in Sochi for three to seven months, and partial compensation for travel.

“Candidates in Sochi cannot meet all of the needs of the staff for the Games, so we are selecting candidates from across the country; especially in the nearby regions of Krasnodar, Rostov, Volgograd, and Samara. In the run-up of the Games, the most extensive work will be done in the field of building temporary structures, catering, maintenance, IT support, and accommodation arrangements. Huge numbers of freight deliveries of equipment and materials are also planned. “ ~Adecco spokesperson.

Many of the workers engaged for the Sochi Winter Olympics came for neighboring foreign countries such as Servia and Bosnia. The draw was the prospects of earning more in wages, where two months of work would result more than most residents of these countries make in a year. Temporary housing was provided for these workers.

Thousands of migrant workers were recruited from ex-Soviet Central Asia and the Baltics to work on the $50 billion construction project. However, many of these workers faced challenges. Hundreds have complained about lack of pay, excessive hours, overcrowded housing, inadequate food, unlawful detentions, and deportations. Sourced workers, often brought in by middleman employment agencies, were put on site to work without proper contracts and visas, resulting in over 100 workers being detained by Russian police for working illegally. Russian officials began to enforce immigration law and targeted hundreds of Sochi workers.

Russian and Olympic officials have acknowledged the existence of wage irregularities, though they claim these have been resolved. Investigations into workers’ rights violations found that about seven firms owed their workers over $8 million in unpaid wages. Thomas Back, the president of the International Olympic Committee, says “as a result of this, 227 million roubles have been paid to workers in compensation to address this issue.”

For those in the contingent workforce business, these incidents continue to foster the debate on the risk and cost of the decision to either outsource or direct source. While the official staffing companies for the Sochi 2014 Winter Olympics fulfilled their obligations to provide a pool of talented workers, the overall results were far from ideal.

“While the central government can comfortably accommodate its share of the cost, the reputational benefits of hosting the Olympics have been undercut by the high cost of the event and other bad publicity.” ~Moody’s Analytics