The document notes that the main function of the labor market in a market economy is the efficient distribution of labor resources. This is achieved by relative wage adjustments to reflect differences in marginal labor productivity and relative labor shortages. However, wages in Uzbekistan have remained broadly similar across industries for decades, creating no incentive to move workers between industries.
The reason for this state of affairs are several factors that limit flexibility. In the public sector, base wages are not related to performance and all occupational groups, including political appointees, use the same salary matrix, a single pay scale (virtually free of horizontal deviations), and most salaries are structurally linked to changes in the minimum wage.
Government wage fixing, including wages for agricultural workers in cotton production and harvesting, affects SOE and public sector workers, and a policy of “flat” indexing based on the national standard also contributes to a relatively flat wage distribution among the employed population. As a result, the state de facto sets wages for the entire economy.
According to WB experts, Uzbekistan cannot boast of good indicators of market competition, and the country’s economy is one of the most concentrated national markets in the European and Central Asian regions. A significant part of this concentration is associated with state-owned enterprises. About 40% of SOEs compete directly with private firms, and in some areas SOEs are monopolies with their own markets, giving them a tangible advantage in the market in terms of hiring workers. This high market concentration can negatively impact workers and markets, and can manifest itself in a variety of ways.
First, global experience shows that where collective bargaining is not possible with workers, wages tend to be negatively correlated with employers’ market concentration of power. The lower the competition among firms, the stronger the bargaining power of the firms that dominate the market, and eventually the position of employees in the discussion of wages and working conditions is weakened (if this trend is not balanced by other factors that strengthen the position of workers).
Second, firms in a monopoly position tend to create new jobs much less frequently than firms in competitive markets. Although newly approved legal acts provide additional protections for the independence of trade unions, the trade unions themselves in Uzbekistan in the post-1991 period were both oriented towards protecting the interests of workers and the state, which limited their independence in negotiating working conditions and wages.
“In several recent high-profile cases, the country’s authorities have banned strikes and other types of company shutdowns, limiting the negotiating position of trade unions and other workers’ associations. Because of these widespread de facto restrictions on collective bargaining and the formation of independent unions, the high concentration of bargaining power in the hands of employers is unbalanced, which most likely leads to the fact that the share of wages in national income remains at a consistently low level,” the conclusion says.
