6

## as stand-alone activities which were increasingly expected to pay for themselves.

18. As economic pressures on enterprises increased between 1994 and 1995, it is of interest that enterprises chose to reduce such employee fringe benefits by a greater proportion than direct monetary compensation to employees. Earlier research in Russia found that continued enterprise social provision cushioned the effects of sharp falls in real money wages in the process of transition.'<sup>0</sup> Managers interviewed in Belarus, however, regarded many fringe benefits as poorly targeted or low priority forms of benefit which were obvious candidates for reduction or elimination in cost-cutting drives.

19. The overall decline in profitability of enterprises in recent years undoubtedly accounts for the decline in the provision of fringe benefits in Belarus between 1994 and 1995. The economic pressures on enterprises have had effects similar to the institution of hard budget constraints in other former command economies. One would expect the elimination of services of marginal value in these circumstances, and faced with such hard budget constraints, enterprises in other CIS economies have apparently stopped offering some "social" services or even most such services" 20. When the very survival of the enterprise is in question, it is also to be expected that new capital investments will be postponed and even maintenance of existing capital will be deferred if necessary. Similarly, construction of new housing for employees might be expected to cease along with investments in new plant and equipment, and maintenance of housing might suffer along with maintenance of plant and equipment. Such cuts in housing construction and maintenance are well documented in declining industries in other CIS states, such as in the deeply troubled coal industry in Russia.<sup>12</sup> 21. Other economic pressures on enterprises may have been more substantial in Belarus than in many CIS states in recent years, such as those imposed by unfunded mandates of government. In particular, pressures to maintain employment have led to overmannmg by an estimated 40 percent, according to submissions to the Supreme Soviet of Belarus. With such pressures to assist in reaching unfunded governmental objectives, it is perhaps surprising that discretionary spending on items such as fringe benefits by Belarus enterprises has not fallen even further.

# **Comparisons with Provision of Fringe Benefits in OECD Economies**

22. The relative size of enterprise spending on fringe benefits in Belarus is not necessarily that different from the practice in some market economies. Whereas fringe benefits amounted to 12 percent of total employee compensation in Belarus in 1995, in the US in the same year nonwage payments voluntarily provided by employers were 10.1 percent of employee compensation."<sup>3</sup> On the other hand, the range in spending on nonwage benefits in all OECD countries appears to be quite substantial.<sup>1 4</sup> Practice also

> '° See Commander and Lee with Tolstopiatenko, "Social Benefits and the Russian Industrial Firm," p.i. Freinkman and Starodubrovskayst **a** te that with the imposition of hard budget constraints in The Kyrgyz Republic, "most enterprise non-housing social facilities were simply closed." See "Restructuring of Enterprise Social Assets in Russia," p.8. 12 Bodnar et al. repor **t** hat "in the three years preceding housing divestiture, coal associations' actual expenditure on housing decreased almost twofold in real terms due to the deterioration of the mines' financial performance." See "Russia: Financing and Maintenance of Social Assets Divested from the Coal Industry," p. 13.

> **13** _Survey of Current Business,_ May 1996, Table 1.14, p. IO.

> 14 By way of contrast, Schaffer cites "costs of social provision" in a 1988 survey of West European industry varying from 1.4% to 12.0% of total labor costs in different countries, but still concludes that "employees in Western firms receive social benefits from their employers which are about as costly in relative terms" as those in transition countries (Schaffer, _Economics of Transition Round Table,_ p.248).