Wage reform in the Soviet Union, 1956–1962

A Soviet postage stamp from 1959. The stamp is celebrating growth in the chemical industry.

During the Khrushchev era, from 1956 through 1962, the Soviet Union attempted to implement wage reforms intended to move Soviet industrial workers away from the mindset of overfulfilling quotas, which had characterised the Soviet economy during the preceding Stalinist period.

Under Stalin most Soviet workers had been paid for their work based on their individual performance through a piece-rate system, with the intention of encouraging workers to work hard and therefore increase production as much as possible. The enormous level of bureaucracy that this entailed contributed to huge inefficiencies in Soviet industry. Workers' personal production quotas were also frequently manipulated by factory managers, who were keen to protect workers' wages.

The wage reforms sought to remove outdated wage practices and offer a more efficient financial incentive to Soviet workers by making their wages more standardised and less dependent on overtime or bonus payments. However, industrial managers were loath to go ahead with actions that would effectively reduce workers' wages, and often ignored the directives, continuing to pay workers high overtime rates. In Soviet industry, materials were frequently in short supply and production would need to be carried out as quickly as possible once materials did become available—a practice known as "storming". The prevalence of storming meant that the ability to offer bonus payments was vital to the everyday running of Soviet industry, and as a result the reforms ultimately failed to create a more efficient system.

Background

Existing system

Aleksei Grigorievich Stakhanov (right), a coal miner who famously cut 14 times his daily quota of coal in one shift, was used by Soviet authorities as a role model for other workers.

During the period of Stalinism, the Soviet Union sought to grow economically and increase industrial production. In 1927–28 the sum total of Soviet production of capital goods amounted to 6 billion rubles, but by 1932 annual production increased to 23.1 billion rubles. Factories and industrial enterprises were actively encouraged to "achieve at whatever cost", with a strong emphasis placed on overfulfilling stated targets and producing as much as possible. For example, the slogan for the first Five-Year Plan was "The Five-Year Plan In Four Years!", calling on workers to fulfill the state's objectives a year earlier than planned.

Frantic rushed production was very common in Soviet industry, and in particular a process known as "storming" (Russian: штурмовщина, pronounced shturmovshchina) was endemic. It involved crash programs where factories tried to undertake all their quota in a very short space of time. This was usually because, due to supply problems, factories simply did not have the resources to complete production until the end of the month. Workers would then work as many hours as possible to meet monthly quotas in time, which would exhaust them and leave them unable to work at the beginning of the next month (although lack of supplies meant there would have been very little for them to produce at this point anyway).

To encourage individual workers to work hard and produce as much as they possibly could, most workers in Soviet industry were paid on a piece-rate, in which their wage payments depended upon how much work they personally completed. Soviet workers were given individual quotas of how much work they should personally deliver, and they would earn a basic wage (stavka) by fulfilling 100 percent of their quota. The wage rate for work would grow as production over this level increased. If a worker produced 120 percent of her own personal quota for the month (for example if she was supposed to produce 1,000 items, but actually managed to produce 1,200) she would receive her basic wage for the first 100 percent, a higher rate for the first 10 percent of over production and an even higher rate for the next 10 percent. It was hoped by the Soviet authorities that this would encourage a Stakhanovite spirit of overfulfillment of quotas amongst the Soviet workforce. In 1956 approximately 75 percent of Soviet workers were being paid under such a piece-rate system, so the majority of Soviet workers could significantly boost their earnings by increasing their output.

Average wage rates in the Soviet Union were published relatively rarely. Some academics in the west believed this was because the Soviet government wanted to conceal low average earnings. Alec Nove wrote in 1966 (when wage statistics were published for the first time since the Second World War) that the lack of transparency surrounding average wages was in fact to prevent Soviet workers from discovering the huge disparities that existed between wages in different sectors of the Soviet economy.

Problems

The piece-rate approach to wages, which had been introduced in the first Five-Year Plan and had changed very little since then, was in practice highly inefficient. One issue was the vast bureaucracy that was involved in administering wage payments. Each Soviet ministry or government department would set its own rates and wage scales for completed work to be applied in the factories or enterprises it was responsible for. Within one ministry there could be a great deal of variation in pay rates for jobs requiring largely identical responsibilities and skills, based on what the factory was producing, the location of the factory and other factors that Moscow considered important. Basing payments on these central directives often led to long and costly processes in the calculation of wages. Donald Filtzer wrote of one 1930s machinist who in a month completed 1,424 individual pieces of work. Amongst these had been 484 differing tasks, all of which had been assigned a basic individual payment rate of between 3 and 50 kopeks each (1 ruble was equal to 100 kopeks). To calculate this worker's wage, his employer had had to process 2,885 documents which had required some 8,500 signatures on 8 kilograms of paper, costing the factory 309 rubles, a fifth of what they would pay the worker, whose total earnings for the labour amounted to 1,389 rubles.

Time workers, who were paid a basic hourly wage rather than by how much they individually produced, also received bonuses based on performance. Factory managers, who did not want their time workers to lose out to their piece-rate colleagues, often manipulated output figures to ensure that time workers would (on paper at least) overfulfill their targets and therefore receive their bonuses. It was very common for managers to be loath to see their employees' wages fall to too low a level, and they would frequently keep quotas deliberately low, or offer ways for workers to manipulate their work outputs to achieve a higher bonus. They did this not so much out of concern for the workers' personal welfare, but to ensure that their factory could run smoothly. The erratic and seemingly arbitrary way that quotas had been set across different industries led to a large level of uncompleted production in some industries where it was considered more difficult to overfulfill their production quotas. Managers would therefore try to keep quotas deliberately low, to attract workers to their factories and be able to meet their targets.

Even without managerial manipulation, quotas were very often quite low and were easy to overfulfill. Quotas had been lowered during the Second World War so that new inexperienced workers would be able to cope with their output expectations, and because of this, in industries such as engineering, it was common for workers to double their basic pay through bonuses.

Reform

In the 1950s the Soviet economy began to fall behind schedule in the output of several key materials including coal, iron and cement. Additionally, worker productivity was not growing at the rate expected. In May 1955, Pravda (the official newspaper of the Central Committee of the Communist Party) announced that a State Committee on Labour and Wages had been formed to investigate changes to wages and a centralised system of wage adjustments. In July 1955, Soviet Premier Nikolai Bulganin spoke of the need for Soviet industry to end outdated work quotas and reform wages, so that the Soviet Union could better incentivise workers and reduce labour turnover. The subsequent sixth Five-Year Plan for 1956 to 1960 included calls for a reform of wages to be made. The reforms had several objectives, the most important being to create a more consistent system of incentives for workers. It was also hoped that the reforms would help to reduce the levels of waste and misallocation of labour that were frequently found in Soviet industry.

Provisions

The Five-Year Plan made several key changes to Soviet workers wages. First, basic wages were increased. This meant that there would be less pressure to overfulfill quotas, and therefore less pressure to manipulate or distort results. Wage increases were restricted to the lowest paid jobs, as Khrushchev sought to be seen as the "friend to the underdog". It was also hoped that wage rises for lower paid jobs might encourage more women to enter industry, and that freezes on higher paid jobs would deter people from leaving employment.

Second, quotas were raised to limit the ability of workers to overfulfill targets. In the case of time workers this was sometimes done by keeping quotas the same but lowering hours. For example, coal miners saw their working day shortened to six hours. Some rises were very steep; in the case of engineering enterprises, quotas were raised by some 65 percent.

The number of different wage rates and wage scales was drastically reduced. This not only cut bureaucracy, but also ensured that workers would be more eager to take on a wider range of tasks. Time workers, for example, would be paid the same regardless of what task they might carry out during their shift. This allowed managers to better distribute labour and helped to reduce the frequency of bottlenecks occurring in production, as formerly less attractive tasks would now be carried out by workers who had seen their financial incentive to focus on higher paying tasks disappear.

A major change was made in the way overfulfillment was rewarded. Progressive piece-rates, where rates increased as outputs grew, were ended, and workers began to be paid a simple one-off bonus upon overachieving a quota. Where bonus rates were retained for each percentage of overfulfillment, they were capped. For example, in engineering, bonuses could not exceed 20 percent of their normal earnings.

Lastly, workers whose tasks were considered too important to be paid on a piece-rate basis were moved to a time rate method of payment. This was largely done in consideration of safety grounds, and usually applied to those conducting maintenance or the repair of equipment.

Positive results

The reform's clearest effect was in reducing the proportion of Soviet industrial labour that was paid by way of piece-rate, and by August 1962, 60.5 percent of Soviet workers were paid by piece-rate, down from the 1956 level of 75 percent. Around half of those who remained on piece-rates continued to receive some kind of bonus payment, but the progressive piece-rate bonuses were more or less wiped out, with only 0.5 percent of workers continuing to receive them in 1962. Workers who were taken off piece-rate payments were then paid an hourly rate, or received a salary.

By 1961, workers' basic wages had risen to about 73 percent of their total earnings, with piece-rate workers seeing an average of 71 percent and time workers 76 percent of their earnings as their basic wage. There was also a reduction in the overall level of quota overfulfillment—indeed with quotas raised, many could not meet their own personal quota. The proportion of workers achieving 100 percent or less of their quota varied from as low as 5.1 percent in iron and steel industries, to 31.4 percent in coal mining. Across Soviet industry as a whole the average level of quota fulfillment fell from 169 percent before the reform, to 120 percent in October 1963.

Overall wages rose much more slowly during the period than planned, with wages across the entire state (not only industrial wages) rising by 22.9 percent between 1959 and 1965, against a plan for growth of 26 percent. Wage rises during the reform were made up for by increases in industrial productivity. For example, in the RSFSR (Russia) wages rose by 7 percent between 1959 and 1962, whilst productivity increased by some 20 percent.

The wage reform was linked to a program that reduced the length of the overall working week in the Soviet Union. From 1958 the working week was reduced from 48 hours to 41. This applied to all Soviet workers, and by 1961, 40 million Soviet workers (or approximately two thirds of all) were working to a 41 hour week. It was planned to decrease this further to 40 hours in 1962, but this was eventually not carried out. Khrushchev had stated a longer term aim of giving Soviet workers the shortest working hours in the world, with an aim of achieving a 30–35 hour week by 1968. He had spoken previously of the reduction of working hours to be a basic goal of a communist movement, and had talked of communism achieving a working day of between 3 and 4 hours.

Failures

Whilst the reform did remove some of the peculiarities of the Stalinist era, overall the reforms created more new problems for Soviet workers. In many areas large variations in wages continued to exist. In engineering for example, factory managers often ignored wage directives to try to encourage workers into roles that had lost much of their attraction after basic wages were cut to match pay throughout an area. Managers would therefore offer higher wages to new trainees. This had the effect of encouraging some to take a high-paid training position, and then leave for a new training position upon qualification. In coal mining, managers had long held the ability to vary wages based on local considerations such as geological factors or hazard levels, and after the reform they continued to vary wages through manipulation of quotas or rates to protect workers' wages. A further problem with the centrally directed bonus system was that it would encourage factories to continue producing old, more familiar products where it was therefore easier to overfulfill targets than to start work on new products.

In other instances, managers deliberately used the reforms as an opportunity to cut wages, exaggerating wage cuts made by the ministries so that they would be able to cut back on overall expenditure. In one case a manager of a concrete factory was sentenced to eight months corrective labour after being found guilty of using the reforms as a pretext to extract unpaid overtime from his workers.

Conclusions

Overall the wage reform failed to create a stable and predictable incentives system. Academic Donald Filtzer wrote that wider issues in Soviet industry and relations between managers and workers are important in understanding the failure. Filtzer noted a myriad of issues in Soviet production that had meant a more formal bonus system was unworkable in the Soviet Union: irregular availability of supplies that were often of variable quality, an irrational division of labour, and a reliance on "storming" that made it difficult to motivate workers through a more conventional payments system. In such cases it was vital to have the ability to offer additional overtime payments, and even use bribes or "palm-greasing" to incentivise workers to meet monthly quotas on time.

Filtzer also stated that because Soviet workers were unable to organise against their superiors in the same way that their counterparts in the west could (for example by forming an independent trade union or joining a political party in opposition to the ruling the Communist Party of the Soviet Union) they had undergone a process of "hyper individualisation", a process that had been heavily influenced by the overall incentive process. This had led to a situation where workers who could not count on a western style meritocracy (where they might expect to find their pay and conditions improve with promotions) would instead have to rely on the choices of managers who needed to be able to reward workers based on their own arbitrary decisions. Because managers needed to be able to give rewards and bonuses at their own discretion it made sticking to a centrally directed system of wages very difficult.

In terms of labour process theory—the attempt to understand the relationship between management control, worker skill, and wages in industrial workplaces—Filtzer emphasised the continuing absence of control by workers in Soviet workplaces over their own labour process. The Soviet elite would not radically change the labour process by democratising it and introducing truly equal wages for everyone in society from top to bottom, but nor could they generate the culture of consumerism that in the West justified the wage and skill structure. In these circumstances, attempts to coordinate norm setting, wages, and expected levels of worker effort failed, and continued to fail into the 1980s. The wage reform of 1956–1962 was a failure, as it could not resolve or ameliorate the economic conflict between workers and the elite in the Soviet Union. On the shop floor, workers continued to directly bargain with low-level management over effort, wages and what "skill" they would exert. In particular, Filtzer notes that Soviet workers were constantly forced into a position of exerting more skill than was officially called for in plans or norms. This was because Soviet workers often had to find their own ways of working around problems that made their efforts difficult, such as building their own tools to carry out tasks that could not be performed with the tools provided, or by devising entirely new production processes of their own when existing processes were not suitable. This was a condition only seen to such an extent in the West in industries which were insulated from market forces. Because this was common in Soviet industry, workers and managers in the Soviet Union had many reasons to collude over setting wages, norms and skill expectations, even after the wage reform.

References

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• Filtzer, Donald (1992). Soviet Workers and de-Stalinization. Cambridge: Cambridge University Press. ISBN 0-521-418992.
• Grossman, Gregory (1960). "Soviet Growth: Routine, Inertia and Pressure". The American Economic Review. 50 (2): 62–72. JSTOR 1815011. {{cite journal}}: Unknown parameter |month= ignored (help)
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• Robinson, Neil (2002). Russia: A State of Uncertainty. London and New York: Routledge. ISBN 0-415-27113-4.
• Nove, A (1966). "Wages in the Soviet Union: A Comment on Recently Published Statistics". British Journal of Industrial Relations. 4: 212–221. doi:10.1111/j.1467-8543.1966.tb00928.x. {{cite journal}}: Unknown parameter |month= ignored (help)
• Smith, Hedrick (1976). The Russians. New York: Ballantine Books. ISBN 0-345-29764-4.
• "Russia: End Five-Year Plan". Time. 9 January 1933. Retrieved 11 October 2011.