Strategic reserves of labor productivity growth in the regional economy

Source:

In the period of 2000 – 2007 in the country both types of factors were involved, but in general, the rise of Russia’s economy was based on the use of natural resources, the old production facilities and a certain reserve of labor force. However, the effect was substantial: the average annual growth rate of gross domestic product amounted to 6.9%, industrial production – 5.8%, the volume of investment in fixed capital – 14.8%.

Sustained economic growth in this period was in the North-West federal district. Gross regional product in the regions of the district increased by 1.65 times (tab. 1) . The largest increase was provided by Leningrad, Kaliningrad, Arkhangelsk and St. Petersburg oblasts.

However, from the middle of 2008 the trend of growth of the domestic economy has been replaced by large-scale recession that resulted from the global financial crisis. Reduced production seized the territory of the North-West Russia, serious problems have arisen in the real sector and financial and social spheres. For example, in the Vologda oblast – export – oriented, industrialized region of the North-West federal district, in which industrial structure ferrous metallurgy is more than 60%, industrial decline up to 2008 amounted to 5.3%. The greatest decline is recorded in the metallurgical industry due to falling prices of ferrous metals on both the domestic and global markets.

Loading capacity of metallurgy in the first half of 2009 amounted to 50% pre-crisis level. The oblast experienced a large-scale unemployment, regional budget revenues dropped by almost half, implementation of investment programs are suspended.

To accelerate the restoration of Russia’s economy after the recession a long-term strategy is needed to improve its efficiency and competitiveness. A new paradigm of growth is needed, based on higher productivity as a complex expression of intensification of all production factors, rather than on favorable commodity markets.

Productivity growth will transfer extensive growth, provided by raw resources, in intensive as well, based on the achievements of scientific-and-technological advance and to ensure the competitiveness of Russia’s products in the domestic and world markets1, but also as a consequence, improve the welfare of Russian citizens, their quality of life. For Russia this problem is one of the most important.

In developed economies labor productivity is important, but also consistently increases as well. At present this is achieved at the expense of the entire increase in national income and industrial production, agriculture and other industries.

Today Russia in terms of labor productivity lags behind many countries. If before 1990 the growth rate of labor productivity in Russia surpassed the global average (and in the period from 1960 to 1980 – in 2.2 times), during the economic crisis they have fallen sharply (in 2000 – nearly by 2 times to 1990 level) and labor productivity was only 82% of the world level.

Russia has traditionally lagged behind developed countries in labour productivity. During the reform period this lagging has not been eliminated and noticeably increased as well. If in the early 1990’s the gap between Russia and the US in terms of labor productivity was 4 – 4.5 times, at the beginning of a new century – 5.5 – 6 times [1].

Compared with developed countries of the world level of labor productivity in Russia is unacceptably low. If in 1960 it lagged behind them by 17%, in 2000 the gap reached almost 4 times (tab. 2) .

According to the International Labor Organization (ILO) [3], labor the United States continues to lead in productivity at this stage. In 2006, the average American employee added to the value of a company $63,885. In the second place with a considerable lead there is Ireland ($55,986), the third is Luxembourg ($55,641). Top five also includes Belgium ($55,235) and France ($54,609).

Productivity in Russia in 2006 amounted to $15,563. Among the CIS countries it is in fourth place – after Armenia ($22,763), Belarus ($21,527) and Kazakhstan ($18,688). Among European countries Russia in annual productivity gets ahead of only Serbia ($10,519) and Macedonia ($13,270). Such a situation makes impossible economic spurt.

However, the economic history of Russia shows that productivity growth can be uniquely high. And now the country has very good results. Thus, if the average productivity of labor in developed countries is growing in similar pace – 1.5 – 2% (in the US in 1980 – 2005 it added at the average by 1.7%, in France – 1.5%, in the UK – 2.1%, Germany – 1.4%, in Italy – 1.8%), then in Russia in 2000 – 2005 it increased annually by 5.9% [4]. However, to reach the strategic lines, this figure should be 2 times higher. Thus, the increase in productivity is a very important aim for all levels of the economy. Productivity is the base of long-term economic growth, ensuring competitiveness.

It is also recognized by Russia’s leadership. As the President of Russia, Vladimir Putin, speaking at an enlarged meeting of 08.02.2008 of the State Council, told about the need to achieve by 2020 a fourfold growth in labor productivity in key sectors of the economy [5]. This indicator is chosen as a guideline in the draft Concept of long-term socio-economic development of Russia until 2020, prepared by the Ministry of Economic Development [6]. To address this extremely difficult task it will require 12 years to support the growth of labor productivity at 12% per year.

Labour productivity growth is a problem that has practical and theoretical relevance as well, due to insufficient attention to these issues in connection with the transition to a market economy.

Modern Dictionary of Economics defines the definition of “productivity” as an indicator of the efficiency of labour resource use, labor factor, which is measured by the amount

Table 2. A comparison of productivity growth in Russia and developed countries, thousand dollars per employee in prices and parity purchasing power in 2000 [2]

Indicator Year of 1950 Year of 1960 Year of 1970 Year of 1980 Year of 990 Year of 2000 Whole world 6.9 9.3 12.1 14.4 16.8 18.7 Developed countries 19.1 25.0 36.5 54.2 55.6 61.3 Russia 10.7 20.8 26.8 29.5 27.9 15.4 In % to the world 155 224 221 220 142 82 In % to developed countries 56 83 73 65 50 25 of production in kind or in cash, produced by one worker for a certain, fixed amount of time (hour, day, month, year) [7].

The term “productivity” was introduced in 1766 by A. Smith in studies on “The Nature and Causes of the Wealth of Nations” [8]. Making a distinction between productive and unproductive labor, Adam Smith argued that the volume of production and consumption of products is determined by the proportion of the population engaged in productive labor, and the level of productivity, which is closely linked with the division of labor.

Marxist theory considers labor productivity from the standpoint of the labor theory of value [9]. According to this theory production of any product involves two types of labor: the living labor spent by workers on the production of the product, and the past (embodied) labor that was spent at the previous stages of social production and is used in the manufacture of these products. The surplus product is created only by living labor. Means of production, representing embodied labor, do not create new value, since their value was created through the use of manpower, and simply transferred to the manufactured products. In accordance with it the performance belongs only to the living labor, and the only work of employees in the material sphere. According to Karl Marx, only their productive labor creates the necessary and surplus product, which are the source of maintenance of non-productive sphere.

The Soviet School of Economics continued Marx labor theory of value. Since 20 – 30-ies of XX century, productivity, along with indicators of the effectiveness of capital investments, became one of the main criteria for the effectiveness of social production.

With the proliferation of capital-intensive production, the economy problem of alive and embodied labor as well has become increasingly important. It is related to the new stage of development of productivity concepts in the 60-ies of XX century. This period includes the development of the Soviet Union and abroad techniques of multifactor productivity measurement and factors of production.

The most common method of investigation of productivity attributed the performance to the properties only of living labor. In this position stood A.K. Gastev, E.I. Kapustin, D.N. Karpukhin, Y.N. Kvasha, E.L. Manevich and other economists stood for this position [10, 11, 12, 13, 14 and others]. Productivity expresses through the degree of fruitfulness (effectiveness) of purposeful activity of people in the production of material goods within a certain period of time.

L.P. Vladimirov [15] believes that the purpose of work is to obtain results, such as production of goods or services. For any employee or group fruitfulness of this result is important, i.e. number of products (services) per unit of time (hour, day, year). And the higher this result, the lower the cost per unit of outcome, including such as rent for the premises, electricity charges, etc. Consequently, at high labor productivity with increased production costs on it fall. Several authors (G.G. Melikyan, R.P. Kolosov, V.G. Kostakov) [16] define the concept of productivity in the narrow technical and general public concept. Productivity in a narrow technical concept is the ratio of output production to input resources. This indicator expresses the degree of efficiency of resource use. Productivity in the general public concept first of all is the mental tendency of people to a constant search for improvement opportunities of what that exists on the belief that people can work better today than yesterday, and tomorrow even better.

The special development to the theory of labor productivity was given in the United States and some European countries at the beginning of XX century. At this time there is a number of scientific and practical areas, among which the most significant contribution to the theory of labor productivity has been made by the research school of management (Frederick Taylor), administrative (“classical”) school in management (Anri Faiolle), the school of “human relations” (Elton Mayo) and others (tab. 3) .

Table 3. Foreign scientific schools in the theory of labor productivity

School	Representatives	Contribution to the theory of labor productivity
Research school of management (1885 – 1920)	F. Winslow, F. Taylor, etc.	The necessity of selection of specific workers to perform a specific job (placing of personnel), the need of training of workers, retraining within the enterprise, and in third-party organizations. Rationalization of the work and its motivation
Administrative or classical school (1920 – 1950)	A. Faiolle, L. Urvik, M. Weber, H. Ford, L. Gyulik, D. Mooney, A. Sheldon, etc.	Specialists of this trend investigated the efficiency of the entire organization. This approach is in the regulation, improvement of labor and a tightening of labor discipline
School of human relations (1930 – 1950)	M. Follett, D. Mayo, A. Maslow, C. Argyris, R. Likert, D. MacGregor, F. Herzberg, etc.	Representatives of this school had a lot of research and experiments on the motivation of people, the nature of power, leadership, quality of working life, etc. The main goal is the improving of the effectiveness of the organization by the growth of effectiveness of human resources, fully utilizing the potential of each employee

Thus, the issue of productivity in the economic literature is given much attention. This is due to the special value of productivity for any economic system: the higher the productivity, the more qualified is the economic potential of the country, the richer the society, the higher the level of welfare.

Labor productivity, as a complex economic category, is measured by several indicators, located to each other in certain respects and relations. The most common and universal indicators is production. The basis of this indicator is the ratio of the volume, the values of benefits from the use of an appropriate quantity of labor. Depending on the unit of measuring output it can be marked out, at least three methods of measuring productivity: natural, labor and cost, and their varieties (tab. 4) .

Natural method of measuring productivity characterizes the production of goods in kind in a unit of time. This method is used in enterprises in the production of similar products, but also in relation to the workplace, team or section. A variety of natural method is conventional and natural method of measuring productivity . With this method different kinds of products are equal to one predominant. Present value interest factor are calculated by labour-intensiveness.

When issuing a diverse and frequently changing products for determining the volume of production and output the labor method are used for calculating labor productivity. The volume of production by this method is measured in constant standard-hours. Using of the labor method is possible only on certain jobs, areas, but not in the company as a whole.

Table 4. Methods of measuring labour productivity

Name of the method	Description of the method	Application
Natural method	The most simple and reliable method. The application is due to release of a homogeneous product (monoproduction). An additional difficulty may be a record of changes in volumes of unfinished production	It can be widely used at the workplace and units. At the company level its use is limited
Conditional-natural	Variety of the first method. Monoproduction of group of homogeneous products (petroleum, metallurgy, food, etc.)	The efficiency of using is limited by types of businesses, specializing in the sales of one purpose product which differ on any grounds
Cost method	Final output is measured in monetary terms. The most common and affordable method	This method is universal for all types of businesses, especially if the calculation is conducted in USD
Labor method а) through standard hours	а) The volume of output is measured in constant standard hours	а) The method may be used only in a wellfunctioning regulatory framework
б) through labour-intensiveness of product	б) Calculated as follows: in the numerator of the fraction – the amount of actual labor costs of stuff, in the denominator – the volume of production for the period	б) This figure has always been and is widespread in developed countries

However, the natural and cost methods are used to calculate productivity in the enterprise. The most universal for measuring productivity is a cost method. It allows comparing the level and dynamics of productivity in the enterprise, industry, region, country. With this method volume of production is measured by the gross, product, sales indicators.

As for cross-country comparison, the International Labor Organization (ILO) calculates productivity as gross domestic product (GDP) at constant prices per person employed in the economy.

Addressing the growth of labor productivity is the most important task of all Russian regions. The complexity of this task requires the identification of factors affecting productivity.

Ongoing studies show that labor productivity in the region depends on several factors, both external and internal (fig. 1) .

Among the external factors the most important are: general economic and political situation in the country, a set of legal documents regulating relations in any industry, targeted programs aimed at improving the competitiveness and product quality, socio-demographic situation in the country, level of education etc. External factors are the base for the active manifestation of internal factors that can have a direct impact on the level and dynamics of change in labor productivity in the region, industries and enterprises. Factors of internal environment are controlled, influencing on them, you can manage the productivity of labor in the region.

Table 5. The gross regional product of the regions of North-West federal district, thousand rubles per capita (current prices)

Region	2000	2001	2002	2003	2004	2005	2006	2007	2007 to 2000, %
Republic of Komi	56.6	75.5	84.1	106.0	131.4	174.6	223.0	249.6	441.0
St. Petersburg	39.8	53.5	72.1	88.3	117.6	145.5	180.3	242.8	610.1
Murmansk region	59.2	63.0	76.2	91.1	142.6	163.3	183.7	225.0	380.1
Arkhangelsk region	44.8	49.5	62.0	78.4	108.7	131.3	167.9	224.8	501.8
Vologda region	53.4	50.9	63.4	85.3	129.0	157.1	164.0	199.1	372.8
Leningrad region	33.3	45.2	56.7	72.9	100.5	128.7	161.7	191.0	573.6
Kaliningrad region	24.3	33.8	42.0	49.1	70.3	85.7	109.9	155.7	640.7
Republic of Karelia	38.5	46.5	57.6	65.4	76.4	109.0	121.1	151.2	392.7
Novgorod region	29.3	39.0	45.2	55.4	72.6	91.0	113.3	133.7	456.3
Pskov region	20.5	25.0	31.5	39.2	48.3	56.1	71.6	89.0	434.1
NWFD in general	40.6	50.2	63.3	78.5	107.0	133.0	161.8	206.2	507.9
RF (reference)	39.5	49.5	60.6	74.9	97.9	125.8	157.9	198.8	503.3

Table 6. Labour productivity in comparable prices of 2007, thousand rubles

Region	2000	2001	2002	2003	2004	2005	2006	2007	2007 to 2000, times	Average annual growth rate,%
Republic of Karelia	216.3	225.3	239.2	236.0	244.0	262.9	273.6	295.8	1.4	104.6
Republic of Komi	411.7	438.0	425.4	437.3	455.1	472.0	512.0	509.2	1.2	103.1
Arkhangelsk region	260.7	272.7	273.5	295.6	364.4	396.5	413.1	461.6	1.8	108.5
Vologda region	284.3	289.5	296.3	312.3	353.0	365.7	380.3	397.5	1.4	104.9
Kaliningrad region	177.3	184.8	200.0	214.1	231.5	236.2	261.8	306.6	1.7	108.1
Leningrad region	216.8	233.3	270.2	305.9	328.7	358.8	395.3	417.3	1.9	109.8
Murmansk region	395.3	401.1	390.1	391.0	400.9	410.7	421.8	432.8	1.1	101.3
Novgorod region	199.0	224.6	221.4	230.1	244.2	254.2	267.3	279.2	1.4	105.0
Pskov region	149.1	151.0	160.4	163.8	167.7	169.3	178.8	189.0	1.3	103.5
Saint Petersburg	245.6	255.5	298.4	324.0	346.3	373.2	401.1	448.5	1.8	109.0
NWFD in general	254.9	266.4	287.9	307.0	331.9	352.5	376.1	406.8	1.6	106.9
RF (reference)	268.5	282.6	295.5	316.0	337.1	360.7	388.4	415.4	1.6	106.4

Consider the problem of productivity in relation to the economy of North-West federal district. During the period from 2000 subjects in the regions of the District gross regional product per capita in current prices increased by an average of 5 times. In 2007 this indicator was leading the Komi Republic, Saint Petersburg, Murmansk and Arkhangelsk oblasts (tab. 5) .

However, the calculations of labor productivity on methodology of ILO showed that during the period from 2000 to 2007 productivity growth in comparative prices in the regions of the district differed substantially (tab. 6). Only Leningrad, Kaliningrad and Archangelsk oblasts and St. Petersburg have provided superior to the average for the District of productivity growth, sufficient to meet fixed in the concept of long-term socio-economic development of the country’s strategic objectives.

As you know, one of the factors of economic growth is to draw integration an increasing number of employees into the economy. During the period 2000 – 2007 the number of employees in the regions of NWFD grew by 4%. In the Kaliningrad region has been a significant increase in the number of employees (more than 15%). However, economic growth in all regions of NWFD is ensured at the expense of labour productivity (tab. 7) .

Consequently in most regions the increase in the production indicators of GRP was influenced by factors increasing the efficiency of labor.

Table 7. The growth rate of labor productivity in the subjects of NWFD 2007 * (volume of GDP in 2007 prices per person employed in the economy)

The contribution of labor productivity and employment in the economy in the region’s economic growth (percent increase of GRP for the period)

Gross Regional Product, mln. rubles		Growth rate,%	Regional average annual number of employed people in the economy, thousand persons		Growth rate,%	Labor productivity, thousand rubles		Growth rate,%	Contribution to the growth of the regional GRP,%
2000	2007		2000	2007		2000	2007.		labor productivity	employment in the economy
Russian Federation
17323992.35	28254 787.50	163.10	64516.6	68019.2	105.43	268.52	415.39	154.70	91.40	8.60
				North-West federal district
1684746.419	2 788 330.60	165.50	6609.6	6854.2	103.70	254.89	406.81	159.60	94.35	5.65
				Republic of Karelia
74213.69976	104 622.90	140.98	343.1	353.7	103.09	216.30	295.80	136.75	92.46	7.54
				Republic of Komi
189342.7306	242 430.90	128.04	459.9	476.1	103.52	411.70	509.20	123.68	87.44	12.56
				Arkhangelsk region
154964.9239	286 861.90	185.11	594.4	621.4	104.54	260.71	461.64	177.07	94.66	5.34
				Vologda region
177001.103	243 947.60	137.82	622.6	613.7	98.57	284.29	397.50	139.82	103.78	-3.78
				Kaliningrad region
73258.15756	145 920.60	199.19	413.2	475.9	115.17	177.29	306.62	172.94	84.70	15.30
				Leningrad region
154084.2275	312 405.00	202.75	710.6	748.7	105.36	216.84	417.26	192.43	94.78	5.22
				Murmansk region
171123.9974	192 176.60	112.30	432.9	444	102.56	395.30	432.83	109.49	79.16	20.84
				Novgorod region
63303.58392	87 560.00	138.32	318.1	313.6	98.59	199.01	279.21	140.30	103.69	-3.69
				Pskov region
49354.10161	63 107.70	127.87	331.1	333.9	100.85	149.06	189.00	126.79	96.97	3.03
				St. Petersburg
585517.2801	1 109 297.40	189.46	2383.7	2473.4	103.76	245.63	448.49	182.59	95.79	4.21

* The contribution of labour productivity and employment in the economy in growth of gross regional product of NWFD regions was calculated as the ratio of growth in gross regional product at the expense of labour productivity and employment in the economy in absolute terms to the total change in GRP.

Wages has significant impact on productivity. In a survey carried out by VSCC CEMI RAS2 the majority of managers of industrial enterprises in the region among the factors affecting the productivity of labor ranked first staff skills, moral and material incentives (76.4%).

In addition, the ratio of wages and produc- tivity is one of the main indicators of the balance of the economy. Forward-looking growth of labor productivity relative to wages means the presence of funding of expanded reproduction in the economic sectors. In the Vologda oblast, as in Russia as a whole, the situation is reversed – wages are increasing faster than productivity. Thus, for the period 2000 – 2007 average real wages in the Vologda oblast have grown by 2.5 times, while labor productivity – by 1.5 times (fig. 2), indicating a narrowing of the sources of economic development.

Investment is another factor of labour productivity growth. In regions of NWFD during the analyzed period, they have grown very substantially as a whole in regions (tab. 8) and in a number of industries as well.

For example, in the forest complex of the Vologda Oblast because of significant invest- ments (between 2000 and 2006 they increased almost twice), labor productivity increased by an average of 14%, and woodworking – by 36%. At the same time, employment in industry decreased by 23.6%. The infusion of substantial funds in the modernization of production on the technical weapons program, upgrade park

Table 8. Investment in fixed assets per capita, thousand rubles

Region 2000 2001 2002 2003 2004 2005 2006 2007 2007 to 2000, times Arkhangelsk region 7.6 11.2 17.9 21.7 25.0 37.0 65.5 95.7 12.6 Leningrad region 11.5 19.3 16.9 29.9 41.5 50.4 74.8 78.5 6.8 Republic of Komi 16.4 21.1 21.7 25.3 34.6 51.2 76.3 64.3 3.9 St. Petersburg 7.6 11.3 16.3 24.2 25.6 34.2 38.9 65.0 8.6 Kaliningrad region 4.8 6.0 8.1 14.4 20.9 31.9 35.4 45.1 9.4 Vologda region 6.7 8.1 11.0 14.5 34.6 49.1 49.6 61.1 9.1 Murmansk region 7.8 11.8 11.2 15.0 17.0 23.1 28.6 30.5 3.9 Novgorod region 6.7 11.3 7.2 13.1 13.0 21.0 28.7 33.3 5.0 Republic of Karelia 8.8 11.6 12.9 14.1 19.5 21.9 24.8 26.9 3.1 Pskov region 3.1 3.6 4.1 7.5 8.0 7.7 10.5 16.8 5.4 North-West federal district 8.2 11.9 14.3 20.6 26.2 35.5 45.8 59.6 7.3 Russian Federation 8.0 10.3 12.2 15.2 20.0 25.3 32.2 46.7 5.8 equipment of chemical industry enterprise JSC “Ammofos” here provides a steady increase in productivity and a leadership among Russian producers of phosphate fertilizers. The introduction of new technologies and constant improvement of products allowed JSC “Vologda plant of constructions and road machines” within 5 years (from 2004 to 2008.) increased labour productivity by more than 2-fold: from 632 to 1,746 rubles per a worker per year.

However, investments in technical upgrading of enterprises are insufficient. According to statistics, [17, 18], in the Vologda oblast from the total inward investment in manufacturing activities to upgrade machinery and equipment in 2007 only 1.2% was directed, electronic and optical equipment – 0.1%, transport vehicles and equipment – 0.017%. The bulk of investment (respectively 33 and 43%) went to the chemical and metallurgical production.

The depreciation of fixed industrial assets, depreciated equipment and technology using is the main reason for a low level of labour productivity in the domestic industry. According to statistics, a technological resource base of

Russia's economy reached the end of its service life more than 45% and has reached a critical level. In the Vologda region in 2007, this figure was 38.5%. Much worse things are in such industries as pulp and paper, textiles and clothing, machinery and equipment, chemical.

According to an annual survey of managers of industrial enterprises of the region carried out by VSCC CEMI RAS, depreciation of fixed assets is significantly higher – more than 55% in 2007. Depreciated equipment and technologies rise low productivity and inefficient use of raw materials and energy and, consequently, lack of competitiveness of production and the economy as a whole.

The high correlation of labour productivity with a measure of electric power shows the importance of this factor on the growth of labor productivity. Improving electric power is essential to accelerate scientific and technological progress, complex mechanization and automation of labor, and, consequently, the condition for the growth of labor productivity. In the Vologda oblast for the period from 2000 – 2007 the greatest growth of electric power

Table 9. Labor productivity in manufacturing activities by economic activities (million rubles per an employee in production per year)

Economic activities Territory 2005 2006 2007 2007 to 2005, % Metallurgy and manufacturing of finished metal articles Vologda region 3.83 3.97 5.03 1.31 Russia 1.56 1.66 1.97 1.26 Chemical production Vologda region 2.35 2.13 2.4 1.02 Russia 1.19 1.24 1.45 1.21 Manufacturing of other nonmetallic mineral products Vologda region 0.91 0.79 0.89 0.97 Russia 0.66 0.74 0.81 1.22 Manufacturing of food products, including beverages Vologda region 0.90 0.93 0.85 0.94 Russia 1.03 1.11 1.13 1.09 Woodworing and production of wood products Vologda region 0.52 0.60 0.66 1.26 Russia 0.41 0.39 0.49 1.19 Machinery and equipment manufacturing Vologda region 0.40 0.46 0.60 1.50 Russia 0.40 0.49 0.58 1.45 Production of vehicles and equipment Vologda region 0.25 0.23 0.38 1.52 Russia 0.69 0.83 0.96 1.39 Pulp and paper production, publishing and printing activities Vologda region 0.43 0.34 0.36 0.84 Russia 0.80 0.91 1.04 1.30 Production of electrical, electronic and optical equipment Vologda region 0.27 0.14 0.33 1.22 Russia 0.51 0.60 0.73 1.43 Textile and clothing manufacturing Vologda region 0.12 0.16 0.13 1.08 Russia 0.20 0.27 0.28 1.40 is marked in the major industrial factories in the Oblast: metallurgical, chemical and mechanical engineering, and, as a consequence, productivity growth in these industries (tab. 9).

The most significant productivity gains are made where technological and organizational innovation is actively carried out. Unfortunately, the innovative activity of enterprises is still low (tab. 10) .

Factors impeding innovation, according to business leaders, is the lack of funds and qualified personnel. The problem of staffing is particularly acute. In the real sector of the region there is a shortage of highly skilled workers, engineers, technicians and managers who are able to reverse the crisis in troubled industries. In 2007 it was noted by 49% of polled executives.

Correlated and regression analysis confirmed the influence of the above factors on productivity.

As a result of the calculations the matrix of correlation coefficients was formed (tab. 11) , which reflects the closeness of the relationship between changes in the level of productivity and such indicators as:

• •    number of people employed in industrial production – a factor which characterizes the availability of labor resources;

• •    residual value of fixed assets – a factor that reflects the economic potential of the en-

• tity that creates the preconditions for increasing the volume of production;

• •    depreciation of fixed assets – a factor that reflects the causes of production downtime, failure to comply with the safety of human life, the causes of low quality products;

• •    fixed investment – a factor and a necessary condition for economic development, which is the aggregate cost to the development, reproduction and purchase of fixed background;

• •    average real wages of workers – a factor motivating employees;

• •    electric power mechanization – a factor that reflects the level of mechanization and automation of labor;

• •    capital-labor ratio – a factor that shows the provision of workers with means of labor.

Correlation analysis has revealed that the rise in labor productivity in industry in the region depends on positive changes in the state of production and technical base of industrial enterprises, increasing of wages and reducing of employment.

Thus, the main reserve of productivity growth at the present stage is the intensification of production, which is to reduce labor costs and the cost of materials and energy per unit of production, improving the use of technology in transport capacity, economical cost and investment of resources, staff with motivation

Table 10. The level of innovation activity of organizations of the Vologda region, % *

Industrial production	2002	2007
Total	14.0	8.3
Manufacturing activities	16.0	9.5
Among them: - manufacturing of food products, including beverages	29.0	10.0
- textile and clothing industry	10.0	18.2
- woodworking and production of wood products	5.0	4.5
- pulp and paper production, publishing and printing activities	–	2.9
- chemical industry	40.0	16.7
- manufacturing of other nonmetallic mineral products	21.0	8.3
- Metallurgy and manufacturing of finished metal articles	38.0	15.0
- production of vehicles and equipment	27.0	10.5
Production and distribution of electricity, gas and water	4.0	5.9
* Without small businesses.

Table 11. The relationship of factors and productivity in the sectors of industry of the Vologda region

Factor	Labour productivity
	Industry in whole	In sectors
		metallurgical	chemical	machine building	food	textile
Residual value of fixed assets	0.97	0.97	0.79	0.30	0.96	0.44
Average real wages	0.93	0.82	0.77	0.96	0.79	0.35
Electric power consumption	0.92	0.64	0.73	0.79	0.61	0.76
Capital	0.87	0.79	0.64	0.70	0,81	0.66
Investment in fixed assets	0.84	0.69	0.28	0.82	0.42	0.32
The number of employed in the industry	- 0.62	- 0.95	- 0.42	- 0.91	0.31	- 0.38
Depreciation of fixed assets	- 0.34	- 0.91	- 0.54	- 0.85	- 0.73	0.30

According to the Chaddok scale relationship between factors is assessed as weak (0.1 – 0.34), moderate (0.35 – 0.55), visible (0.56 – 0 77), high (0.78 – 0.98 ) and very high (0.99 – 1.0).

to by nonfinancial factors. Today in the Vologda oblast has a substantial reserve of productivity growth and the intensification of the use of all factors of production in industries such as real economy and non-material production.

More than half of the managers of industrial enterprises of the Vologda region in the survey pointed out that the level of labor productivity in 2008 compared to 2007 remained unchanged. And enterprises productivity increased by only 36.4%.

In order to increase productivity in the enterprises of the region there is a number of activities. Thus, 72.2% of industrial enterprises in the region use incentives and motivation for staff, which includes monetary incentives (prizes, bonuses, profit sharing), moral (public recognition, empowerment, participation in decision-making, improved working conditions), additional incentives (paid transport expenses, paid corporate travels, providing with work clothes, providing with interest-free loans, etc.).

63% of enterprises achieve productivity increase through skills development, 51.9% – the technological upgrading of equipment, 22.2% – the introduction of energy-saving technologies, 16.7% – introduction of innovative developments.

Another source of labor productivity increase is the use of information and communication technologies (ICTs). As the results of many studies, information technologies, especially knowledge (intellectual capital), in developed countries have really become a very significant factor of economic growth. For example, the significant (an average of 2.5% per year) stable growth of labor productivity in the US in the second half of 1990 was caused precisely by massive investments in information and communication technologies, as well as government support for the Internet. Through the introduction of ICT high rates of productivity was achieved by countries such as Finland, Ireland, Sweden, Canada, Australia [19].

According to Russia's statistics [20] in 2007 in the North-West federal district ICT was used by more than 90% of surveyed firms (tab. 12) . However, taking into account the fact that a large portion of them is limited by the automation of engineering work and accounting operations, we can say that there is significant potential to improve productivity.

In addition to the considered factors the important ones are in improving productivity are more efficient use of human capital, improving the organization of labor, production and management, as well as structural changes in production.

One of the solutions to this problem is the formation of industrial clusters [21]. Thus, the Vologda oblast has the great potential for joining of efforts of metallurgical, engineering and other companies working with metal, i.e.

Table 12. The number of organizations that use information and communication technologies

Regions	2005			2007
	Number of surveyed organizations, units	Those which use ICT		Number of surveyed organizations	Those which use ICT
		units	%		units	%
Novgorod region	1064	1058	99.4	1124	1124	100.0
Republic of Karelia	605	605	100	716	710	99.2
St. Petersburg	3756	3568	95.0	3899	3809	97.7
Murmansk region	1572	1489	94.7	1650	1608	97.5
Leningrad region	1641	1541	93.9	1848	1780	96.3
Arkhangelsk region	1496	1428	95.5	1781	1696	95.2
Kaliningrad region	1396	1285	92.0	1479	1389	93.9
Pskov region	1422	1258	88.5	1518	1409	92.8
Vologda region	2083	1807	86.7	2393	2214	92.5
Republic of Komi	1138	1070	94.0	2221	1835	82.6

Source: Regions of the North-West federal district. Social and economic indicators. Statistical digest. 2008: stat. coll. / Vologdastat. – Vologda, 2008. – Pp. 147.

a cluster “Metallurgy – Metal”. Its base can be the machine-building enterprises, public corporation Severstal, the enterprises of industrial park in Sheksna, as well as objects of innovation infrastructure.

Formation of vertically integrated structures, the leading role in the formation of which should belong to the state, will also help to overcome the de-industrialization of Russia's economy and ensure a fourfold increase in labor productivity [22].

In addition, there is an urgent need to develop state of the federal and regional programs to improve productivity, which should include targets for the development and implementation of practical measures to increase productivity, scientific and methodological support for their implementation, informational reinforcement of the total activities, advice on production accounting, compilation of statistical data [23].

Thus, the solution of strategic objectives of labour productivity growth requires activation of the human factor, rise of educational and vocational level of employees; improving of the training and retraining of workers and specialists in accordance with new requirements.

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