Sectoral Reallocation

0 20 40 60 80 100 2020

2010 2005 2000 1995 1990 1985

11.1 10.1 9.3 30.4 33

4.2 4.9

8.3 14.7 20.1 20.2

8.7

2 1.2

19.9 15.1 11.9 9.3

7.2

9.3 10.6

60.7 60.1 58.7 40.1

51.1 84.5 83.2

(a) Urban

0 20 40 60 80 100

2020 2010 2005 2000 1995 1990 1985

7.1 8.3 28.9

4.1 8.5

32.8 35.5 64.7 47.4

47.7

13.1 11.4

24.8 22.1 11

5.8 6

7 8.3

35.3 34 17.8 17.9 26.5

75.8 71.8

(b) Rural

Figure 3.7: Composition of monthly average monetary household income, urban

Source:NSO database

the 1989 level. The next section examines Mongolia’s employment and settlement patterns to explain the reasons behind these phenomena and how economic and climatic shocks have affected them.

1989 1991 1993 1995 1997 1999 2001 2003 2004 70

80 90 100 110 120 130

Real GDP Number of employed Employment rate

Figure 3.8: Real GDP, number of employed and employment rate adjustments, 1989-2004 (1989=100)

Source: Calculated using data from NSO, Statistical Yearbooks and WDI

the only sector that gained considerable employment was the livestock sector²⁵ (an increase of almost 100 thousand in five years).

The total number of agricultural workers stood at 258.8 thousand in 1990²⁶ of which 147.5 thousand were herders (NSO, 1996). However, the number of herders spiked, reaching 390.5 thousand in 1995 and 421.4 thousand in 2000²⁷. The agricultural sector was one of the biggest absorbers of labour during the transition, where the share of total agricultural employment in- creased from 33 per cent in 1990 to almost half in 1999. Nevertheless, it has been declining since the early 2000s (see Figure 3.9, Table 3.3).

Most other sectors experienced declines in 1990–1995, except wholesale and retail trade and financial services. The wholesale and retail trade sector²⁸ grew steadily before accelerating in the early 2000s but experienced another decline during the GFC years. In 2009 and 2010,

25Average shares of herders in the total number of agricultural sector employment between 2005 and 2015 was 90%26 Employment numbers for the early 1990s have several discrepancies. For example, according to the 1991 Statistical Yearbook (1992, p.9), there were 180.9 people working in the agricultural sector including 2.6 thousand in forestry. However, the numbers have changed since then to 258.8 thousand (NSO, 1993).

27Number of herders indicate the number of people engaged in livestock herding, but not necessarily employed, which might explain the slightly higher number of herders reported.

28Trade, procurement and material-technical supply on earlier versions of the National Statistical Yearbooks

1989 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2012 40

100 160 220 280 340 400

Total employed Agriculture Industry Construction Wholesale & trade*

Figure 3.9: Sectoral adjustments (pre-transition year 1989 as baseline)

Source: Calculated using data from NSO, Statistical Yearbooks

*-Trade, Procurement and Material Technical Supply on earlier versions of statistical publications

employment in the wholesale and trade sector dropped by 23.6 thousand, despite the positive number between 2005 and 2010, as in Table 3.3, which is obscured by the growth for the rest of the period.

The sector with the biggest drop in employment in the first five years was the education sector, almost halving in 5 years. The construction sector as well dropped over 55 per cent. Trans- portation, storage and communications, and the industry sectors decreased by 49.6 thousand, experiencing 45 per cent and 18 per cent declines, respectively. The health sector also shrank by over 11 thousand workers (23 per cent decline). The above four sectors cumulatively shed almost 125 thousand workers. The education and health sectors experienced the adverse effects of transition in the early years due to budget cuts and drops in real wages, increasing school dropouts and maternal mortality²⁹.

29Government investment in education during the socialist period was relatively high, by 1990 the total expen- diture on education accounted for 17.6% of government expenditure and 11.3% of GDP. However, between 1990 and 1992, the education expenditure was cut by 56 per cent. By 1993, the allocation to education had been reduced to 3.8% of GDP (Wu, 1994, p.xv). By 1993, ‘an estimated 23 per cent of compulsory school-age children were not enrolled in school. There were about 100,000-120,000 dropouts in 1993. In 1994, primary school dropouts

1990 1995 2000 2005 2010 2015 2020 Agriculture, forestry, 258.8 354.2 393.5 386.2 346.6 327.6 276.5 fishing and hunting (95.4) (39.3) (-7.3) (-39.6) (-19.0) (-51.1)

Industry 131.6 108.1 91.0 113.9 119.1 145.4 164.0

(-23.5) (-17.1) (22.9) (5.2) (26.3) (18.6)

Construction 66.1 29.5 23.4 48.9 48.8 88.1 77.3

(-36.6) (-6.1) (25.5) (-0.1) (39.3) (-10.8)

Wholesale and 54.6 64.8 83.9 141.9 146.1 178.2 166.6

retail trade (10.2) (19.1) (58.0) (4.2) (32.1) (-11.6)

Transport, storage 57.7 31.6 34.1 42.5 91.0 88.7 85.3

and communication (-26.1) (2.5) (8.4) (48.5) (-2.3) (-3.4)

Financial and 3.9 8.3 6.8 16.1 15.1 23.8 29.4

insurance services (4.4) (-1.5) (9.3) (-1.0) (8.7) (5.6) Public administration 32.1 31.1 34.7 46.7 61.0 68.1 83.4 (-1.0) (3.6) (12.0) (14.3) (7.1) (15.3)

Education 86.8 48.4 54.4 58.8 85.3 89.1 110.7

(-38.4) (6.0) (4.4) (26.5) (3.8) (21.6)

Health 49.2 38.1 33.6 39.5 40.3 38.2 60.2

(-11.1) (-4.5) (5.9) (0.8) (-2.1) (22.0)

Other service 33.9 26.6 29.0 26.7 21.4 20.2 29.8

activities (-7.3) (2.4) (-2.3) (-5.3) (-1.2) (9.6)

Other 8.9 26.9 24.6 47.2 58.9 83.9 79.8

(18.0) (-2.3) (22.6) (11.7) (25.0) (-4.1)

Total 783.6 767.6 809.0 968.4 1,033.6 1,151.3 1,163.0

(-16.0) (41.4) (159.4) (65.2) (117.7) (11.7) Table 3.3: Changes in number of employed, by economic sectors (in thousands), 1990-2020

Source: Calculated using data fromMongolia in 100 years(2012); and NSO database for 2015 and 2020.

Employment in the construction sector managed to recover quite rapidly since 2002 to reach 66.8 thousand in 2008, surpassing the 1990 level but dropped to 49.6 thousand due to the GFC the following year. The construction sector is highly responsive to the business cycle. Although the decline was not as drastic, the industry sector surpassed its pre-transition level only in 2012.

Reinert (2004, p.158) wrote, “In Mongolia 50 years of the industrial building was virtually annihilated over only four years, from 1991 to 1995, not to recover again”.

At this point, it is fruitful to look at how privatisation contributed here. First, if we consider employment in the agricultural sector, the reasons behind the huge increase were the dissolution of state farms and negdels and the privatisation of livestock in the early 1990s. Privatisation of state assets was one of the key reforms of transition, and the programme was to be carried out in three phases. In the first phase, according to Jermakowicz and Kozarzerski (1996), plans were made to privatise by the end of 1992:

1. Eight hundred and four large enterprises, mainly in the industry, construction, transporta- tion, and trading sectors (681 were sold).

2. 3750 smaller enterprises predominantly in the retail, trade, and small manufacturing sec- tors, including restaurants, small factories, shops, and retail outlets (3300 were sold);

3. The agricultural privatisation that included agricultural assets, livestock and state farms (790 negdels and state farms were privatised).

By mid-1992, most of the second and third privatisation sub-categories were complete. The share of privately owned livestock rose from 28 per cent in 1989 to 90 per cent in 1993 (NSO, 1996), explaining the large increase in agricultural employment around that time. However, the privatisation of large-scale enterprises was delayed until early 1992 but picked up later on, and by mid-1993 three quarters were complete, before slowing down again in 1994. This explains the

numbered 10,465 and secondary school dropouts 12,588’. The dropout rates were higher in rural areas and among older boys (Burn & Oyuntsetseg, 2001, p.29). ‘Maternal mortality rates have deteriorated over the transition, from 119 per 100,000 live births in 1990 to 157 per 100,000 live births in 1998’ (Burn & Oyuntsetseg, 2001, p.13)

relatively sharp drop in industrial employment in 1993. In short, the lion’s share of privatisation in the country was completed throughout the first phase in the 1990s.

An interesting observation can be made when considering the differences in the job losses in the construction and industry sectors. Despite ambitious privatisation agendas, the state- controlled the so-called strategic enterprises in the industrial sector, including mining, transport, and utilities; hence, moderate job losses. Although the industry sector (including the construc- tion sector) lost over 60 thousand employees in the first five years, almost 61 per cent were from the construction sector alone.

According to the World Bank study (1996), out of 705 large and small enterprises privatised in the industry sector, 342 (48.5 per cent) were in construction, making it a private enterprise- dominated sector (62 per cent) contributing 2 per cent of GDP. However, 36 per cent of the rest of the industry sectors were privatised and contributed 32 per cent of the GDP. This reveals the state’s reluctance to privatise ’strategic enterprises’. Regarding the possibilities of labour hoarding and underemployment, the study suggested that over-staffing, early retirement, and shortened working hours were tolerated in the remaining state sector.

Anecdotal evidence suggests that most separations were voluntary. The consumer price index rose by ‘more than twenty times between January 1991 and January 1994. The average wages and salaries in the public sector increased by only eight times, justifying voluntary separations.

Thus, public-sector workers experienced a loss of about 60 per cent of their real salaries during those three years’ (Ginneken, 1995, p.48).

In conclusion, despite the rapid privatisation of state assets, enterprise restructuring was slower than anticipated, and labour hoarding occurred in the remaining state sectors. Notably, among the strategic enterprises that remained state-owned, many were Russian-Mongolian joint-stock companies, such asErdenet Mining Corporation,Mongolrostsvetmet(formally,Mongolsovtsvet- met), andUlaanbaatar Railway, some of which remain as such to this day. Therefore, undeni-

ably, Russian management approaches or reluctance to respond to market forces independently were all at play to tilt the management decisions within those enterprises.

So far it is safe to say that although total employment did not decline vastly following the market transition in Mongolia, there have been substantial shifts within the economic sectors.

Sizable declines in sectors such as education, health, transportation, and industry, especially construction, have been masked by a vast increase in employment in the agricultural sector. It is also important to note that even though official unemployment rates remained low, the number of people who exited the labour force and some of whom entered the budding private sector informally have been equally significant.

The next section looks at how this changing labour market dynamic has been reflected in population settlement patterns across urban, and rural regions.