The past three years have certainly been wild ride for Mongolia. Once one of the fastest growing economies in the world according to the World Bank (GDP growth of 17.3% in 2011 – 2nd highest in the world, and 12.6% in 2012), falling commodity prices, as well as tighter government regulation have especially disrupted the growth of the mining industry, contributing to a major drop in nationwide foreign direct investment (FDI). The fallout was immediately felt by the local labor force, especially among less skilled workers.
Following meetings facilitated by Birches Group representatives with local employers in Mongolia earlier this year, we learned two of the country’s biggest employers in the mining sector have reduced their labor force by almost half. The resulting impact on the labor market was to increase the supply of labor available, with a moderation of salary levels. Market data from Birches Group salary surveys confirm the downward trend in market movement between 2013 and 2014.
Salary increases for professional roles fell to 5.1%, from 17% in the previous year. The drop was much steeper for support roles, with increases coming in at an anemic 1.2% compared to 11.6% in 2013. Our survey results reaffirm the widely held belief that for the past two years labor supply has basically outweighed demand, particularly for support positions.
Developments within the last few months have signaled a brighter future. In early May, the Mongolian government and global mining giant Rio Tinto agreed to plans allowing for the expansion of the Oyu Tolgoi mine to commence. With financing for the mine expansion expected to be secured by the end of the year, plans to hire more than 2,000 employees, across all levels, are underway. Two more large mining projects and a 1,100 km railway connecting China and Russia are also in the pipeline, suggesting a shift to an employee-driven marketplace in the near future.
For employers operating in developing markets, volatility is something that should be expected, as markets are very dynamic. Labor markets often react to changes caused by sudden changes in government policy or unpredictable commodity prices; or, it may well be natural disasters or hyperinflation that cause volatility. Having reliable and updated market data on hand is the best response to emerging market trends. Data should concise, easy to digest, and most importantly reflects what’s happening on the ground.
Birches Group publishes salary survey reports three times a year, during April, July and October. For more information about Birches Group surveys in Mongolia or elsewhere, please contact us.