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Wage Reform was a process that took place in the Soviet Union from 1956 through 1962. The reforms took place during the Khrushchev era and were intended to move Soviet industrial workers away from the mindset of overfulfillment of quotas that had characterised the Soviet economy during the Stalinist period.

Under Stalin the majority of Soviet workers had been paid for their work based upon 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. However, the enormous level of bureaucracy that this entailed contributed to huge inefficiencies in Soviet industry. Workers' personal production quotas were also heavily manipulated by factory managers who were keen to protect workers' wages.

The wage reforms sought to remove outdated wage practices and incentivise Soviet workers much more efficiently by making their wages more standardised and less dependent upon overtime or bonus payments. However, industrial managers were loathe to go ahead with actions that would effectively reduce workers, and often ignored the directives, continuing to pay workers high overtime rates. Because of the nature of Soviet industry, where materials were often in short supply and production would often be the result of "storming" practices, the ability to offer bonus payments had often been vital to the everyday running of Soviet industry, and therefore the reforms ultimately failed to create a more efficient system.

Existing system
During the period of Stalinism, the Soviet Union had sought to grow economically and increase industrial production. The size of the Soviet economy had grown enormously during Stalin's period in power. For example, in 1927-8 the sum total of Soviet production of capital goods had amounted to 6 billion rubles. In 1932 production had increased to 23.1 billion rubles. Factories and industrial enterprises had been actively encouraged to "achieve at whatever cost", with a strong emphasis placed upon overfulfilling stated targets and producing as much as possible. For example, the slogan for the first Five-Year Plan had been "The Five-Year Plan In Four Years!", calling upon workers to fulfill the states objectives a year earlier than planned.

In order 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 individual wage payments had 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% of their quota. The wage rate for work would grow as production over this level increased. So, theoretically, if a worker had produced 120% 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%, a higher rate for the first 10% of over production and an even higher rate for the other 10%. 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% of Soviet workers were being paid under such a piece-rate system, therefore the majority of Soviet workers could greatly boost their earnings by increasing their output.

Problems
This method of calculating and paying wages had been introduced at the very first Five-Year Plan and had changed very little since, however, there were problems with this system that caused a great deal of inefficiency. One issue was the vast level of 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 upon factors such as 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). In order 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, would also receive bonuses based upon performance. Factory managers, who did not want their time workers to lose out to their piece-rate colleagues, would very often manipulate output figures in order 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 in order to achieve a higher bonus. They did this not so much out of concern for the workers' personal welfare, but in order to ensure that their factory could run smoothly. The erratic and seemingly arbitrary way that quotas had been set across different industries had led to a large level of uncompleted production in some industries where it was considered more difficult to greatly overfulfill their production quotas. Managers would therefore try to keep quotas deliberately low, in order to attract workers to their factories and be able to meet their targets.

However, even without managerial manipulation, quotas were in fact very often quite low and were easy to overfulfill. Quotas had been lowered during the Second World War in order 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 had began to find itself lagging behind schedule in the output of several key materials including coal, iron and cement. Additionally, increases in worker productivity were 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 would have 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 stated several key changes that would be made to Soviet workers wages. Firstly, basic wages were increased. This would mean 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.

Secondly, 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%.

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 keen 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 would help 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% 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 would usually apply 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% of Soviet workers were paid by piece-rate, down from the 1956 level of 75%. Around half of those to remain on piece-rates continued to receive some kind of bonus payment, however, the progressive piece-rate bonuses were more or less wiped out, with only 0.5% of workers continuing to receive them in 1962.

By 1961, workers' basic wages had risen to about 73% of their total earnings, with piece-rate workers seeing an average of 71% and time workers 76% 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% or less of their quota varied from as low as 5.1% in iron and steel industries, to 31.4% in coal mining. Across Soviet industry as a whole the average level of quota fulfillment fell from 169% before the reform, to 120% 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% between 1959 and 1965, against a plan for growth of 26%. Wage rises during the reform were made up for by increases in industrial productivity. For example, in the RSFSR (Russia) wages rose by 7% between 1959 and 1962, whilst productivity increased by some 20%.

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 would apply 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 succeed in removing some of the peculiarities of the Stalinist era, overall the reforms succeeded more in simply creating new problems for Soviet workers. In many areas large variation in wages continued to exist. In engineering for example, factory managers often ignored wage directives in order to try and attract 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. However, 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 upon local factors such as geological factors or hazard levels, and after the reform they continued to vary wages through manipulation of quotas or rates in order to protect workers' wages.

In other instances, managers actually 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.

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.

Conclusions
Overall the wage reform failed to create a stable and predictable incentives system. However, academic Donald Filtzer stressed that wider issues in Soviet industry and relations between managers and workers are important in understanding the failure. Filtzer cited a myriad of issues in Soviet production that had meant a more formal bonus system was unworkable in the Soviet Union: an irregular availability of supplies that were often of variable quality, an irrational division of labour and a reliance on "Storming" made it difficult to motivate workers through more a conventional payments system.

"Storming" was an endemic practice in Soviet industry. 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 in order 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). Filtzer noted how in such cases it was vital to have the ability to offer additional overtime payments, and even bribes or "palm-greasing" to incentivise workers to meet monthly quotas on time.