Alexey Vedev: “With growing costs of enterprises, the economy as a whole is becoming less effective”

A new round of growth in wages which may follow their rise in the public sector of the Russian economy, is fraught with an increase in the gap between the dynamics of income and labor efficiency. Such concerns were expressed by the Central Bank at the board of directors’ meeting on the monetary policy. According to the released summary, “after some stabilization in past months, labor market tensions have increased again. Unemployment has reached its historic low. Growing labor shortages have emerged again in many industries.”

According to Rosstat’s data, in 2018-2022 labor efficiency increased by 5%. The maximum growth (3.7%) took place in 2021 after pandemic-related restrictions were lifted. However, the next year saw a sharp decline of 3.6% owing to sanctions which affected trade, logistics and raw materials extraction. Real wages fell by 1% in 2022, but rose by 7.8% in 2023, mainly because of budgetary injections into the military-industrial complex.

“The situation we have got now is absolutely classical,” says Alexey Vedev. “Throughout the world, the normal rate of unemployment is 6%. We, with our 3.2% at year-end 2023, could not even dream of it. The labor market is experiencing labor shortages and employers have to increase wages. On the back of enterprises’ rising costs the economy as a whole is becoming less and less efficient. Our labor costs today exceed 50%, and this is a clear harbinger of a recession.”

According to Alexei Vedev, the government should pursue incentive policies in respect of such categories as working pensioners and migrants (with an emphasis on Russian speakers). Payments to the former are practically not indexed and they have to retire. The latter began to leave Russia more often in search of better conditions, and this outflow is associated primarily with the depreciation of the ruble which foreign workers exchange into a convertible currency.