No reason to substantially increase civil servants’ salaries unless their headcount is optimized
The problems of pumping up the federal budget didn't prevent the Ministry of Finance of Russia from envisaging a 2.6-fold wage rise for civil servants in Russia. According to the Fiscal Policy Guidelines1, the draft federal budget for 2014-2016 provides for allocation of Rb 135bn (Rb 45bn annually) to increase wages of federal civil servants. This measure is aimed at enhancing competitiveness of civil servants' salaries. According to President Putin's demand2, this measure should be aimed at enhancing competiveness of civil servants' salaries.
First of all, it should be noted that the economic theory supposes that state administration costs fall under the category of expenditures which have a counter-productive effect on economic growth3. We repeatedly pointed out that competitiveness of the Russian economy in the global market and high (stable in the long-term perspective) economic growth rates should be achieved by enhancing the quality of institutions and the effectiveness of government expenditures. However, in our opinion, such an increase in wages of civil servants can hardly be an efficient measure to stimulate economic growth amid current budget hardships and the threat of impending economic recession in the upcoming fall.
It should be noted that the wage rise itself is not an evil, because a priori it is intended to provide civil servants with better incentives to increase their performance. However, Fist Deputy Minister of Finance Tatyana Nesterenko was absolutely right when she said that "beyond 2016 civil servant wages only can be increased though optimizing their headcount, otherwise the federal budget would face a much heavier load". Furthermore, no decisions to optimize the civil servant headcount in Russia are planned for a short-term period.
That said, we believe that such a substantial (2.6-fold) increase in civil servant wages in Russia without optimizing the civil servant headcount and enhancing their performance effectiveness, may do nothing but interfere with the fulfillment of federal budget expenditure obligations and, as a consequence, add to the hardships in the Russian economy.
Kazakova M.V., PhD in Economics, Head of Economic Development Department
1 http://www.minfin.ru/common/img/uploaded/library/2013/06/ONNP_2013-06-05.pdf
2 The Decree of the President of the Russian Federation No. 601 dd. May 7, 2012 "On the Guidelines for the Development of the Government Administration Framework".
3 This thesis is supported in the following publications: Lucas (1988), Aschauer (1989); Barro (1990); Tanzi and Zee (1997), Barro (1991, 1996), Barro, Lee (1993), Barro, Sala-i-Martin (1994), Alesina, Ardagna, Perotti, Schiantarelli (1999), Devarajan, Swaroop, Zou (1997), Feldstein (1996), Rodrick (1998) and many others.