Russia’s Working Poor

Employed and Poor
Andrei Bespalov
Takie Dela
December 13, 2017

According to official statistics, at least ten million Russians work hard all their lives but cannot escape poverty. 

Russia has no clear criteria for poverty. The concept is absent from Russian legislation. There are poor people throughout the world, but not in Russia. We vaguely define them as “low income,” meaning people whose income is below the subsistence level. Each region of Russia has its own subsistence level. For example, for a person of working age to make it for a month in Omsk Region, he or she needs at least 9,683 rubles [approx. 140 euros]. In Moscow, the minimum income is twice as high: 18,472 rubles [approx. 267 euros]. If your income is lower than the officially approved subsistence level, you are living below the poverty line. True, this in no way mean you cannot be paid less this same minimum for your work. You can indeed be paid less: if your monthly wage exceeds the minimum wage at least by one kopeck. Currently, the minimum monthly wage in Russia is 7,800 rubles [approx. 113 euros].

Story No. 1: Olga
We imagine you have go looking for poor people far from Moscow, and the farther you get from Moscow, the more flagrant poverty you will encounter. It is not true. There are large numbers of people living below the poverty line in the capital. I should emphasize that, in this case, we are talking Russian nationals, not about migrant workers from the former Soviet republics.

Take Olga. She works in a lab at Moscow Medical University. In her fifteen years there, she has risen from senior lab assistant to head of the lab. Olga’s monthly salary is 12,000 rubles [approx. 173 euros], and it is her entire income.

True, she gets the occasional bonus, but they come “a little more often than once in a lifetime.” Ordinary lab employees are paid 11,000 rubles a month [approx. 159 euros]. Such salaries are hardly a rarity in Moscow.

Olga was educated as a programmer. She graduated from Bauman Technical University, but she has not worked as a programmer for a long time. She believes she cannot catch up and has lost her qualifications. Olga worked as a programmer before her children were born. Her family had enough money for everything, and besides, she had the opportunity to earn money part-time. When her maternal leave was up, she was unable to go back to her old job: her department has been disbanded. She was able get the job in the lab at Moscow Medical. Olga likes everything about the job—her colleagues respect her, and her work team gets along well with each other—except the salary. Management occasionally permits her to work from home. This is good for Olga: she does not have to spend money on commuting. (Olga lives in Moscow Region, not in the city.) This comes to around 300 rubles [approx. 4 euros] a day for the trip to the city and back on the commuter train and a round trip on the subway to the university.

When her children were small, Olga did not try and find better-paid work, and when they were older, she tried, but was turned down everywhere she applied. To her surprise, she realized no one wanted to hire a woman in her forties.

“First, you can’t find work because of the children, who are constantly ill, and then you can’t find work due to your age. Although what age are talking about? I’m forty-five!”

Olga had wound up in the category of people with no prospects. The only place she could get a job was a school. Olga worked there for several years before quitting. She had never been offered a full-time position, and her monthly salary of 6,000 rubles [approx. 87 rubles] was only enough to pay for her commute.

“I don’t want to leave these folks. It’s easy working with professors. They are quite cultured, decent people. It would be a pity to quit the job. I feel I’ve become a highly qualified specialist over the last fifteen years,” said Olga.

If it were not for her husband, a programmer, she would have a hard time feeding them and their two children. The family of four’s overall income is above the subsistence level, if only by a little. It comes to around 80,000 rubles [approx. 1,155 euros] a month. (The per capita subsistence level in Moscow is 18,472 rubles, meaning Olga and her family make around 7,000 rubles more in total than the subsistence level.) It was their good fortunate both her sons were admitted to university as full scholarship students. Olga and her husband would definitely not have been able to pay their tuition.

Olga’s family took out loans to improve their living conditions. They started out in a room in a communal flat and, after several steps, moved into their own two-room flat. However, they had to rent housing for three years, since construction of their apartment building had been postponed. Renting meant additional expenses. Subsequently, Olga had to take oout a loan to fix up the flat in order to move in as quickly as possible. That was five years ago. Of the original loan of 500,000 rubles, they still have 300,000 rubles [approx. 4,300 euros] to pay off. The monthly minimum payment is 20,000 rubles [approx. 290 euros].

In her free time, Olga tries to earn extra money by knitting. She says she is very good at it. But she is unable to supplement her salary by more than 4,000 or 5,000 rubles a month, and this happens extremely irregularly. Olga says a master knitter would have to work all month without taking a break to earn that kind of money. Everyone likes the things Olga knits, but people are willing to buy them if they do not cost more than mass-produced Chinese goods, that is, they are willing to pay the price of the yarn. Olga is not ready to give up her job at the university.

It’s Unique
The poverty experienced by employed people harms the economy and hinders its growth. This was the conclusion reached by the Russian Government’s Analytical Center in a report published in October 2017.

“The poverty of workers generates a number of negative economic and social consequences, affecting productivity and quality of work, shortages of personnel in the production sector, especially manual laborers, the health of the population, and educational opportunities,” wrote the report’s authors.

Olga Golodets, deputy prime minister for social affairs, has spoken of the fact that the working poor have no stake in increasing productivity. Judging by a number of recent speeches, the authorities are aware that grassroots poverty threatens the country. Golodets called poverty among the working populace a unique phenomenon in the social sector. A uniquely negative phenomenon, naturally.

Story No. 2: Nadezhda
Nadezhda works as a history teacher at a technical school in Barnaul. She has been teaching for twenty-seven years, and her monthly salary is 12,000 rubles [approx. 170 euros]. Nadezhda has been named Teacher of the Year several times. The regional education and science ministry awarded her a certificate of merit for “supreme professionalism and many years of conscientious work.”

Nadezhda works with a cohort of students that includes many orphans and adolescents with disabilities: the visually impaired, the hard of hearing, and the deaf and dumb. It happens that her class load is as much as eight lessons a day.

Nadezha and her eleven-year-old son share a room in the technical school’s dormitory. Nadezhda has been on the waiting list to improve her living conditions for fifteen years.

“Last year, I was ninety-fourth on the list. This year, I’m ninety-first. At this rate, I can expect to get a flat in thirty years or so,” she said.

Nadezhda thought long and hard about applying for a mortgage, but she decided against it, although the bank had approved a loan of one million rubles [approx. 14,500 euros]. But what income would she have used to pay back the loan, when the monthly payment would have been 21,000 rubles?

In Altai Territory, where Barnaul is located, 12,000 rubles is above the subsistence minimum, which has been set at 10,002 rubles for the able-bodied population. In addition, the state pays Nadezhda’s son a monthly survivor’s pension of 8,300 rubles after the death of his father. Officials cite this as grounds for rejecting her request that her son should receive additional social benefits. The family’s monthly budget is 20,000 rubles, so they should be living high on the hog from the official viewpoint, apparently.

In 2013, Nadezhda suffered a severe concussion involving partial loss of hearing and eyesight. She was struck by a student high on drugs, she said. She spent over two months in the hospital. Ever since then, she has had to take pills that run her 3,000 rubles a month.

“Working with classes in which there are many orphans is not easy at all. They demand your constant, undivided attention. When I say ‘demand,’ I mean ‘demand,’ and they get that attention. But then conflicts arise with the parents of other children: the class doesn’t consist entirely of orphans. They say I don’t give their kids enough attention.”

Over the course of her life, Nadezhda has never been able to earn enough money to buy a standard 600 square meter dacha plot. Thanks to her former father-in-law, however, she grows vegetables on his plot.

“I hear the call to be a patriot from every radio, TV set, and kitchen appliance. What are you going on about, guys? I have been humiliated my entire life, paid crumbs for a difficult, responsible job. I’m hit on the head by students, and they go unpunished. I’m told to quit if it doesn’t suit me: no one is holding me back. They tell me they will find a way to evict me from the dormitory, although they are unlikely to succeed as long as my son is a minor. I’m a teacher of the highest category, with a certificate of merit from the education ministry. Our family income exceeds the minimum subsistence income by 700 rubles, meaning that officially we are not poor. Thank you very much, it makes life so much easier.”

A Trend
Since 2005, the poverty level in Russia has decreased threefold, note the authors of the study. At the same time, they write, “We cannot recognize as normal circumstances in which over ten million employed people have incomes that do not allow them to provide decent living conditions not only for themselves, but for their families.”

The researchers at the Russian Government’s Analytical Center have noticed a trend in recent years. There have been more people working in needy families, but “this has not vouchsafed their exit from poverty.”

Story No. 3: Igor
Igor Kurlyandsky, a PhD in history and senior researcher at the Institute of Russian History of the Russian Academy of Sciences, cannot be categorized as belonging to the working poor. His monthly salary exceeds the minimum subsistence income for someone living and working in Moscow by 600 rubles. His monthly after-tax income is 19,300 rubles [approx. 279 euros]. There are freelance jobs, of course, but they are irregular and do not change Igor’s circumstances for the better.

“Generally, the salaries at the institute are pitiful. Doctors of Science and senior employees are not paid much more than I am, three or four thousand rubles more,” Kurlyandsky said.

FANO (Federal Agency for Scientific Organizations) is supposed to pay quarterly bonuses based on performance indices, for example, academic publications. But this year, according to Kurlyandsky, FANO has not paid out any of these bonuses, and it has canceled old bonuses as well.

“It’s wrong to demand that scholars publish frequently. They might work for a year in the archives, collecting material for future academic articles. Or they might take several years to write a book. I worked for four years on a book about the relationship between the regime and religion during the Stalin era. I will not be paid a fee for the book. I might get a salary bonus for it from FANO. But whatever it is, if you divided it by four years, it would amount to kopecks. The institute has nothing to do with selling books. Authors earn nothing except complimentary copies.”

According to Kurlyandsky, the Institute of Russian History, one of the principal historical research institutions in Russia, with many wonderful scholars on its staff, is itself a beggar.

“It literally has no money for anything. The state hardly finances it. Of course, for many years, its fellows can travel for business only at the expense of host institutions.”

“If memory serves me, the last time researchers got a raise was around fifteen years ago. Life becomes more expensive, but our salaries stay the same. Over this period there were several spikes in inflation, but our salaries were not indexed. I have to skimp on lots of things,” Kurlyandsky confessed.

Where Are There More Poor People?
If you look at the situation by sector, the majority of the working poor are employed in housing services and utilities, education, culture and sports, agriculture, forestry, and a number of other sectors. The sectors with the fewest working poor are the resource extraction industries, finance, public administration, the military-industrial complex, and social security administration.

Generally, the statistics say that, since 2005, the number of working poor has decreased from eight million to two million, and the percentage of poor people from 24.4% to 7.3%, and this has occurred mainly due to the private sector, not the public sector.

Story No. 4: Svetlana
Forty-four years old, Svetlana works as a senior librarian. She arrived at the library immediately after graduating from a teacher’s college. Twenty years on the job, Svetlana has a huge amount of experience and a monthly salary of 8,300 rubles [approx. 120 euros].

“When I was a student, I imagine my future job as a perfect idyll: silence, lamps glowing on the tables, people reading, and me bringing enlightenment to the masses. It’s funny to remember it. I didn’t think about the money then, of course, but nowadays it’s the thought with which I wake up and go to sleep. My husband teaches at a university and makes a little over 14,000 rubles [approx. 200 rubles] a month. We have two sons in school. My dad is quite unwell, and my husband’s mom and dad are also quite ill. So we earn our 23,000 rubles a month and divide it among seven people. Among seven people, because my dad and my husband’s parents have pitiful pensions, public pensions, despite the fact they worked in factories for thirty years. It’s my perennial puzzle. What should we buy? Medicine for the elderly? Shoes for the kids? Pay off part of the debt we owe on the residential maintenance bill? Buy decent trousers for my husband? I haven’t given myself a thought for a long while. Honestly, I wear blouses and skirts for ten years or so before replacing them. I can’t recall the last time I bought cosmetics.

“Earlier, we bore our poverty more easily, maybe because we were younger. So what there was nothing to eat with evening tea? Who cared that we dressed modestly? It was a style of sorts. We tried to make sure the children had better shoes and clothes.

“The most terrible thing right now is not that we are paid kopecks. My husband used to believe we would struggle through, that we would work off our debt. But then he burnt out. He forces himself to go to work. The children are perpetually dissatisfied, and our parents are always ill. Only I don’t pretend it’s okay, that everyone lives like this. I have caught myself sizing up how people are dressed on public transport, and at the store I look into their baskets. What fruits, meat, and wines they buy! We are always eating buckwheat groats with bits of chicken and meatless soups. I hate the dacha, but it really does put food on our table.

“I have no prospects. I won’t live long enough to be promoted to head librarian, because our head librarian is my age. I lack the strength for side jobs. My real job is not easy: there is lots of scribbling involved. Plus, we divvied up the jobs of the cleaning woman and  janitors, so we either mop the floor or chop ice on the pavement. I crawl home barely alive. Frankly, I don’t see how my life could change, and I’m used to it. What worries me is my sons’ future. I’m horrified when I think that soon they will be applying to university. What if they don’t get full scholarships? We definitely don’t have the money to pay for their educations. So it turns out we have doomed our boys to the same poverty.”

It’s Shameful to Admit
Nearly everyone with whom I spoke when writing this article asked me not to use their real names and places of work. They all made the same argument. First, it is shameful to admit you work for mere kopecks. Second, their bosses would be unhappy and punish them for “disclosing information discrediting the organization.” Many of my interviewees actually had signed such non-disclosure agreements, entitled “Code of Ethics,” at work.

All illustrations courtesy of the artist, Natalia Gulay, and Takie Dela. Translated by the Russian Reader

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Labor ministry: about 13% of Russian population live below poverty line
TASS
December 28, 2017

The number of citizens with incomes below the minimum cost of living is around 20 million people, according to the Russian labor minister

The incomes of about 13% of Russia’s population are lower than the minimum cost of living, Labor Minister Maxim Topilin said in an interview with Rossiya 24 TV channel.

“According to current estimates, the number of citizens with incomes below the minimum cost of living is still around 20 million people, which is 13–13.5% of the country’s total population,” Topilin said.

He noted this is “at least an unpleasant indicator.” The minister attributed this figure to price increases in the last two years and, as a result, the growth of the subsistence minimum.

Topilin stressed the government has already taken the first steps to reducing the number of people with incomes below the subsistence minimum. He recalled that under a law that was adopted recently and would come into effect on January 1, 2018, the minimum wage would rise to 85% of the minimum subsistence level, and to 100% on January 2019.

“For the first time in the history of the Russian Federation, we have managed to bring the minimum monthly wage to the minimum subsistence level,” Topilin said.

NB. This article was lightly edited to make it more readable—TRR.

“Life Is Very Difficult for People”

“Life Is Very Difficult for People”
Yelizaveta Mayetnaya
Radio Svoboda
November 30, 2017

The announcement first appeared on the doors of a cafe in St. Petersburg, and then on the social media networks: “Olivier salad, kharcho, vegetable ragout with chicken, compote or ale, bread. 200 rubles. Free of charge to veterans and impoverished pensioners.” The whole town learned about the charity campaign literally within a few days, and old people flocked from all ends of the city to enjoy the free lunch special.

No one asks for any letters, verifying a person’s income. Pensioner ID cards are not required, either. You just have to sit down at a table and you will be fed.

Czech Yard, the cafe that will not let pensioners go hungry, is a family business. 25-year-old Alexandra Sinyak, the cafe’s co-owner, came up with the idea for the charity campaign.

“It all started with an old man who came into eat, but had little money on him. My husband was working in the cafe that day. He felt sorry for the man and said that lunch specials in our cafe would be free to pensioners,” recounts Sinyak. “The old man came for lunch every day for three weeks or so. We thought we should be feeding all the old people in our neighborhood, and not once, but on a permanent basis. We hoped our colleagues would support us, and one or two cafes that fed old people would pop up in each district. We did not imagine, of course, that they would come from all parts of the city to our cafe, but life is clearly very difficult for people. They spend forty minutes, an hour traveling one way to come here. We feed everyone. We do not turn anyone down.”

At first, Sinyak recalls, for some reason the old women brought their pension receipts along with them. The amounts listed on them were 6,200 rubles, 8,000 rubles, and 10,000 rubles. [That is, these women receive, at most, a pension of 143 euros a month.] They brought other receipts as well, such as the receipts for their apartment maintenance bills, which contained almost identical sums. [In fact, the amount of my latest apartment maintenance bill is 6,285 rubles and 20 kopecks. It tends to be lower by two or three thousand rubles in the summer months, when the centralized heating system is shut off—TRR.] Many of them have adult children who are employed, but they cannot help their own old folks, because they are barely making ends meet themselves.

According to Rosstat, around two million employed Russians are paid wages below the subsistence level. If we account for the fact that this money is also spent on other family members, the number of employed but impoverished Russians is over twelve million people or 16.8% of the population, according to calculations made by experts at the Russian Federal Government’s Analytical Center. Analysts at the World Bank have argued that the percentage of economically vulnerable people in Russia is over fifty percent.  According to a World Bank report, the proportion of Russians with a daily income of less than $10 has risen to 53.7%, while 13.8% of Russians spend less than 5$ a day.

Sinyak has seen her share of employed poor people in hospitals and rehabilitation centers. Four years ago, she and her husband gave birthto a premature baby. Doctors told the couple the girl would not be able to walk, talk or see, and they could not even dream of sending her to school. The Sinyaks threw all their efforts into making their baby daughter well. Now she has a slight limp, but is otherwise a normal child.

“We organized charity concerts for the children, and my husband and I simply gave their parents money because we really wanted to help them,” says Sinyak. “Now we are thinking about organizing a New Year’s party for the old people.”

At first, they posted the announcement about the free lunch specials on the cafe’s front door, but only one person showed up. It was only after Sinyak posted the announcement  on social media sites that the whole city discovered her and her husband’s lunches. Now they serve at least twenty-five free lunch customers daily.

То самое объявление

The initial announcement outside the cafe: “Dear patrons! The restaurant invites needy people of pension age and veterans to enjoy free lunches daily from 10 a.m. to 1 p.m.” The post on the VK social network reads, “Czech Yard Cafe at 73 Sixteenth Line. All veterans and elderly people can eat lunch for free from noon to four p.m. […] We will support all cafes that can afford to do it. There are three of us for the time being. We are reposting this. Maybe a whole bunch of cafes in every district of the city will join us.”

One of their customers is 66-year-old Lyubov Volkova. She lives nearby, but she ordinarily does not walk on the side of the street where the cafe is located. She saw the announcement on VK. She spread the word to all her girlfriends in the neighborhood so they could lunch together.

“The lunch specials are a tremendous support to me. I worked my whole life. I have the title of veteran worker, but my monthly pension is 10,200 rubles, and the maintenance bill for my two-room flat is at least 7,000 rubles during the winter. I’m left to my own devices,” says Volkova, sighing heavily. “The electricity has been shut off for non-payment, and I have 15,000 rubles in unpaid fines, but I have not paid them, because I do not have the money to pay them. There are lots of people like me in our district. The people at the housing maintenance service and the electric company have become insolent. They constantly raise rates. They could not care less whether we can pay their bills or not. It is a good thing that Alexander appeared on the scene. Her cafe is charming and serves tasty food, and it is just nice to come here.”

Александра Синяк с мужем Евгением и пенсионеркой Любовью Волковой

Alexandra Sinyak, her husband Yevgeny, and pensior Lyubov Volkova

Volkova leads a rather active lifestyle. She is a member of the human rights public monitoring commission, inspecting pretrial detention centers and prisons, and she also volunteers at several public veterans organizatons. But all this work is unpaid.

“Most of the work in Russia is done by migrants. Our own people struggle to make ends meet, and they cannot get jobs. I have two sons, but they themselves have to squirm to feed their families. And I have lots of girlfriends: we left jobs at research institutes in the nineties to trade on the streets in order to raise our children. The situation was no better: everyone’s pensions were tiny. You know, I really love Russia, but everything that is happening makes me terribly sad. I want to go back to the Soviet Union. There was stability and calm then. Sure, we did not live high on the hog, but nor did we go begging. We had enough to pay for the essentials.”

Igor Bukharov, president of the Federation of Restaurateurs and Hoteliers of Russia, says the vast majority of restaurateurs have been feeding the needy for many years, but they do not talk about it.

“Societies for disabled people ask us for help, as do war veterans, as do veterans of military operations, as do the orphanages. Who doesn’t ask us for help?! Some ask to be fed breakfast, some ask to be fed lunch, some ask for help with charity suppers, and I have never heard of anyone being turned down,” claims Bukharov. “Generally, I think helping the needy is everyone’s personal affair, and we should not talk about it.”

For the time being, according to Alexandra Sinyak, they have been contacted by one only restaurant, in Sestroretsk, about arranging lunches on a permanent basis, rather than a one-off basis, and businessmen have turned up who are willing to supply their cafe with produce. Municipal councils in some large cities arrange free lunches for pensioners, but there are waiting lists, and the pensioners have to provide documented proof of their neediness. On the other hand, you can then eat free twenty-one times per quarter, says Lyubov Volkova.

Social organizations also provide assistance in the form of produce and groceries. For example, the Rus Food Fund has distributed 20,000 tons of produce and consumer goods to the needy during the five years it has operated. Right now, for example, the fund has been collecting “Food for the Backwoods” in time for the New Year’s holiday. The food will be delivered to the poor and lonely who live in villages in seven regions. Fifteen thousand people will receive assistance.

Anna Kirilovskaya has taken charge of so-called foodsharing in St. Petersburg. Volunteers collect food from various businesses, and distribute it for free to the needy. Originally, Kirilovskaya explains, the idea was to save edible produce from being discarded. The project now employs around 400 volunteers. The produce is collected almost daily, and thirty businesses give away their leftovers on a constant basis. According to the project’s website, over 113,000 kilos of produce have been saved in the different regions where foodsharing exists and there are teams of foodsavers.

“The volunteers decide themselves what to do with the food. They can take unsold soup from a cafe and pour it into sixty packets, freeze them, and eat them for the next two months. But I know that many of our volunteers take care of neighbors, families with lots of children, and old people. Some volunteers will take leftover meat that has been given to them, turn them into cutlets, and hand them out to the people they look after, but we get the most donations from vegetable warehouses. We mainly distribute fruits and vegetables,” says Kirilovskaya.

According to Kirilovskaya, the businesses most willing to help are owned by green-minded people who promise their customers fresh products and goods.

“Imagine how bakers at a private bakery feel when they have to throw their unsold goods into the trash in the evening?” Kirilovskaya wonders. “But everyone, employers and employees, likes giving away food to the needy. By the way, employees appreciate their employers more when they have this considerate attitude to their work.”

Alexandra Sinyak says she does not know what to do if hundreds of people come every day for their lunch specials, and whether she and her husband can continue to feed them at their own expense for very long.

“We decided we would do it as long as we were able,” she says.

In the coming days, she plans to make the rounds of the cafes in neighboring districts to personally persuade their owners to provide similar lunches to their own local pensioners. Sinyak is certain that someone will respond to her request.

Lyubov Volkova argues that Sinkyak should keep a count of the people who come for lunch, and if there are really too many of them, to refuse to serve everyone.

“I would not want these wonderful, kind folks to end up beggars themselves because of us poor pensioners,” she says.

Translated by the Russian Reader. Thanks to Comrade Preobrazhenskaya for the heads-up

Alexei Gaskarov: A 25,000 Ruble Minimum Monthly Wage Is a Good Idea

Rank-and-file Russians deserve a mandatory minimum wage, argues Alexei Gaskarov, and it would be good for the economy. Street scene near Haymarket Square in Petersburg, 4 February 2017. Photo by TRR
Rank-and-file Russians deserve a mandatory minimum wage, argues Alexei Gaskarov, and it would be good for the economy. Street scene near Haymarket Square in Petersburg, 4 February 2017. Photo by TRR

A 25,000 Ruble Minimum Monthly Wage Is a Good Idea
Alexei Gaskarov
Snob
February 8, 2017

How would a high minimum wage help Russia turn into a developed country? Why is Alexei Navalny’s campaign pledge not stupid at all? Financial analyst Alexei Gaskarov shares his opinion. 

What’s Wrong with Russia?
Russia ranks at the very top in international ratings of social inequality.

There are different means of combating inequality, including progressive taxation and raising unemployment benefits. But as soon as someone proposes a solution to the problem, he is immediately dubbed a populist.

This fate has befallen Alexei Navalny. In his presidential election program, he proposed setting a minimum wage of 25,000 rubles a month [approx. 400 euros at current exchange rates].

Is This Populism?
Let’s see how the structure of Russia’s GDP would change if this measure were implemented under current macroeconomic parameters. And let’s compare Russia’s GDP with the GDPs of the G20 countries.

GDP is the market value of all goods sold and services rendered in the country during the year. Costs are always someone’s income, so GDP can be calculated not only in terms of consumption, investment, government expenditures, and net exports but also in terms of income.

STRUCTURE OF RUSSIAN GDP IN TERMS OF INCOME IN % (PER ROSSTAT)
2015 2016 2017
GROSS DOMESTIC PRODUCT 100.0 100.0 100.0
Compensation of employees, including wages and mixed income not captured by direct statistical methods 47.2 45.0 46.6
Net taxes on manufacturing and imports 13.9 11.1 10.7
Gross economic profit and gross mixed income 38.9 43.9 42.7

There are three types of income:

  1. Compensation of employees, includes expenditures on insurance and pensions.
  2. Net taxes on production and imports. Essentially, this is revenue from the extraction of natural resources and their subsequent import abroad.
  3. Business income: company profits, capital gains, incomes of individual entrepreneurs.

The table shows that business income is nearly equal to the income of all employees.

Indirect taxes (e.g., income tax and VAT) are not included in GDP in order to avoid duplication, since they are based on the same profits and wages.

This is what average income distribution looks like in the G20 countries:

Source: The Labour Share in G20 Economies (ILO, 2015)

The labor share in Russia is 6–7% lower than the average for the G20 countries. The reason for the difference is the weakness of democracy and civic institutions in Russia. Election results do not depend on the opinion of the populace, trade unions are weak, and protests against social policy are far and few between. So it makes no sense to redistribute incomes to benefit employees.

How Much Would We Spend?
72,323,000 people are employed in Russia. We have to subtract entrepreneurs [i.e., the self-employed] from this figure. According to the Unified State Register of Individual Entrepreneurs (EGRIP), they amount to approximately 3.5 million people. We also have to subtract those people who work part-time: according to Rosstat, there are around one million such people, if we discount those involved in small business. So the upper limit of full-time employees in Russia is 67,820,000 people. Within this group, 50.3% earn less than 25,000 rubles a month.

However, 1.4% of employees earn between 5,000 and 5,000 rubles a month, and 20.9%, between 17,000 and 25,000 rubles a month. Another 50 percent of employees receive an average monthly wage of 15,329 rubles [approx. 240 euros].

Accordingly, the poorest wage earners would benefit most of all from the introduction of a mandatory minimum wage. On average, every employee currently earning less than 25,000 rubles a month would be paid an additional 9,671 rubles (i.e., 25,000 rubles – 15,329 rubles = 9,671 rubles ).

We would thus have to reallocate almost 3.96 trillion rubles annually: 9,671 rubles (the average pay rise) x 67,820,000 (the number of employees) x 50.3% (the share of those currently earning less than 25,000 rubles a month) x 12 (months) ≈ 3.96 trillion rubles.

Let us add in insurance premiums and pension contributions, which amount to 30.2%. The overall total would be around 5.15 trillion rubles (3.96 trillion x 1.302).

Russia’s GDP in 2015 was 83.23 trillion rubles. If we reallocate 5.15 trillion rubles from profits to wages, we arrive at the following ratio.

2015 2015 (%) 2015* 2015* (%)
GROSS DOMESTIC PRODUCT 83.233 trillion rubles 100 82.233 rubles 100
Compensation of employees 37.471 trillion rubles 45 42.621 trillion rubles 51
Net taxes on manufacturing and imports 9.272 trillion rubles 11 9.272 trillion rubles 11
Gross economic profit and gross mixed income

 

36.489 trillion rubles 44 31.339 trillion rubles 38

In the resulting structure, the share of labor income is slightly higher than the average figure among the G20 countries.

Obviously, many people would lose their jobs after a minimum wage of this kind was introduced, primarily those people who dig pits with a shovel where an excavator should be doing the work. These jobs are safe nowadays only because you can pay people almost nothing in Russia.

In turn, employers would seek to maintain profits by increasing prices for finished products. In aggregate, these effects would shape an economy typical of developed countries.

What Do We Risk?
Many people fear inflation. Let’s evaluate the risks. To introduce a mandatory minimum wage of 25,000 rubles a month, according to the structure indicated above, we would have to increase wage costs by 13.7%. The share of labor costs in the economy is 45%. Accordingly, to cover the increased costs, the price of finished products would have to be increased by 6.165% (13.7% x 45% = 6.165%). That would be the upper limit of possible inflation.

In reality, however, a rise in prices decreases consumption and forces prices to creep downwards. In addition, unemployment and inflation are inversely proportional to one another, meaning the higher the unemployment rate, the lower the rate of inflation.

Additional inflation would be two or three percent, and for the most part it would be spread out over the whole of society, meaning that people who earn a lot would forfeit this percentage of income, while the incomes of the poorest workers would increase significantly.

Of course, such a drastic rise in wages is a rather radical measure, given that the minimum wage is currently even below the subsistence level, and it is bound up with a variety of social benefits that would also automatically increase. But the tenor of the reform is absolutely correct and corresponds to successful examples in world practice.

The introduction of a statutory minimum wages in Germany has lead neither to inflation nor unemployment. In the US, increases in the minimum wage have increased the salaries of low-paid workers while maintaining employment.

Translated by the Russian Reader. Thanks to Alexei Gaskarov for the heads-up. For another take on the Russian economy’s performance and the figures provided by Rosstat, see yesterday’s featured post, “Lies, Damned Lies, and Statistics,” a translation of an op-ed piece by liberal economist Sergei Aleksashenko.

Happy Russia Day!

At three-thirty this afternoon I was awoken from a well-deserved nap by an incoming SMS on my cellphone, which read:

Уважаемый Клиент, поздравляем Вас с Днём России – праздником свободы, мира, равноправия и справедливости! Искренне желаем Вам и Вашим близким душевного тепла, достатка, счастливой, долгой и благополучной жизни! С праздником, Ваш “Билайн”

I.e.,

Dear Customer, we congratulate you on Russia Day, a holiday of freedom, peace, equality, and justice! We sincerely wish you and your family warmth, prosperity, and a long, happy, safe life! Congratulations, Your Beeline

Aside from irritating the drowsy me to no end, the SMS inadvertently reminded me of an article I had read earlier in the day on the topic of equality in Russia.

One in six Russians lives below the poverty line
June 11, 2015
ru.euronews.com

The numbers of Russians whose income is below the subsistence level increased by 3.1 million people in the first quarter of this year, up to 22.9 million. These figures have been published by Rosstat. The poverty rate rose to 15.9%, meaning that every sixth Russian falls into this category.

From January to March, the average subsistence level reached 9,662 rubles [approx. 155 euros] per person per month (a year ago it was 7,688 rubles). But inflation has also surged, which has been an especially painful blow to the poor.

The embargo on food imports from Europe and the United States, [introduced] in August 2014, fueled an inflation of food prices, and the 200% drop in the ruble’s value at year’s end drove up the prices of imported goods. As a result, by the end of the first quarter, the annual inflation rate in Russia had reached a thirteen-year maximum, 16.9%, according to Rosstat. By May, the figure had dropped slightly to 15.8%.

The statistics agency blames the increase in poverty on inflation. Average per capita monthly income, now at 25,210 rubles [approx. 400 euros per month], seems to have increased compared with the first quarter of 2015 by 11%, but fell by a quarter compared with the fourth quarter of last year.

Do you wonder how many Russians 15.9% is? The hipsters at The Village told their readers the answer yesterday evening as the latter were gearing up for the long holiday weekend: 22,900,000.

But how many people live in Russia?

According to the handy Political and Physical Map of Russia, published by AST Publishers in February 2015, which I recently picked up at my local French-owned hypermarket, the Russian Federation’s population stands at a healthy 146,100,000, now, apparently, that is, that the Republic of Crimea’s nearly two million former wayfarers have returned to home port.

map 1

map 3map 5

But there are a handful of malcontents who bristle at this new method of fighting poverty by annexing the territory and populations of other countries. One of them is  a stalwart of the Petersburg protest scene, Igor “Stepanych” Andreyev, who showed up to a “prayer for deliverance of the Fatherland from the oppression of lawless men in power” this afternoon, at the city’s Solovetsky Stone, sporting a provocative but veritable downer of a placard.

stepanych-2

Russia immediately went mad after [the annexation of] Crimea (Yuly Kim). On June 12, 1990, Russia’s day of independence from the USSR was proclaimed! June 12, 2015, is the anniversary of Russia’s destructive isolation from the West.

Source: Facebook (Vadim F. Lurie)

Fortunately, the Russian authorities are not as down in the mouth as the sour old multiple arrestee Stepanych. For example, Maria Shcherbakova, the seemingly perpetual head of the city’s Central District, had these uplifting holiday congratulatory printouts pasted on every front door in our neighborhood the other day.

shcherbakov kongrats

Dear Central District Residents!

The Administration of Saint Petersburg’s Central District warmly congratulates you on the national holiday, Russia Day.

This holiday is dear to everyone who loves their Fatherland and takes pride in the glorious pages of its history and its extremely rich spiritual and cultural legacy. Based on the centuries-old traditions of Russian statehood, the huge creative potential of our multi-ethnic people, and unshakeable democratic values, we will make Russia a strong and successful country.

On Russia Day, I would like to wish all of us to be happy, to live in peace and tranquillity, and to thereby multiply the riches of our Motherland!

M.D. Shcherbakova
Chief Executive, Central District of Saint Petersburg

Earlier today, President Putin expressed similarly upbeat patriotic sentiments while handing out state prizes for achievements in science, technology, literature, and the arts:

“These ideals of patriotism are so deep and strong that no one has ever been able and will ever be able to recode Russia, to convert it to fit their formats. We cannot be separated, torn, and isolated from our native roots and origins.”

Who would want to “recode” and “reformat” Russia anyway? Grumpy old Stepanych? The nearly twenty-three million Russians now living on less than 155 euros a month?

Of course not, you sillies. It is that wicked, black-as-tar, uppity Negro from across the seas, Barak Obama, as the hipster baristas in the coffee hut on the corner of Liteiny Prospekt and ulitsa Belinskogo have pointed out in their own droll way.

obama's blood

We continue our trek around Petersburg’s fashionable spots:

“What is Obama’s Blood?”

“A quadruple espresso.”

“And why did you call it that?”

“That’s just what we came up with.”

Source: Facebook (Alexander Nazarov)

At 147 rubles a cup, Obama’s Blood is the most expensive item on the menu, as a friend has pointed out to me, but when you convert it to euros (€2.36) or dollars ($2.66), it is practically a steal.

And it will get in you in the mood for a fun albeit nerve-wracking Russia Day.

* * * * * *

Russia Day (Russian: День России, Den’ Rossii) is the national holiday of the Russian Federation, celebrated on June 12. It has been celebrated every year since 1992. The First Congress of People’s Deputies of the Russian Federation adopted the Declaration of State Sovereignty of the Russian Soviet Federative Socialist Republic on June 12, 1990.