BOFIT Viikkokatsaus / BOFIT Weekly 2017/15

The Centre for Strategic Research, an institute headed by former finance minister Alexei Kudrin, recently released a wide-reaching report on Russia's labour market. The report finds that Russia differs from most countries in that during economic downturn wages adjust downwards but unemployment remains low. The factors behind this phenomenon include difficulties in laying off workers, the low minimum wage level set by law and the fact that wages are often tied to corporate performance. Workers are further incentivised to remain on the job at lower wages by Russia's meagre unemployment benefits. Labour unions are relatively weak in Russia.

Unemployment in Russia has remained low throughout the 2000s, even with notable structural adjustments taking place in the labour markets. Jobs have largely shifted from agriculture and industry to the service sector, which now employs over two-thirds of the employed. Higher paying jobs requiring high levels of professional skill and training have increased in all branches, while jobs involving simple repetitive tasks have diminished. While the wage differential has shrunk, it is still high by international standards. Structural changes in Russia's labour markets have to some extent fostered productivity gains, but progress has slowed down since 2008.

Russian wage flexibility and low minimum wage, however, mean that some workers do not earn a living wage. As a result, the number of workers in the informal labour market has increased during the 2000s. The report estimates that in internationally comparable terms about 10-15 % of the employed in Russia work in the informal labour market. Hikes in the legal minimum wage level have supported the growth of the informal labour market, as the lowest-paying jobs are shifted to the informal labour market. This effect has been strongest in poor regions, because the minimum wage is the same everywhere in Russia. Regional labour markets tend to be quite isolated as worker mobility is limited by such factors as high moving costs.