Sanctions, military service, brain drain: Russia’s economy is suffering from the consequences of the war of aggression against Ukraine. Despite this, the country is moving towards full employment. How does that fit together?
Russia has been waging a war of aggression against Ukraine for more than a year and is therefore feeling the effects of harsh sanctions from the West. A number of countries have long stopped sourcing gas and oil from the country, and contracts worth billions for the energy companies, the country’s economic engine, are gone.
And yet Russian statistics show that the country’s economy is doing relatively well. Currently, Russia is even said to be moving towards full employment. The real income of the population is also expected to increase by 3.4 percent in 2023. How does it work? Is there no sign of a crisis in Russia?
In order to answer these questions, one must first know that work and unemployment are of great social importance in Russia.
For decades, the country has had a kind of unspoken social contract, whereby the government guarantees people a certain standard of living after the Soviet Union’s turbulent transition years. The jobs are secure, as are the pensions (albeit low). In return, people largely stay out of politics.
Value not so low since 1991
This is also reflected in the fact that the authorities require companies to keep employees even in the most difficult times. This is also the case in the current crisis, since the Kremlin decided to invade neighboring Ukraine. This is to signal that even in the midst of great turmoil, people can go about their work and get on with their lives – albeit in often modest circumstances, given that the minimum wage in Russia is quite low compared to the cost of living.
The official unemployment statistics are looking good, and have been for almost six months, as the Russian investigative medium “iStories” reports: Currently, fewer people are unemployed than they have been for more than 30 years.
Unemployment was 3.2 percent in May. According to the analysis, this has not happened in the entire history of observations since 1991. Economics Minister Maxim Reshetnikov also recently rejoiced: “We have historically low unemployment and it is quite possible that we will see further all-time record lows in unemployment.”
Normally, low unemployment means: prosperity increases because more people earn money, which they in turn can spend, which in turn leads to more growth and a plus in gross domestic product (GDP).
In fact, the Russian economy shrank by more than two percent in 2022. Economists are also forecasting a recession for the current year. This shows that despite the high level of employment, there can hardly be any talk of an economic boom.
Kremlin handles with embellished numbers
Normally, according to the analysis by “iStories”, every single percent less GDP means two percentage points more unemployment. So it is with developed industrial countries. In Russia, however, GDP shrank by 1.9 percent in the first quarter of 2023 compared to the same period last year – and unemployment also fell. “In that sense, the state of the Russian economy is phenomenal”; “iStories” quotes University of California economics professor Oleg Itskhoki.
A Russian economic miracle? There are doubts about this reading. Because observers and experts agree: the Russian government is dealing with embellished figures. Although there are actually no mass layoffs, people are being transferred to part-time jobs or sent on unpaid leave, writes “iStories”.