Russian unemployment at lowest level since 1991 due to demographic dip in shock therapy years

Russian unemployment at lowest level since 1991 due to demographic dip in shock therapy years
Unemployment in Russia reaches lowest level since 1991 due to the 1990s demographic dip / bne IntelliNews
By bne IntelliNews August 21, 2018

Unemployment in Russia fell by 2,400 to a total of 684,700 as of August 15, its lowest level since the fall of the Soviet Union in 1991, Minister of Labour Maxim Topilin said on August 20.

Russia’s economy has been recovering, albeit at a lacklustre pace, but the country is currently enjoying full employment and that has started to drive up salaries. The growth of real wages and disposable income growth remained robust in July, Rosstat reported this week, with real wages up to 8% growth y/y, increasing from 7.2% in June. Real disposable incomes also grew by 2% y/y versus 0.7% y/y in June.

Russia’s GDP expanded by 1.8% in the second quarter, a bit weaker than analysts were expecting but up from 1.3% in the first quarter and continuing in the right direction, economists said on August 12. However, for an emerging market, the current pace of growth will lead to long-term stagnation as growth is running slower than the global rate of growth and consequently Russia will slowly fall behind the rest of the world unless it can pick up the pace by implementing deep structural reforms.

The tight labour market is a consequence of the slow growth as although companies are profitable they remain reluctant to borrow money or invest in expansion thanks to political uncertainties both at home and abroad.

"The current low unemployment rate is a historical minimum of registered unemployment in the whole history of this indicator - since 1991," the Ministry of Labour press service said.

According to Topilin, the low unemployment rate is due to a shortage of personnel, which is a consequence of the demographic dip caused by the collapse of life expectancy during the shock therapy years of the early 1990s. The dip in the curve has now arrived in the working population age range, and there are simply too few Russians to fill vacancies.

"Those who are born during the post-war baby boom are now leaving the work force and are starting to be replaced by the smaller number of people born in the 1990s," Topilin said. Last August, the number of unemployed in Russia was 784,200 people, he recalled.

The Kremlin has been trying to tackle its demographic time bomb in recent years by promoting a maternity support programme with generous subsides to families with two or more children. At the same time, a recent decision to increase the average retirement age will also add as many as 5mn workers to the labour pool and go some way to counteracting the shortage, but the process of adjustment will be painful and slow, say economists.

Over the second week in August, the number of unemployed Russians fell in 60 regions and increased in only 23 regions, Vedomosti reported. The biggest declines were recorded in the Nenets and Chukotka autonomous districts, Mari El, Karelia and Tuva, Pskov, Magadan and Voronezh regions, the Trans-Baikal and Kamchatka regions. Employment growth was observed in Ingushetia, Crimea, Kabardino-Balkaria, Kalmykia, Tatarstan, Tyumen, Kostroma, Kaliningrad, Lipetsk regions, and also in Sevastopol.

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