In 2023, the real disposable incomes of Russians grew by 5.4%, after a 1% decline in 2022, according to data compiled in the 'Socio-economic situation of Russia' report. This is Rosstat's assessment, and it noticeably exceeds all expectations. By comparison, income grew by 0.7% in 2018, 1.2% in 2019, declined by 2% during the Covid-affected 2020, and then grew by 3.3% in the recovery during 2021. According to Rosstat calculations, the average annual growth rate of incomes has been negative since 2014, amounting to -0.7% per year. In reality, the decline in incomes occurred during the 2014–2016 crisis, resulting in incomes in 2016–2020 being around 92% of the 2013 level. They rose slightly in 2021, and after a surge in 2023 reached 98.6% of the 2013 level. However, the Telegram channel MMI snidely albeit correctly notes that, in dollar terms, real disposable income has fallen by more than a quarter, from $806 to $586 (and even more when dollar inflation is taken into account). Nevertheless, against the background of the previous decade, the wartime year of 2023 seems like a real breakthrough.
The main contribution to this breakthrough was the growth of wages. In real terms, i.e. adjusted for inflation, salaries in 2023 grew by 7.6%, and in nominal terms by 13.8%. The average salary rose to 71,000 rubles. At the same time, pensions rose by only 3.3% in real terms over the year. Thus, although incomes grew both in the non-corporate sector and among pensioners, the main driver was the increase in corporate sector wages.
The wage boom, as seen from Rosstat statistics, began at the end of the first quarter. On the whole, in the second quarter real wages grew by almost 9% compared to the first. The most significant salary growth rates from January to November were predictably observed in the manufacturing industry, with more modest increases in agriculture and the service sector. In the production of electrical equipment, the average monthly salary rose by 24%, reaching 71,000 rubles, while in the production of finished metal products this growth was also at 24%, reaching 68,000 rubles. In the production of 'other vehicles' (this includes various passenger and cargo vehicles, as well as military equipment) there was an increase of 22%, reaching 81,500 rubles. In addition, wages in light industry grew at similarly high rates — for instance, in clothing manufacturing (+24%, reaching 33,000 rubles) and leather goods production (+21%, reaching 43,500 rubles). It is evident that these sectors, including clothing manufacturing, are directly related to servicing war needs.
The serious labour market deficit, the expansion of government contracts and the easing of budgetary restrictions in war-related sectors have triggered a wage race. As Re:Russia has written on a number of occasions, Russia's labour market has been shrinking as a result of the involvement of a significant number of able-bodied citizens in the war effort, the attrition of the dead and wounded, and the exodus of a significant group of the draft-age population, which collectively accounts for more than 1.5% of those employed in the economy. At the same time, the growth of war-related state orders fuelled the demand for new workers in defence industry enterprises and related sectors. The report 'Regional Economy' published by the Central Bank notes, for example, that in the Voronezh, Vladimir, Tambov and Novosibirsk regions, companies engaged in the production of metal products switched to working in three shifts, while in the Urals the number of workers employed in this sector increased by almost 18% compared to the same period in 2021.
In addition, additional demand has been created by the development of the occupied territories of Ukraine, the report’s authors note. Higher salaries in these areas attract those employed in construction and agriculture, as well as drivers and loaders. At the same time, the depreciation of the ruble and unfavourable social atmosphere has made the Russian labour market less attractive for migrant workers from neighbouring countries. As Re:Russia has previously written, in the first half of 2023, the number of labour migrants with permission to work decreased by 10-15% compared to the first half of 2022. In the coming years, this labour shortage will only intensify. According to a study by Yakov & Partners (formerly the Russian office of McKinsey), the labour shortage in Russia may reach 2 to 4 million people by 2030.
For private companies, salary growth is limited by profitability. At the same time, the shortage of personnel can lead to stagnation, for example, due to delays in product shipments caused by a lack of warehouse staff, warn analysts at Expert RA. Businesses already facing this problem are more actively utilising the labour of students and people of retirement age, who can be paid less, the Central Bank analysts noted in the 'Regional Economy' report. Some companies are adopting unconventional solutions. For example, in 2023, Ozon planned to employ up to 500 low-security prisoners in its warehouses. AvtoVAZ may also start using the labour of convicts. According to experts, up to 185,000 people could be involved in forced labour in the interests of state and private enterprises.
But such measures will not have a significant impact on the labour market as the demand for workers is too high. In 2024, due to the shortage of personnel, wages will continue to grow, the Central Bank analysts predict in their February report 'What Trends Say'. Business surveys indicate that, in 2024, they only hope to reduce the pace of the wage race slightly.
Thus, as in other sectors, the impressive performance of the labour market in 2023 is primarily due to the expansion of fiscal stimulus, which overlapped with the war-related tightening of labour resources. As a result, the private sector was forced to increase labour costs in pursuit of workers, reducing profitability and consequently investment opportunities in the next cycle. Under such circumstances, the explosive growth in earnings seen in 2023 can by no means be seen as a new trend. Most likely, in the coming years it will be replaced by either a decline in revenues or their long-term stagnation.