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Minimal Living
As President Medvedev Sets Out to Create Jobs and Lure Investors, Experts Say Both the Government and Trade Unions Must First Do Something About the Country's Meager Minimum Wage

Cash, Calculator and  PenFor those Russians long accustomed to living on a shoestring budget, another televised end-of-the-year meeting between trade union leaders and the country's president could have been just another mundane event ­ except that last week's was all about padding paychecks and modernizing the workforce.

President Dmitry Medvedev's December 15 meeting with Russian trade unions' top officials at his Gorky residence was his second this year, and was partly a reminder to trade union leaders of their job description in a period of economic recovery. When the president met Mikhail Shmakov, the head of the Federation of Independent Trade Unions of Russia (FNPR) in January, the issue was how to jolt the labor market toward recovery and stop companies from laying off workers.

But with the economy showing signs of steady recovery, Medvedev said he wants the Russian labor market to become more civilized by encouraging the participation of foreign workers, but without jeopardizing the interests of Russian citizens. The trade unions, he said, could play a useful part in reviving the system of higher technical education, and become more actively involved in monitoring the creation of new jobs in the regions. The president noted that there are "distortions" in the nation's compensation system, which has been lagging behind, even by CIS standards.

One such distortion, according to Shmakov, is Russia's meager minimum monthly wage. He told the president that there are economic sectors across the country where the average salary is not much higher than 4,300 rubles ($145). "In our opinion, this figure should be adjusted to match the inflation rate," Shmakov said, RIA Novosti reported. To the chagrin of the FNPR head, regional officials have seized on the national minimum benchmark to set the same compensation package for their workers regardless of whether they live in the Far North or the more expensive parts of Central Russia. "For instance, a kindergarten employee is paid 4,300 rubles both in central Russia and in the north. This is not only unfair, but it also distorts the values embodied in the price of labor," Shmakov complained.

In Russia, the minimum wage is a sort of labor-market regulator that serves primarily as a basis for calculating all social payments and the salaries of government employees. Various territories of the Russian Federation establish their own minimum wage based on local social and economic conditions and subsistence levels, so long as these local minimum wages are not below the federal standard. Many countries in Europe operate statutory or collectively-determined minimum wage rates, which provide a standard of living that is close to (or even below) subsistence levels. Denmark, Finland, Italy and Sweden do not operate national minimum rates, but nevertheless have minimum rates set through sector-wide collective agreements that jointly cover a high proportion of the working population. In recent years, Russia's minimum wage has been growing in leaps and bounds thanks largely to the windfall revenues from oil exports. Russia's minimum monthly wage doubled to 2,300 rubles ($76) from 1,100 rubles ($36) in 2007 and again to 4,300 ($145) rubles in January 2009. But that still makes Russia's the lowest minimum wage out of all European countries, not counting big municipalities like Moscow, where the city's minimum-wage employees receive more than twice the wage of their counterparts nationally, according to an August 2009 Eurostat report. In Moscow, the minimum wage was raised to 7,650 rubles ($255) in September 2008 and again to 8,700 rubles ($290) last year. The city's minimum wage is now 10,100 rubles ($336), almost on par with the monthly average in former Soviet states such as Estonia, Latvia and Lithuania. "Only some Russian regions, where local authorities establish regional minimum wages above the federal 4,330 rubles, can compete with the poorest countries in the EU today," says the report, which puts Russia's minimum wage at 20 percent lower than in Bulgaria.

Medvedev said that while the government has gone a long way to develop policies regarding the minimum wage in recent years, there are still distortions in the numeration system, particularly in the country's northern territories. The president said the government should do something about it. "This needs to be addressed," Medvedev was quoted by RIA Novosti as saying. "The system distorts the incentive to work normally."

The Russian President, who has put economic modernization at the top of his agenda, has also been counting on the program to create more jobs and boost wages. "It is generally assumed that any modernization reduces the number of jobs. In our conditions that would be absolutely wrong," Medvedev said. "Our task is to create new, more modern jobs." Modernization should also aim to "raise wages, improve the quality of life and enhance social standards," the president said. Medvedev projected that individuals' real incomes in 2010 will increase by five percent, while the number of unemployed will fall by two million. He added that the government had no plans for introducing a longer work week in Russia "regardless of the wishes of some of our employers."

A recent UN study "The National Human Development Report in Russia 2010," released in October says that while the number of impoverished Russians has decreased in recent years and life expectancy has grown, about 14 percent of the populace is still living below the poverty line. The report, which examined the country's progress toward Millennium Development Goals ­ a set of social goals that all UN members have pledged to achieve by 2015 ­ said the poverty rate has decreased by 3.7 percent from 2005 to 2009, and the monthly minimum wage reached 5,000 rubles ($164) last year compared with only 1,200 rubles ($40) in 2000.

Some experts, however, have taken issue with the way Russia operates its statutory minimum rates in all sectors of its economy, and the failure of trade union leaders to provide a modicum of protection to workers. Agvan Mikayelyan, the CEO of the FinExpertiza consulting group, said that one in every five Russians still subsist on the meager minimum wage of 4,300 rubles. Such wages, he said, are nothing but a subterfuge that lends credence to a popular Soviet aphorism: we pretend to work and they pretend to pay us. "It's absolutely unrealistic to eke out an existence on the so-called minimum wage, both in Moscow and the regions," Mikayelyan said. "The 4,300 rubles being paid in the regions or the 10,100 rubles that Muscovites receive are barely enough to cover utility expenses. The only way people get by in small towns is by relying on the proceeds from their gardens."

In view of the current situation in the economy, Mikayelyan said, the minimum wage in the regions should be no less than 10,000 rubles ($333), while in big cities like Moscow and St. Petersburg the amount should be at least 30,000 rubles ($1,000). He said that increasing the minimum wage from 4,000 rubles to 6,000 rubles, for instance, would change nothing on the ground, and smacks of the kind of political populism that usually precedes elections. Boris Kagarlitsky, the director of the Institute of Globalization Studies, agreed: "The salaries of most Russians are inadequate to maintain even the skimpy standard of living they currently have." Kagarlitsky said the 2010 drought and crop failure have only served to accentuate that problem and force it into the spotlight. "Russians are able to get by more or less thanks to the safety net left over from the Soviet times, which includes apartments, old household electronics and automobiles together with rakushki (crude garages), all dating back to the Soviet period. But perhaps the most important survival factor is potatoes," Kagarlitsky said.

A recent study conducted by FinExpertiza indicates that millions of Russians in the regions live off their home gardens or small plots of land and dachas with gardens, which provide a significant amount of food. The consultancy firm estimates that such people were able to make an additional 10,000 rubles on average. Mikayelyan said that Russians have been able to put up with low wages because they are able to at least partially feed themselves. The less money they spend on food, the more they have to buy goods, from clothes to computers. Such gardens helped stimulate the consumption boom of the 2000s along with the enormous influx of petrodollars, he said.


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