A dangerous paradox of the Russian economy has been revealed: productivity is declining, wages are rising

According to Rosstat, labor productivity in Russia decreased by 3.6% last year. This figure is not entirely consistent with the increase in the nominal wages of Russians, which was noted during this period. As you know, it increased by 12.6% and amounted to 64.2 thousand rubles per month. Meanwhile, the theory says that with proper development of the economy, it is the increase in labor productivity that causes wage growth. Thus, Russian practice has corrected economic science. Incomes in the country have increased, but production efficiency has decreased. How can this be and what could such a gap lead to in the economy?

As Rosstat notes, in 2022 the maximum decrease in labor productivity was recorded – by 3.6%. This is the most serious drop since 2009, when this figure fell by 4.1%. Labor productivity also declined in 2015 and 2020, although not as much. In general, this figure fluctuates up and down over the years. So, in 2021 it grew by 3.7%…

True, within this general decline, statistics highlight industries that, on the contrary, have increased productivity. In particular, in agriculture there was an increase of 8.7%. This breakthrough in productivity is to a certain extent ensured by imported equipment, which farmers actively purchased in previous years. Modern combines, tractors and seeders operate at maximum load, are equipped with navigation devices, and the operator’s only task is to turn the unit around at the edge of the field. And then, according to a special program, he independently mows and threshes.

Among the leaders, the statistical agency also notes the construction industry, the hotel and catering industry, and the provision of electricity. True, success here is more modest: from 0.8 to 1.8%.

The maximum drop in labor productivity was recorded in wholesale and retail trade – almost 13%. Obviously, the low purchasing power of the population let us down. In manufacturing there was a decline of 3.3%, in the mining sector by 3.4%. The dynamics of this indicator in the field of transportation and storage, as well as in professional, scientific and technical activities, where labor productivity decreased by 4.5 and 7% respectively, are not encouraging.

On the other hand, last year, as a result of a special military operation in Ukraine, all economic sanctions that you can think of fell on Russia. Which, of course, is reflected in macroeconomic indicators. However, in spite of all theories and teachings, nominal wages in the country at the end of 2022 increased by 12.6%.

It turns out that Russians are in great debt to their native state and to their employers. They worked less and earned more. It should be noted that citizens, as a rule, react very painfully to caustic remarks about the fact that their salaries are growing, but their returns are marking time or even decreasing.

“Our fellow citizens are not to blame in this case,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. – They would work even more if they had orders, established sales of products, production chains or logistics. Which, given economic sanctions and many other related factors, cannot be achieved today.

However, from a macroeconomic point of view, the gap between wage growth and the decline in labor productivity cannot be called normal. The economy will not be able to withstand such a distortion in the medium term and wages will inevitably begin to decline.

– Does the very dynamics of growth of one indicator and decline of another surprise specialists?

– There is nothing surprising here. Everything is understandable. Labor productivity is calculated not by wages, but by GDP. Last year it decreased by 2.1%. That is, we created less “new value” goods, but the number of working population remained approximately the same. Hence the drop in productivity. Meanwhile, wage growth should be ensured by the “new value”. The gap between rising wages and declining productivity shows that the economy has problems.

– Could this lead to some kind of crisis?

– No, but this is a derivative of the generally negative things happening in the economy