The minimum wage and the living wage were appointed in a special order

Due to the extraordinary indexation of social benefits in June 2022 and high inflation against the backdrop of sanctions imposed against Russia, the authorities retreated from the rules for calculating social benefits approved “in peacetime”. Next year, the government decided to determine the size of the subsistence minimum and the minimum wage “in a special order.” This is stated in the bills developed by the Ministry of Labor. The listed normative acts will be submitted for consideration to the State Duma in the coming days as part of the budget package.

Recall that since last year, a new approach to determining the subsistence minimum has been established in our country. Until 2021, it was calculated based on the cost of the minimum consumer basket, and according to the updated methodology, this indicator began to be determined as 44.2% of the median per capita income two years ago (the level above which the income of 50% of the population, and the second half, on the contrary, is lower ). So, in 2021, the subsistence minimum was equal to 11,653 rubles, while the median income of the population in 2019 was 26,365 rubles. Last year, the median income was determined at the level of 30.1 thousand rubles, respectively, the cost of living in 2023 should have been about 13.3 thousand rubles. Further, in 2022, the cost of living was set at the level of 12,654 rubles, but from July 1, together with pensions and the minimum wage, it was increased by 10%, to 13,919 rubles. In other words, it has already exceeded the level that would be envisaged for 2023, based on the current methodology.

The government decided to continue to take into account the real state of the economy and inflation caused by the growing sanctions pressure on Russia, as stated in the explanatory note to the bill. This became the basis for increasing the subsistence minimum “in a special order.” The government proposes to suspend the current norms of the law in order to establish this indicator for 2023-2024, based on the projected poverty line in 2023 and 2024, which will be 14,375 and 15,049 rubles, respectively. The exact size of the subsistence minimum must be clearly stated, since it is used to assess “neediness” and the size of other social payments depends on it – for example, social supplements to pensions. The Ministry of Labor has already stated that raising the subsistence level will increase monthly payments for 15 million Russians.

The minimum wage will also change. Now it is set at a rate not lower than the subsistence level and is 42% of the median wage. However, in 2023 and 2024, the draft law provides for its determination based on the growth rate of the subsistence level of the able-bodied population compared to the previous year, increased by 3%. As a result, the minimum wage will be set at the level of 16,242 rubles per month from January 1, 2023, with an increase of 6.3% compared to the previous year.

The Ministry of Labor is confident that the increase in the minimum wage will help increase the salaries of about 3.5 million workers. “The cumulative growth rate of basic social guarantees will be higher than the projected inflation of 12.4%,” said Minister of Labor and Social Protection Anton Kotyakov. – The total annual growth of the living wage will be 13.6%, and the minimum wage – 16.9% “Experts interviewed by” MK “explained the reason for such generosity of the authorities and why they decided to increase social benefits at a higher rate than previously planned.

Artem Tuzov, Executive Director of the Capital Market Department, IVA Partners Investment Company:

“Now the government’s problem is not inflation, but deflation that has lasted for more than 3 months. Increasing the minimum wage is an effective way to inject money into the economy and interrupt deflationary processes. (Deflation is a decrease in prices for goods and services in the economy, that is, inflation is the opposite, when prices do not rise, but fall. But it is caused by an unhealthy imbalance between supply and demand. Citizens reduce consumption and try to save money, fearing a drop in income or loss of work, buy fewer goods. Shops and businesses sell less, they have no revenue, and they begin to reduce staff, and then, if the situation worsens, they close altogether. This is why deflation is considered a very insidious phenomenon for the economy of any country – N.T.).

In this case, the “special order” of payments is most reasonable to maintain until the deflationary spiral is interrupted. It is better to worry about inflation and the fact that the purchasing power of money is falling, than that the enterprise has closed and there are simply no wages. Namely, this is the consequences of deflation.

The proposed increase is a feasible payment for the budget, which has windfall profits from the mineral extraction tax in oil and gas this year. Thus, taxes are redistributed to the most vulnerable layers of citizens. The Russian economy will receive an injection of funds and an increase in the money supply, which is good in a deflationary environment.”

Vladimir Chernov, analyst at Freedom Finance Global:

“Last year, the cost of living was 11,653 rubles, with the previous approach to calculations in 2023, it should have been 13.3 thousand rubles, that is, + 14.13%. However, from June 1, 2022, the government approved a living wage of 13,919 rubles (+19.45% compared to last year), which covers inflation for the first half of 2022. And next year, the living wage, according to new estimates, will be 14,375 rubles, that is, + 3.28% of the current level. But today we cannot predict what inflation will be next year. If at the end of the current year it drops to the forecasts of the Central Bank of the Russian Federation at 12-13% per annum, then, taking into account the growth of the living wage by 19.45% in the first half of the year and another + 3.28% next year, the increase in the living wage will block inflation next year .

In its approach to calculating the subsistence minimum and the minimum wage, the government focuses primarily on the growth of inflation and inflationary expectations. They will start from the general economic situation in the country, and not from geopolitics, although it, of course, primarily affects it now. In our opinion, the cost of living and the minimum wage will be set manually until the Russian economy stabilizes. As soon as it is possible to curb inflation and reach a decline to the target level of 4%, then the government can return to the previous calculation formula. At the same time, the authorities will also assess the dynamics of GDP, which in the first half of 2022 showed a fall of 0.4%. In our opinion, the government will be able to return to the previous calculation method as early as 2024. An increase in payments will increase the budget deficit, but here we are talking about 2023, the budget for which is drawn up with a deficit of 2.9 trillion rubles, which corresponds to 2% of GDP. We believe that the government has already included an increase in the subsistence minimum and the minimum wage in 2023 in the country’s budget for this year.”