Simply happy. It’s wonderful when you and your team launch an election campaign and new—yet tremendously important for the country—issues appear on the political agenda.
For the past 20 years, we have discussed every election exclusively in terms of whether “the democrats will unite.” Think about it—there has been nothing else at all. The result is predictable: an election share comparable to a statistical margin of error.
But I want to talk during this election about something truly important. For example, the minimum wage level. In elections in the United States and European countries, this is always one of the central issues.
Here, even within opposition circles, this is commonly dismissed as “populism” without the slightest grounds for doing so. That’s all right—we’ll explain it patiently.
Read financial analyst Alexei Gaskarov’s article on why a minimum wage of 25,000 rubles is a good idea, and why all the apocalyptic predictions of hyperinflation are not grounded in real numbers.
Below I am reprinting the article in full, and I want to say once again that I like it when my platform is criticized. If people are criticizing it, that means they are discussing it.
And the best of these critics appreciate our healthy approach to debate. For example, the well-known economist Sergei Aleksashenko really does not like the plank on 25,000 rubles. He, too, considers it populism.
He even once wrote a column criticizing the platform, and along with the column he also did this:
He donated 100,000 rubles to the campaign.
Love your critics—it pays! Join Sergei Aleksashenko, and be sure to read Gaskarov on the minimum wage as well:
How can a high minimum wage help Russia become a developed country? And why is Alexei Navalny’s campaign promise not foolish at all? Financial analyst Alexei Gaskarov shares his view.
What’s wrong with Russia?
Russia ranks among the top countries in the world for social inequality.
There are different ways to fight inequality: for example, introducing a progressive tax or raising unemployment benefits. But as soon as someone proposes solutions to this problem, they are immediately labeled a populist.
The same fate befell Alexei Navalny: in his campaign platform, he proposed setting the minimum wage at 25,000 rubles.
Is this populism?
Let us look at how Russia’s GDP structure would change if this measure were implemented under current macroeconomic conditions. And let us compare Russian GDP with that of the G20 countries.
GDP is the market value of all goods sold and services provided within a country over the course of a year. Expenditures are always someone else’s income, so GDP can be calculated not only through consumption, investment, government spending, and net exports, but also through income.
There are three types of income:
The table shows that entrepreneurs’ income is almost equal to the income of all wage earners combined.
Indirect taxes (profit tax and VAT) are not counted in GDP in order to avoid double counting, since they are based on the same profits and wages.
And this is what the average distribution of income looks like across the G20 countries:
The share of labor income in Russia is 6–7% lower than the G20 average. The reason for this gap is the weakness of democracy and civil institutions in Russia. Election results do not depend on public opinion, trade unions are weak, and social protests are small in scale. That means there is no incentive to redistribute income in favor of wage earners.
How much will it cost?
There are 72,323,000 employed people in Russia. From this figure, we need to subtract entrepreneurs—of whom there are about 3.5 million, according to the Unified State Register of Individual Entrepreneurs—and also those working part-time: excluding small businesses, there were about 1 million such workers, according to Rosstat data. Thus, the upper bound for the number of full-time wage earners is 67,820,000 people. Of these, 50.3 percent earn less than 25,000 rubles.
At the same time, 1.4 percent of employed people earn between 5,000 and 5,800 rubles, while 20.9 percent earn between 17,000 and 25,000 rubles. Another 50 percent of employed people receive an average wage of 15,329 rubles.
Accordingly, the poorest benefit the most from the introduction of a mandatory minimum wage. On average, each wage earner making less than 25,000 should receive an additional 9,671 rubles (25,000 minus 15,329).
Thus, the total amount that would need to be redistributed across the economy per year is: 9,671 (average increase) * 67,820,000 (number of wage earners) * 50.3 percent (share earning less than 25,000) * 12 (months) = 3.96 trillion rubles.
Add social insurance contributions and pension expenses, which together amount to 30.2%. The total comes to 5.15 trillion rubles (3.96 * 1.302).
Russia’s GDP in 2015 was 83.23 trillion rubles. If 5.15 trillion rubles were redistributed from profits to wages, we would get the following ratio:
In the resulting structure, the share of labor income slightly exceeds the corresponding average for the G20 countries.
Obviously, many people would lose their jobs as a result of introducing a minimum wage. First of all, those digging a hole with a shovel where an excavator ought to be doing the work. These jobs exist now only because people can be paid next to nothing.
Employers, in turn, will try to preserve profits by raising prices for finished goods. Taken together, these effects will create an economic structure typical of developed countries.
What are the risks?
Many fear inflation. Let us assess the risks. To introduce a minimum wage of 25,000 rubles, according to the structure outlined above, wage costs would need to rise by 13.7%. The share of wage costs in the economy is 45 percent. Accordingly, to cover the increased costs, the price of finished goods would need to rise by 13.7% * 45% = 6.165%. That would be the upper limit of possible inflation.
In reality, however, higher prices reduce consumption and push prices back down. In addition, unemployment and inflation are inversely related—that is, the higher the unemployment rate, the lower the inflation rate.
Thus, the additional inflation would amount to 2–3 percent and would be borne largely by society as a whole. In other words, those who earn a lot would lose those few percentage points. The incomes of the poorest workers, meanwhile, would increase severalfold.
Of course, such a sharp increase in the wage floor is a highly radical measure, especially given that the minimum wage in Russia is currently even below the subsistence minimum and many social benefits are tied to it, meaning they would also automatically increase. But the direction of the reform is unquestionably the right one and is in line with successful examples from international practice.
The introduction of a minimum wage in Germany did not lead to either inflation or unemployment. And in the United States, raising the minimum wage increased the pay of low-wage workers while preserving employment.