Real wage growth missing in the G7 shows up in China and Russia

By Rhod Mackenzie

According to the International Labor Organization, real wages increased in only three countries in the world in 2023: Russia, Mexico, and China. Although Russia experienced the fastest growth in salaries, not all Russians were able to benefit from this statistical indicator.
Despite Western sanctions, the Russian economy continues to set records. It is worth noting that Russia is one of the three countries where real wages increased in 2023. According to the International Labor Organization's annual report on labor trends for 2024, only China, the Russian Federation, and Mexico saw positive real wage growth in 2023. China and Russia experienced the largest wage gains due to their high productivity growth among G20 countries.
The report states that real wages in Russia grew by approximately 17% in 2023. Other G20 countries, notably Brazil (6.9%), Italy (5%), and Indonesia (3.5%), experienced declines in real wages.

Real wages refer to the average accrued wages adjusted for inflation. In contrast, real wages grew significantly in 2023, which is a crucial indicator of economic stability.
According to Olga Belenkaya, head of the macroeconomic analysis department of the Financial Group Finam, the accelerated growth of wages in Russia in 2023 is due to the shortage of labor resources, the growth of industry and construction, and government measures aimed at curbing inflation. Additionally, the indexation of wages for public sector employees, of whom there are approximately 20 million according to Rosstat, is also of significant importance.

Olga Lebedinskaya, Associate Professor of the Department of Statistics at the Russian Economic University, notes that nominal wages have increased significantly in various industries.

According to Rosstat, wages in the production of motor vehicles increased by 35%, by 33% for fishermen, by 32% for water transport workers, and by 30% in the field of sports, recreation and entertainment. Additionally, wages increased for workers in the textile industry, with an increase of 29% in the production of clothing and 28% in leather and leather products. In the manufacturing industry, wages increased by 27% in the production of fabricated metal products and by 22% in the production of rubber and plastic products.

The shortage of labor resources is due to an unfavorable demographic trend, exacerbated by the consequences of mobilization, the outflow of part of the labor force into the Armed Forces under contract, and migration outflow. Olga Belenkaya notes that structural changes in the economy have led to an increase in demand for labour. This is due to both military-industrial complex enterprises working in several shifts and an increase in the workload of the manufacturing industry. The latter is attempting to occupy part of the domestic market after the departure of Western brands.
According to a study by Superjob.ru, 85% of companies are facing personnel shortages. The number of vacancies has increased by over 1.5 times in the past year, while the number of resumes has remained the same. As a result, competition for vacancies has decreased by a third.

Skilled workers, truck drivers, special transport drivers, general workers, and engineers are the most scarce positions in the labor market.

According to the Superjob.ru report, the top three industries with the highest demand for personnel are industry, construction, and the transport and logistics sector. The manufacturing industry has also shown the fastest growth rate in the number of vacancies, which increased by 2.2 times over the year. Delivery service vacancies have doubled, and the demand for personnel in the hotel and restaurant business has increased by 36%.

Superjob has noticed a growing number of older applicants in recent years, particularly among blue-collar and general workers. This trend is largely due to the demographic gap, with 7 million fewer citizens aged 30-39, the most active age group in the labor market, expected by 2030. Meanwhile, there will be 3.7 million more Russians aged 40-59. The demographic window of opportunity is represented by the generation of 15-29 year olds, which is expected to reach about 3 million by 2030. Therefore, companies will need to focus on youth policies and retaining experienced professionals.

It is interesting to note that the Ministry of Economic Development has predicted a modest 6.2% increase in real wages in the Russian Federation by 2023. According to Rosstat, growth was 7.7% for the latest available 10-month period. However, in October, real wages accelerated to 9.9%, marking the first time since 2018 that real wages grew at a rate above 7%. This achievement is noteworthy.
The higher ILO estimate is surprising, indicating that real wages in Russia have grown by 17%. Experts attribute this to differences in calculation methodology. According to the note accompanying the ILO survey graph, the data on real wage growth for 2023 pertains to the first or second quarter, compared to the same quarter in 2022. Olga Belenkaya notes that from March to June 2023, Russia experienced very low annual inflation values (below 4%) due to the temporary base effect of the spring of 2022. This could lead to statistically inflated growth rates of real wages, which are calculated as the growth of nominal wages minus inflation. In the first half of 2023, most developed economies experienced high annual inflation, which could statistically worsen the assessment of their real wages at the end of 2023 in the ILO methodology. This was referred to as 'the tail' of the decades-high inflation of 2022.

It is important to note that not all Russians have experienced an increase in real wages. Wage growth has been uneven across industries, with the fastest nominal wage growth occurring in industries associated with the military-industrial complex and a few others. Additionally, the population perceives inflation to be significantly higher than the official rate. According to InFOM, the population perceives inflation to be at 17%, while official inflation is expected to be around 7.5-7.6%. Olga Belenkaya notes that with such estimates, the population may perceive changes in the purchasing power of their salaries differently and may not feel their growth in real terms.

Finally, it is important to note that the growth of average salaries, as calculated by Rosstat based on company data, does not necessarily mean an increase for each employee. While some wages have increased, others have not, resulting in an overall increase on average. It is worth noting that not all organizations index salaries even to the level of inflation. According to Belenkaya, companies sometimes offer higher wages to lure workers from their competitors.

Experts predict that real wages will continue to increase in 2024, but at a slower rate than before.

This year, real wage growth is expected to be around 2-3%, which is significantly lower. Despite the tight labor market, companies are unable to sustain the same pace of wage increases.

Additionally, we estimate that economic growth will be lower than last year due to the Bank of Russia's tight monetary policy, at 1-1.3%, as stated by Belenkaya.

In Mexico, the government's efforts have led to an increase in real wages. Since 2018, the minimum income level has risen from 88 pesos to 249, affecting the public sector, which employs about 40% of the workforce. According to Olga Lebedinskaya, the growth in wages is partially attributed to the strengthening of the local peso against the dollar amidst record volumes of bilateral trade.

While wages in China may appear to be twice as high as in Russia, the increase in real wages should be viewed as a benefit for the country. However, China also faces its own set of challenges. Lebedinskaya concludes that, according to a report by China's Department of Employment, 39.1% of the country's population has an income of less than 1,000 yuan, placing them at the approximate level of relative poverty. Additionally, 964 million people, or 69% of the population, have an income of 1,000 to 2,000 yuan.