Shades of grey Russian economy

Business daily Vedomosti.ru published an editorial commenting on a recent statement by the Russian Deputy Prime Minister Mrs. Olga Golodets regarding 38 million Russians that are employed „who knows where“. According to Mrs. Golodets, this group, not registered as either employed or unemployed, makes up a large percentage of Russia’s 86 million-strong workforce. Stating that these people are „invisible“ to the administration, she went on to complain that Russia is 20 years behind the rest of the world in most, if not all, professions.

According to the Russian Statistical Bureau, the total Russian workforce in January 2013 consisted of 75.2 million people, of which only 4.5 million are registered as unemployed. Authors suppose that Mrs. Golodets included students and disabled persons in her estimation of the workforce size, which is higher than the official numbers. Moscow’s Higher School of Economics estimated that as much as 24-26 percent of the total employed workforce (17-18 million people) works in the “grey” economy. Other estimates are even higher, claiming that the grey economy employs 30 percent of the total employed workforce.

It is obvious that the official employment in Russia steadily decreased during the last few years. The reduction of unemployment that the officials boast about is a result of increased grey economy, not reflected in the official employment figures. Authors believe that this phenomenon is a result of increased taxes and administrative burden – from the beginning of 2013, mandatory contributions to the pension fund for self-employed individuals more than doubled, from 17,208 (USD 555) to 35,665 (USD 1,150) rubles per year. It is believed that the measure is directly responsible for putting as much as 317,000 self-employed individuals and small enterprises out of business.

Unregistered employment in Russia has always been significant. One of the studies showed that 38 percent of workforce without a high school diploma are not registered with the government by their employers, while the percentages for those with a high-school diploma and a university degree are 21 and 13 percent, respectively. Among the sectors, trade accounts for 60 percent of all unregistered employees. Geographically, the largest percent of unregistered employment is found in Southern and Siberian Federal Districts – it is estimated that 30 percent of the total employed workforce in those regions isn’t registered, compared to the national average of 24 percent. Needless to say, illegal immigrants form a significant percentage of the unregistered workforce.

The editorial ends with a conclusion that such extremely high numbers are a consequence of general mistrust towards the Russian Government, which is not able to provide adequate guarantees for the protection of individual liberties and private property, including the protection of businesses from racketeering. On top of that, labor productivity in Russia is 3 times less than that in the United States and 2.6 times less than in France.

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