Forecasts on Average Earnings and Health in Russia Look Bleak

Today in the Moscow Times, Alexander Zhelenin examines whether averages wages in Russia will rise along with the energy boom. Also the American Enterprise Institute has just posted a speech by demographer Nicholas Eberstadt which addresses the current health crisis in Russia (see below). Moscow Times:

Economic Development and Trade Minister German Gref recently said that in the near future Russia should expect “a breakthrough in the economic sphere, with an accompanying rise in consumption and personal incomes.” In July, Gref released data related to this same theme. At a meeting between Putin and members of the government, Gref announced that the average income had reached 11,000 rubles, or about $420 per month. Given past figures this might have sounded like good news. But the number is a bit misleading, as the astronomical earnings of a small number of people at the top of the pile and regional differences distort the picture. It makes about as much sense as calculating the average temperature for the patients at a particular hospital. … According to calculations by the Russian Academy of Labor and Social Relations, the average subsistence-level income in the country is 14,000 rubles, or about $525, per person. This demonstrates that the government’s official subsistence income of about 2,600 rubles per month is indecently low. The Finance Ministry doesn’t even refer to it anymore. Leaving averages aside and looking at different groups, we discover that, according to official data, about 65 percent of the population live on less than 8,000 rubles per month, and 50 percent earn less than 6,000 rubles. So Gref’s talk of a “breakthrough” in salaries should be good news. But is it really going to happen? Not according to some economists. “Russian incomes cannot grow faster than they are at present,” said Andrei Kolganov, a professor of economics at Moscow State University. “There is no solid foundation to current economic growth.” Kolganov said that, given the economy’s dependency on world energy prices and the unlikelihood that these prices will grow at the pace seen over the last four years, rapid income growth is unlikely. The State Duma election in 2007 and the vote to choose a new president next year will likely have an effect. Vladimir Gutnik, head of the Center for European Research at the Institute of World Economics and International Relations, said the elections will drive incomes higher. “We can expect significant increases in wages for state employees, pensions and government aid,” he said. “It is clear that these increases will outpace the rate of inflation, even if the economy does not grow at the rate forecasted.” This can be accomplished even if growth slows by using funds accumulated in reserves and the stabilization fund to cover the difference. So, while expectations of a boom in incomes and consumption from continued economic growth might not be reasonable, an infusion of cash could still make them realistic. Pouring this money into people’s pockets, even if only ahead of elections, isn’t the worst outcome we could hope for, especially as the reserves have been built up from years of economic growth. As long as this strategy doesn’t put too much upward pressure on prices, it will provide some hope for the economic road ahead.

From AEI: demographicsrussia.jpg

Russia And that is not the worst of the story. Throughout the world, health and wealth are tightly interwoven. There is a robust correspondence–both internationally, and in any given country over time–between health improvement and improvement in economic potential. Of course, this is not a one-way street, but rather a complex and robust inter-relationship. Therefore, the troubling trends in life expectancy and mortality for women and men in Russia speak to the magnitude of the economic risk that the country is now facing. Russia today is living proof that it is possible for an industrial society during peace time to suffer a health reversal over four decades. Life expectancy for both women and men happen to be lower in Russia today than four decades ago. And to make the story even sadder, the retrogression in health, that is, the increase in mortality, is most intensely concentrated in the working age population. For example, when comparing the death rate ratio for 1965 versus 2005 for women between 20 and 65 (that is, the death rate in 2005 divided by the death rate in 1965 for the same working age groups), we sees an upsurge in death rates that reach or exceed 50 percent for many cohorts. Think of it: over a forty year period, mortality rates in Russia for women between their late 20s and their late 50s have typically risen by about 50 percent! And the situation is even worse for men: for Russian men in their 40s, in fact, death rates doubled over those same decades. Russia health disaster looks even more striking when we compare current survival schedules for working age men with those from counterparts from affluent European societies. Look at the contrasts in survival chances for Russian men and Swiss men as of 2001. On more or less current schedules, a man from Switzerland has about five chances out of six of surviving from age 20 to age 65. In Russia, on current survival schedules, a man age 20 has less than even odds of making it to 65. This is not just a humanitarian tragedy: but it has very real economic implications for Russia as well. By foreshortening life expectancy in such a dramatic manner, Russia’s health crisis also forces a dramatic shift in the calculus of causes and benefits for investing in human capital, for investing in higher education, in training, and skills. Human capital deepening has been a critical aspect of the overall process of modern economic growth–but the pervasive surge in working-age mortality that Russia is suffering through does not augur well for human capital investment. To the contrary: it is easy to appreciate the devastating impact that Russia’s new mortality patterns could have on calculations about training and productivity enhancement.