15.04.2015 – The Discussion Club Academia meeting

On 15 April, the Discussion Club Academia held its regular at the Gaidar Institute.

Tatiana Maleva, Director of the Institute for Social Analysis and Forecast, made presentation on "Social Challenges of the Crisis." Vladimir Nazarov, Director of the Financial Research Institute and leading researcher at the Gaidar Institute; Yulia Florinskaya, senior researcher of the Institute of Demography at the NSU HSE; Elena Avraamova, head of social sphere research department at the Institute for Social Analysis and Forecast, RANEPA, engaged in the discussion.

Journalists from Bloomberg, Wall Street Journal, Forbes, Gazeta.ru, and Kommersant –Money actively participated in the discussion.

Director of the Institute for Social Analysis ad Forecast, Tatiana Maleva, briefed the participants on the history of economic crises in modern Russia. According to the expert, 'ticking bomb' for Russia lies in the range of labor market, imbalances and contradictions negatively affecting economic development independently of external shocks and imbalances in the government economic policy. "Principal challenge of the labor market lies in the fall into a prolonged demographic hole which will inevitably tell on the economic growth,"- said Maleva.

The expert emphasized the labor market determines the level of salaries which, in its turn, determines the size of pensions and benefits. "There cannot be strong social safety net in the context of low salaries. Main problem of the Russian pension system is low salaries,"- underlined Maleva.

According to the expert, Russian labor market has reached a historical optimum: unemployment is at the lowest level, the level of economic activity of the population and employment are at the highest level. However, main challenge of the Russian labor market lies in the fall into a prolonged demographic crisis which will determine all developments in the social sphere. The year 2011 marks the beginning of significant fall in the number of population in active working age. At the same time, large generation of late 1950s reaches the pension age which will be replaced by tragically small generation of 1990s now reaching working ability. "It's clear that independently of external shocks Russia would not be able to maintain the level of productivity which was achieved prior to 2008 crisis,"- noted Maleva.
The expert also stressed that maintaining high employment by way of low salaries makes the social safety net much more exposed. "Prior to the 2010s the labor market was solving one problem: finding the balance between the unemployment level and economic activity and employment. The labor market chose high level of economic activity and employment in return for low salaries,"- said Maleva.

Another problem lies in the structure of the labor market: oversupply of managers, executives and catastrophic shortage of labor resources in blue-collar jobs. "In view of this fact one can not hope that the import substitution will be able to stimulate economic growth. Import substitution can be effective if managers are replaced by workers,"- underlines Maleva.

The expert also focused on the well-being of the population. For the first time since 2000, 2015 has marked the fall in the real disposable income of the population year-on-year basis. The only type of income which was fully indexed according to 2014 inflation were pensions.

Significant price growth has contributed to the fall of real disposable income including on food products and medicine which resulted in a considerable reduction of purchasing power of money income of population.

At 2014 year-end, expenses on goods and services went up in the structure of money income and expenses on financial assets have dropped.
Fall in the ratio between average pension and average salary (replacement rate) from 35.7% in 2010 to 33.1% in 2014 represents a dangerous sign.

Maleva's presentation >>>

Senior researcher of the Institute of Demography at NSU HSE, Yulia Florinskaya, focused on demography and migration in the wake of economic crisis. At the beginning of the year, the expert community expressed concerns regarding the fall of the inflow of migrants to Russia due to weakening ruble and modification of terms for foreign citizens stay in Russia. However, statistics demonstrate to the contrary. Demographic situation remains stable: at 2014-end insignificant natural growth is registered, first months of 2015 demonstrate weak natural population decrease.

Statistics on 2014 permanent residence for migrants so far do not allow noticing the crisis impact. Provisional migration at the beginning of 2015 so far poorly reacts to the crisis: there was no significant reduction in the number of migrants from CIS. However, the number of migrants from EU, the US and Canada substantially fell. The fact that the number of officially processed documents for the right of migrants to work in the RF fell 3-fold in January-February 2015 compared with 2014.
Elena Avraamova, head of the social sphere research department of the Institute for Social Analysis and Forecast, elaborated on the social well-being and public mood during the first months of the crisis. The expert noted that at this point, the people do not tend to dramatize economic situation and the majority consider that during 1-2 years the negative economic trend will be replaced by a positive one. At the same time, up to two thirds of the population felt the negative impact in socio-economic sphere.

Leading researcher of the Center for Macroeconomics and Finance of the Gaidar Institute, Vladimir Nazarov, spoke in his presentation about the situation in the pension system of Russia. He concludes that pension stopped being an insurance from poverty and from loss of earnings because the majority of pensioners continue working receiving both salary and pension thus creating additional burden on the budget. Moreover, special category represent citizens who are early retirees constituting over 30% of the total number of pensioners. "These citizens do not have any insurance event. The Ministry of Labor is now suggesting introducing barriers to paying pensions to millionaires. It would have been more logical to focus on most vulnerable groups of population and on the advanced age pensioners,"-underlined Nazarov.

In the circumstances when there is a need to implement May Presidential Decrees the situation has changed drastically, now there are premises for solution of this issue in a harsher way, considers expert. "About 750 measures of social assistance are effective in the country, nominal price of which is about 10 rubles and somewhere 50 rubles, and in some cases somebody gets a benefit for something. The lion's share of these benefits is applied to well-to-do citizens. Those who are really in need do not get social benefits at all. It is unlikely to mend the situation by putting the screw on,"-comments V. Nazarov.

Regarding the issue of economic growth, the expert noted that the Russian economy is designed for economic growth of 1-1.5% annually. "It will not grow faster because it is hampered by complicated demographic situation and bad institutions. Moreover, without correct strategy of answers to external shocks (fall of oil prices, global economic recession) we may get a repetition of Russian economic history of the 1990s,"- warned Nazarov.

Sound clip of the session >>>