(Bloomberg) —
Elena, a 42 year-old Moscow shop assistant, has a family to feed, a mortgage to pay, and half the income she was receiving a month ago. She can’t apply for support because she hasn’t lost her job, but Russia’s labor laws make it almost impossible for her employer to make her redundant.
It’s a Catch-22 situation that’s becoming commonplace in households across Russia as the near total economic shutdown due to the coronavirus takes its toll. President Vladimir Putin prides himself in overseeing one of the lowest unemployment rates in the world, but the pandemic is showing the downside of a system that restricts flexibility.
The situation is exacerbating poverty at time when Putin badly needs a popularity boost following five years of stagnation and falling incomes. His approval rating has fallen to the lowest since 2014 and scattered protests have broken out in some parts of Russia over the fallout from the virus lockdown. The economy is expected to contract by as much as 6% this year.
“People are putting up with it for now, even though they know that in other countries there’s more support,” said Natalia Zubarevich, head of regional studies at Moscow’s Independent Institute for Social Policy. “They’re scared to complain because they want to return to work. How it will play out politically is anyone’s guess.”
Reported coronavirus cases in Russia have surged in recent days, surpassing 120,000 over the weekend. A quarter of companies have put some workers on unpaid leave since a lockdown began at the end of March, according to a poll of 1,700 firms taken by the Center for Strategic Research in Moscow last month. Almost 80% expect a reduction in wages of around 17%.
What Our Economists Say
Russia’s rigid labor market could be a blessing if holding on to workers makes it easier for companies to restart. But without more government support, firms will pass the pain on to households anyway.
Scott Johnson, Bloomberg Economics
Alexei Zakharov, the founder of hiring site SuperJob, estimates that about 15% of workers are currently idle, while as many as 25 million will be out of work if the lockdown continues until the end of May. The situation will deal a blow to incomes, which were only just starting to return to 2013 levels before the pandemic struck.
“One of the biggest losers of this crisis will be the middle classes,” said Yaroslav Kuzminov, the rector of the Higher School of Economics in Moscow. “That will sharply reduce the innovative capacity of the economy, its flexibility and potential to grow.”
Elena, who works at Sportmaster, Russia’s largest sports goods retailer, has had her hours and pay cut in half, and she is one of the lucky ones. She estimates that about 80% of her colleagues outside of Moscow are now on unpaid leave.
Government aid has focused on big state-owned companies, which so far haven’t had to cut too many jobs. Sergei Agibalov, a spokesman for Sportmaster, said many salaries were cut by a third because the state support measures didn’t cover losses from store closures. Some workers took unpaid leave to demonstrate their “loyalty and readiness” to support the company, he said.
“We’ll tell the bank about the drop in our income, but they don’t give mortgage payment holidays,” said Elena, who preferred not to give her second name for fear of being reprimanded. “The interest will still mount up.”
Putin instated a “non-working” period from the end of March until May 11, though employees have to continue working remotely if they can and employers still have to pay their staff. The “most important task” for companies is to maintain stability and not allow a surge in unemployment, Putin said in March.
The government increased unemployment benefits to 12,000 rubles ($162) from 8,000 rubles at the beginning of April through June, but the amount barely covers the cost of living in even the poorest parts of the country. The government has been reluctant to use up the country’s $165 billion rainy day fund in case the price of oil, Russia’s main export earner, doesn’t recover.
Sergei, a 35 year-old sales manager at a large Moscow car dealer, says he and his colleagues have been told to sign contracts accepting unpaid leave until the end of May. They were given an advance of 17,000 rubles instead of their full wages for April with a promise of receiving the rest later.
“Refusing to sign the contract wasn’t an option,” he said, preferring not to give his surname for fear of losing his job. “They told us: if you don’t sign, you’ll be the first to be fired as soon as things return to normal.”
(Updates virus infection data in fifth paragraph.)
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