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5 Sep, 2007 07:21

Wages on the rise in Russia

Data released this week indicate that labour costs have risen by almost 50% during the last three years.

Wages are now growing faster than the rate of inflation, reaching $US 500 a month, on average.

In a report out this week, the Russian financial brokerage firm Aton, warns growing labour costs pose a major challenge to company profitability and the only solution, they say, is to improve productivity.

“The Russian economy as a whole is very labour intensive, as opposed to capital intensive, as most of the developed economies are. We think that this situation is inherited from the socialist past,” concluded Vladimir Osakovsky, economist, Aton broker, Moscow

The motor industry is a prime example. One employee at Avtovaz produces just 7 cars a year while his counterpart at General Motors produces more than 30.

And there is a similar picture even in Russia's most lucrative sector – energy. An employee at Lukoil produces only half the amount of oil as a BP employee.

But economists say the rising labour costs are encouraging companies to improve productivity to compensate. And besides, many employers are more than willing to pay out higher salaries, in order to stay ahead.

“The reason people feel comfortable about giving the pay rises that they give, and the reason they feel comfortable about accelerating the promotions in the way they do, is because of the confidence they have in their businesses here. The problems are arising as a result of success, not as a result of some economic malaise,” observed Tim Carty, partner, Ernst & Young, Moscow.

But while the economy is on the up, the population is in steady decline, meaning capable people joining the labour market will increasingly be able to name their price.