Labor Productivity versus Labor Compensation:Some Simple arithmetic

Abstract

The paper explores the “race” between wages and labor productivity in the contemporary Russian economy. It continues the author’s previous research where the same problem was examined for the earlier period of 1997-2007. The analysis focuses on dynamics in labor productivity and labor compensation during the economic crisis of 2008-2009 and subsequent years. The author shows that conventional wisdom implying that in Russia wages persistently increase at much higher annual rates than productivity is wrong: over 1997-2012 there was no stable relationship and waves of faster wage growth alternated with waves of faster productivity growth. However in the long run productivity outpaced labor compensation. As a result in 2011-2012 real unit labor costs for Russian firms were even lower than in the mid of the 1990s or in the beginning of the 2000s.