Russia Economic Monthly. June 2021 - Fast Recovery in Labor Market Creates Risk of Wage Inflation

The overall economic recovery in Russia has been rapid thus far, and we think demand for labor should continue growing as we move further into the year. However, the labor market is also facing the challenge of asymmetric dynamics across different sectors. Meanwhile, another challenge lies in the fact that migrant flows have dried up due to the pandemic, which could cause wage growth to rise faster than productivity growth in certain sectors.> Unemployment rate on steady decline. Since it peaked at 6.8% in August (4.8 mln unemployed), the unemployment rate has fallen to 5.4% as of end-March (4.1 mln).> Migration a factor for some industries. Migrant flows are important for the agricultural, construction, retail, accommodation and dining segments. > Drop in net migration pushed wages up in agricultural sector last year. Demand for labor in the agriculture, retail, accommodation and dining segments is growing rapidly. The scope for employment to rise could be constrained if migration remains restricted by anti-Covid measures. In this case, wage growth could rise faster than productivity growth in these sectors, creating inflationary pressure.