Poverty is not a threshold: what will happen to the minimum wage after the cancellation of the consumer basket


 The Ministry of Labor and Social Protection of the Russian Federation proposed to abolish the usual institute of the consumer basket. Also, the department intends to abandon the determination of the size of the subsistence minimum once a quarter. How will the proposed innovations affect our salaries and the minimum wage? Will this drease the number of poor people in Russia? Details - in the material "Izvestia".

what will happen to the minimum wage after the cancellation of the consumer basket

In the new version of the project, the Ministry of Labor has softened the property qualification for those in need

Change in the cost of living

The draft order of the Ministry of Labor on the abolition of the institution of the consumer basket is posted on the federal portal of draft regulatory legal acts. Also, the ministry intends to abandon the quarterly establishment of the value of the subsistence minimum in the Russian Federation. 

From January 1, 2021, the living wage of Russians is no longer determined by the "basket", but by the median income. This is a conditional indicator by which the entire working population of the country is divided in half: half of the income is higher, the other is lower. The ministry expects that the subsistence minimum will depend on the income level of the majority of the country's citizens and rise as they grow. The median per capita income largely reflects the real incomes of citizens and consumption standards. The subsistence minimum is defined today as 44.2% of the median per capita income.

the man in the grocery store
the man in the grocery store

Previously, the cost of living was calculated based on the value of the products included in the consumer basket. This technique was often criticized because only the simplest foods were included in the consumer basket, and the range of products itself is subjective and does not reflect changing consumption standards. By rejecting such a model, Russia is joining other developed countries where the consumer basket is no longer used to determine the subsistence level, since it does not reflect the real needs of their population.

In 2021, the indicator will decrease by almost 1 percentage point, which corresponds to about 1.3 million people

- In connection with the new model adopted last year for establishing the living wage and the minimum wage, the current regulatory framework continues to be updated. Taking into account these changes, a number of normative acts are being adjusted, which use the outdated method of calculating the subsistence minimum, - explained in the Ministry of Labor.

In particular, the Ministry of Labor of Russia, together with Rosstat, developed a draft order on invalidating the list of food products, which was used to determine the level of consumer prices for food when calculating the subsistence minimum, in connection with the transition to a new model for calculating the subsistence minimum.

What changes are preparing for us

The abolition of the institution of the consumer basket should lead to an increase in the efficiency of determining the subsistence level, experts of the St. Petersburg State University of Economics (SPbSEU) believe. The new calculation method, in their opinion, is more progressive; it excludes manipulations with the value of the consumer basket by including cheap goods or services that may not be purchased by the population.

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There are two main reasons why the Ministry of Labor decided to change the methodology for determining the subsistence minimum and minimum wages. First, the government's calculations showed that only in 13 regions of Russia the cost of living corresponds to the federal methodology. 

In 11 regions (including Moscow, Khanty-Mansi Autonomous Okrug, Yamalo-Nenets Autonomous Okrug, Murmansk Oblast, Karelia) it is higher, in 61 regions it is below the conditional federal minimum consumption rate. The second is that the cost of living in Russia since 2016 has made up an ever smaller part of the median income of the population. If nothing is changed, experts say, then its weight will continue to decrease, because now the minimum guaranteed by the state is not tied to the growth of wages in the country.

Since federal law No. 473-FZ established that the cost of living is set as a percentage of the median income, and not according to the cost of the consumer basket, as before, the consumer basket loses its meaning, and its cancellation is quite logical, notes a professor at the Faculty of Economics of Novosibirsk State University (NSU ) Konstantin Glushchenko. However, the cost of the consumer (more precisely, food) basket was calculated at actual prices, that is, it reflected the price level in the region.

“How and on what basis will the differentiation of the subsistence minimum by regions be carried out is still completely unclear,” the expert emphasizes.

The state can tighten measures against concealment of income

- Since food prices grew faster than prices for non-food products and services included in the CPI (consumer price index - Izvestia), the cost of living grew at the rate of food inflation. Apparently, they decided that it was a mess. Now we will set it once a year and based on last year's per capita income (and not adjust for inflation for a whole year), explains Yulia Raskina, Associate Professor at the Faculty of Economics at the European University at St. Petersburg.

Former Minister of Labor and Social Development of the Russian Federation, State Duma Deputy Sergei Kalashnikov believes that after the innovations of the Ministry of Labor, the statistics on poverty will also change.

- According to our median, it may turn out so that now many poor people will be middle-rich. This is the problem with the median approach. After all, we really have a lot more poor people than rich people. The median approach will only give an official reduction in poverty according to statistics. It so happened that the average salary is always underestimated in relation to the poor. That is why the median in Russia is only a little over 40%, and in the same Western countries - 60%, - said Kalashnikov.

After the new rules of the Ministry of Labor, there will be officially fewer poor people, but the situation, alas, will not change yet, the deputy emphasizes.

During the quarantine period, they were forced to take unpaid leave, declared downtime and reduced their working hours.

- As you can see, the calculation is now based on the median income. However, trade unions continue to insist that this indicator itself should be calculated according to agreed methods and published openly, - says Boris Kravchenko, president of the Confederation of Labor of Russia and member of the Council under the President of the Russian Federation.

Let's live like the middle-class

In Western countries, the concept of poverty is based not only on the satisfaction of minimum needs, but also on the lack of access to certain goods and services. 

Perhaps, to determine the real level of the subsistence minimum, it is more effective to proceed from the average per capita income of the population of Russia, argues Alena Massarova, an expert at the RUDN University Faculty of Economics. According to Rosstat, last year the average per capita monetary income in the country amounted to 35,361 rubles.

“And if we apply the relative concept of poverty definition, which is used in many developed countries (50% of the average per capita monetary income, ie 17,680.5 rubles), the poverty level in Russia will increase significantly,” Massarova is sure. - But Russia is still not ready for such a format for calculating the living wage.

empty wallet
empty wallet

Meanwhile, according to Raskina, all the innovations of the Ministry of Labor indicate that Russia has moved from an absolute approach to determining the poverty line (meeting basic needs, minimum living standards) to a relative poverty line - a certain percentage of the macro indicator of income.

- Rich, developed countries, as a rule, do just that - they tie the poverty line to the standard of living in the country. If the standard of living rises, then the poverty line rises, - the expert clarifies.

This indicator increased for the first time since 2018 and grew by 22% over the year.

“A relative approach to the definition of poverty is used, for example, in the countries of the European Union,” says Elena Grishina, a leading researcher at the Institute for Social Analysis and Forecasting (INSAP), RANEPA. - However, there the poverty level is defined as the proportion of the population with incomes below 60% of the median income, and not below 44.2% of the median income, as established in Russia. In individual countries, minimum income standards are developed for different types of households - minimums that ensure the maintenance of a certain standard of living. These minimum standards can be used both for setting minimum wages and for identifying people in need of social support.

The median approach also has strong opponents. Former Minister of Labor and Social Development of the Russian Federation, member of the legislative assembly of St. Petersburg Oksana Dmitrieva believes that Russia needs to move rather not to median, but to arithmetic mean wages. She gives an example of a conditional calculation.

- Currently, the median income is less than the arithmetic mean by about 20-25%. Let's take four people as an example and calculate the median income and the average income. One person receives 1 ruble, the second - 10 rubles, the third - 101 rubles, the fourth - 1000 rubles. The median income will be 100 rubles, but the average income will be 278 rubles.

ruble coins
ruble coins

- There are too many poor people in Russia, and two-thirds of us have incomes below the arithmetic mean. When using the median approach, the indicators of the subsistence minimum are significantly underestimated. The greater the inequality, the greater the difference between the pole of the rich and everyone else, the more the median income differs from the average. Therefore, in Russia, the cost of living, calculated by the median income, will be lower than when calculated from the average, explains Dmitrieva.

To sleep peacefully, citizens need an average of 1.3 million rubles

Either the minimum wage, or the wrong calculation

In accordance with the new rules, the minimum wage is now 42% of the median salary, or 12,792 rubles. Compared to last year, the salary increased by 5.5%.

 Its increase affected 3.9 million working Russians, of which 1.8 million are state employees, 2.1 million are workers in the non-budgetary sector. The law prohibits reducing the minimum wage even with a decrease in the median wage.

“Whether the minimum wage will now be higher than it would have been with the previous methodology (in relation to the consumer basket) is still difficult to say,” says Marina Kolosnitsyna, an ordinary professor at the HSE Faculty of Economic Sciences. - So far, the impression is that the coefficient of 0.42 was chosen precisely in order to keep the minimum wage at approximately the same level.

If last year the federal minimum wage was 12 130 rubles, then this year it turned out to be 12 792 rubles, which is the same, adjusted for inflation, the HSE expert notes.

- Theoretically, if the median salary suddenly grows significantly this year, then next year the minimum wage will also grow. However, no one prevents the government from changing the coefficient from 42% to, say, 37% in a year, the economist notes.

money in a mug
money in a mug

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- Just as in the case of the minimum wage, the coefficient of 44.2% was selected in such a way that the subsistence minimum in the country practically did not change in the current year compared to last year (11,653 rubles in 2021 against 11,301 rubles in 2020 ), Says Marina Kolosnitsyna. - If the incomes of low-income families this year will somehow grow (in particular, due to the expansion of social assistance programs), then poverty will begin to decrease. Note that if we took 50% or 55% of the median income as the poverty line (cost of living), as is done in most countries using the relative approach, we would get an automatic increase in poverty.

Most likely, it would be more correct for the Ministry of Labor and Social Protection of the Population to leave the old method of determining the subsistence level, while expanding the structure of the consumer basket, since the Russian economy is not yet fully ready for a new transition, Elena Akimova, Associate Professor of the Department of Labor Economics at St. Petersburg State University of Economics, is convinced.

- It is worth paying attention to the fact that in developed countries the consumer basket also includes expenditures on education, health care, leisure, meals outside the home, rental housing and other needs that fully reflect the lifestyle of a modern person, which could not be said about so far we still have a consumer basket, - says Akimova. - In this regard, I believe that it would be optimal for Russia to include new items of expenditure in the consumer basket and raise the subsistence minimum to an adequate value, and not switch to a new method of calculating it.