Earnings Inequality Declining in Russia
Earnings inequality in Russia has nearly halved over the past 25 years. The primary factors driving this trend are rising minimum wages, regional economic convergence, and shifts in the returns on education. Since 2019, a new phase of this process has been observed, with inequality continuing to decline but driven by entirely different mechanisms. These are the findings made by Anna Lukyanova, Assistant Professor at the HSE Faculty of Economic Sciences, in her new study. The results have been published in the Journal of the New Economic Association.
Russia was once regarded as a country with high earnings inequality, but this was primarily the case around the turn of the 1990s and 2000s. Today, Russia can be confidently categorised as a country with a moderate level of earnings inequality. Moreover, unlike in developed countries, where the gap between the rich and the poor is widening, inequality in Russia continues to decline.
To assess earnings inequality and identify the factors driving its decline, the author analysed data from two large surveys: the Russian Longitudinal Monitoring Survey (RLMS) by HSE University and the Statistical Survey of Income and Participation in Social Programmes by Rosstat. Employment earnings data was adjusted to 2005 levels to more accurately reflect real income growth. A model was then developed to assess the contribution of various factors to reducing inequality, including the increase in the minimum wage, higher education, region of residence, and others. Three time periods were analysed: 2005–2010, 2010–2019, and 2019–2023.
The Gini index is used to measure inequality and social stratification, with values ranging from zero to one. The higher the figure, the more income is concentrated in the hands of a small segment of the population. From 2005 to 2023, the Gini index for wages in Russia decreased by nearly 40%, from 0.48 to 0.30.
The analysis reveals that education has become a key factor in reducing earnings inequality. Paradoxically, during the first period under consideration (2005–2010), higher education had a lesser impact on earnings. According to the author, education tends to have a mixed effect on inequality levels. On one hand, individuals with sought-after university degrees are more likely to earn higher salaries. On the other hand, if the number of people with higher education in the labour market exceeds employer demand, the financial return on education decreases.
Throughout the entire period under review, higher education contributed nearly four percentage points to the decline in the Gini index. 'Different types of education yield varying returns, and these can fluctuate unevenly. If the returns from higher education are increasing, inequality is likely to rise. However, if the returns from secondary vocational education are growing, the impact may be different. This is roughly what has been happening in recent years: the growth of industry is driving demand for skilled workers, but the supply of such workers is insufficient, therefore their wages are rising, which also helps reduce inequality,' comments Anna Lukyanova, Assistant Professor at the HSE Faculty of Economic Sciences.
An increase in the minimum wage has also made a significant contribution. Over the past 18 years, its impact on the decline in the Gini index has been around one percentage point. Additionally, the economic convergence of regions has had a significant impact on the overall reduction of inequality. In the first period under review, the income gap between residents of the capitals and those in other regions was much more pronounced. The increase in wages in the regions contributed almost two additional percentage points to the decline in the inequality index. Other contributing factors include industry premiums and a reduction in the gender pay gap.
In the most recent stage, from 2019 to 2023, the trend shifted. The rate of decline in earnings inequality slowed, and the impact of education changed. Education has now begun to increase inequality again, as a growing number of workers occupy high-paying positions that require specialised, modern knowledge. The gender pay gap was narrowing until 2019, but this progress was reversed thereafter. Demographic changes and wage growth in industry are now playing a key role in reducing inequality: from 2019 to 2023, the contribution of industry wage growth to the decline in the Gini index was nearly one percentage point.
'Russia has an average level of wage inequality by international standards, particularly considering the heterogeneity of its territory. The surge in inequality that accompanied the transition to a market economy has been largely overcome. Moreover, inequality in the labour market is not the only factor, as there is also inequality in income from property and capital,' explains Anna Lukyanova, Assistant Professor at the HSE Faculty of Economic Sciences. ‘Nor is inequality in the labour market an absolute evil, as it also plays a positive role. It can create incentives for hard work, investment in human capital, labour mobility, and career advancement. To further improve the situation, it is important to act thoughtfully and precisely, focusing on key disparities.'
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