The global financial crisis interrupted a protracted period of strong economic growth in the Russian Federation. Despite a large decline in output, job losses and hikes in unemployment remained rather modest, and much of the labour market adjustment took place through reduced working hours and, in particular, real wages. Notwithstanding the recent recovery, the Russian labour market remains characterised by significant structural imbalances resulting in widespread segmentation and large earnings inequalities. To improve the balance between labour market flexibility and the protection of workers, the Russian Federation needs to reinforce its labour market institutions. This can be done by strengthening labour law enforcement, promoting workers representation and collective bargaining, the labour inspectorate, enhancing the effectiveness of active labour market programmes and by removing the possibility to use civil contracts for employment purposes as these provide little or no employment protection.

The global financial crisis had a significant impact on the Russian economy and its labour market. The cumulative output loss during the recession was almost 11% in the Russian Federation, considerably larger than the equivalent output loss of almost 5% for the OECD as a whole. The impact of the crisis is even larger taking into account the high growth rates in the Russian Federation prior to the crisis. Indeed, the cumulative growth loss – comparing the loss in output with the growth in output that would have occurred in the absence of the crisis – is estimated to be 19% in the Russian Federation versus 8% in the OECD area. An economic recovery has been underway since the third quarter of 2009, with declining unemployment and a positive real wage growth. The latest OECD projections expect growth to be around 4 to 5% in 2010 and 2011.

The global financial crisis interrupted a protracted period of strong economic growth and poverty reduction in the Russian Federation. Despite a large decline in output, job losses and hikes in unemployment have remained rather modest, and much of the labour market adjustment has taken the form of cuts in working hours and, in particular, earnings. While a recovery is now underway, the Russian labour market remains characterised by significant structural imbalances resulting in widespread segmentation and large earnings inequalities. High worker turnover points to a dynamic labour market, but employment growth has been mostly in lower quality jobs and atypical contracts have increased. Also, regional disparities remain large as poverty traps hinder workers moving across regions in search of available jobs.

The Russian Federation needs to reinforce its labour market institutions to improve the balance between labour market flexibility and the protection of workers. Employment protection regulation is relatively strict for workers on permanent contracts with short tenure, but relatively flexible for those on other types of contracts. But labour laws, in general, do not seem to impose major constraints on employers owing to the lax and unequal enforcement. The State Labour Inspection is relatively understaffed and sanctions for labour law violations are too low to act as a deterrent. The collective bargaining framework is fairly developed but has a very limited effect on wages and working conditions given the weak bargaining power of the trade unions. Employers almost entirely set wages on their own, which helps explain wage flexibility. Employment services and unemployment benefits have been scaled up in response to the recent economic downturn, but major restructuring of the system is necessary to provide adequate assistance to all unemployed people and to improve the cost-effectiveness of existing programmes.

Strong economic growth until 2008 led to a reduction in official absolute poverty rates since the beginning of the new millennium. The financial crisis has interrupted the downward trend but it has not led to a poverty rebound. However, large income inequalities remain in the Russian Federation. Poverty risks are highest among children. The social support system in the Russian Federation is not geared towards the working-age population who, if not physically or mentally impaired, are widely held to be undeserving of social support. In addition, the redistributive power of the social protection system is limited. Social benefits are badly targeted and social security contributions are paid on income up to about 1.5 times average earnings in 2010.

The Russian pension system has undergone various reforms over the past decade. Since 2002, the general public pension system comprises a basic benefit, an earnings-related scheme based on notional accounts and a funded component. In 2008, the government started to financially promote voluntary pension saving by matching individual contributions up to a maximum, and it sharply increased the basic public pension in 2009-10 to fight old-age poverty.