Russia has paid a high social price for its rapid progress in the transition from communism. Under communism, economic growth was restrained but there was a very low level of inequality. Most workers made roughly the same income. Extremes of high and low incomes were rare. Since embarking on a market economy, Russia's rapid macroeconomic and political reforms created anxiety among the citizens who came to expect a modest but dependable lifestyle. Russia's abandonment of subsidies for Soviet-era industries permitted a steep industrial decline, throwing millions of citizens out of work. Today the Russian labor force is undergoing tremendous change. Although well-educated and skilled, it is mismatched to the rapidly changing needs of the Russian economy. Millions of Russian workers are underemployed . Unemployment is highest among women and young people. Many Russian workers compensate by working other part-time jobs.
Russia's financial crisis had a severe effect on wages in the country. Many employees were helpless as ruble devaluation and price increases drastically eroded the buying power of their salaries. Meanwhile, both foreign and Russian companies, faced with their own challenges stemming from the crisis, resorted to pay cuts in order to maintain what staff they felt able to keep. As a result of the financial crisis, although nominal wages in Russia continued to climb, real wages in the country continued to fall. The average nominal monthly wage in January 1999 was approximately 1,200 rubles. In January 2000, the nominal wage was roughly 1,575 rubles, or about US$58 at the prevailing exchange rate at the time. According to official figures, real wages and real disposable income had fallen roughly 30 percent by the end of 1999 compared to 1997.
According to a minimum wage law signed by President Putin in June 2000, the minimum wage increased to 300 rubles per month by mid-2001. In December 1999, the average monthly subsistence minimum was 943 rubles, or approximately US$36 at the prevailing exchange rate. Therefore, approximately one-third of Russia's population is living below the subsistence level. As of 1 February 2000, Russian pensions increased 20 percent. The minimum Russian pension is 410 rubles per month. The average pension is 650 rubles per month, which is still below the subsistence minimum.
Although the Russian government has been using International Labor Organization (an arm of the United Nations) statistical methods to determine unemployment, officially reported unemployment levels in Russia, as with other official statistics, have often been lower than figures determined by the international community. Russia reported several years of very slowly growing unemployment, which temporarily peaked at 9.6 percent in the spring of 1997 before dropping to a low of 9 percent at the end of 1997. During this time, alternative estimates of unemployment suggested a combined unemployment and underemployment rate of between 12 and 15 percent. In 1998 unemployment levels resumed their climb. In the wake of Russia's financial crisis, both Russian and foreign companies resorted to layoffs and salary cuts. In November 1998, when the official unemployment rate was 11.6 percent, the Russian Ministry of Economy predicted that unemployment would grow 70 percent by 2001. In early June 1999 the Russian government reported that unemployment had reached 14.2 percent of the country's workforce, or 10.4 million people, the highest level ever officially reported by Russia. For much of 1999 the unemployment rate hovered at 12.4 percent, or 9.12 million people. Russia closed 1999 with an official unemployment level of 11.7 percent.
Russia's well-educated but relatively inexpensive labor force has been a leading attraction for foreign firms. While in the early 1990s many Western firms initially found it challenging to find employees educated in Western business concepts and practices, there is a growing pool in Russia of individuals with Western business exposure, education, and experience. Russian law requires that wages be paid in rubles.