Russia's labor market ‘practically illegitimate’, 38mn work in shadow economy

Half of Russia's employable population is engaged in the shadow sector of the economy, according to Deputy Prime Minister Olga Golodets.

Eighty-six million people are employed in various economic sectors, of which only 48 million are said to be working in legitimate businesses.

"We don’t understand where and how the rest are employed," Golodets told a conference at Moscow’s Higher School of Economics.

"Our labor market is practically illegitimate, with only a tiny sector functioning under transparent rules," she added.

“With the shadow sector this large, we have lack of funding for all our social costs,” Golodets pointed out, adding that Russia is at least 20 years behind other countries on the international labor market in terms of the level of employment. It’s hoped that the problem could be solved with a new law defining professional standards in Russia.

According to the World Bank, Russia’s shadow economy is 3.5 times bigger than in other G8 countries, with ineffectiveness of public administration and tax evasion holding back the country’s economic and political advancements.  

Last December GFI reported that Russia lost $151 billion in black money, leaving the country between 2001 and 2010, making it the fifth largest victim of illicit capital outflow.

A US financial watchdog, Global Financial Integrity (GFI), reported in February that from 1994 to 2011Russia lost billions of dollars in form of bribes, tax evasion and money from the trade in drugs, weapons and people. The illicit inflow of money to Russia in the same period amounted to about $553 billion.

Experts noted however, that the volume of Russia’s black economy decreased from an average 46 per cent of GDP prior to 2011 to 35 per cent in 2011. This led to more than $211 billion of illicit money fleeing the country.

“Russia has a severe problem with illegal flows of money. Hundreds of billions of dollars have been lost that could have been used to invest in Russian healthcare, education, and infrastructure. At the same time, more than a half trillion dollars has illegally flowed into the Russian underground economy, fueling crime and corruption,” GFI Director Raymond Baker revealed.