Russia’s record employment signals a surprisingly smooth decoupling from the West. Its rapid replacement of McDonald’s and Starbucks says business as usual. Yet pressures are building inside its economic machine.
Six months into the Ukraine conflict, the strategies and struggles of Russia’s biggest automaker offer an insight into the contrasting fortunes of a country striving to withstand what Vladimir Putin calls an economic “blitzkrieg” by the West.
Avtovaz restarted production of its Lada brand this summer after it was halted in March in the face of Western sanctions, supply shortages and the loss of its French partner Renault. It has not formally laid off any of its 42,000 workers.
Nonetheless, the company’s feeling the heat, and it’s shrinking. The bulk of the 3,200 workers at its factory in the industrial city of Izhevsk – where car production has not resumed – have been furloughed since March, with the company paying two-thirds of their wages, although some staff have been given temporary work around the factory on reduced hours.
This month, the automaker offered all Izhevsk workers one-off payments to quit as it looks to focus more production on its primary plant in Togliatti, 600 km away.
“It’s a choice between bad and terrible,” said Alexander Knyazev, referring to the dilemma over whether to take a 200,000 rouble ($3,400) severance payment or stay in his job in the Izhevsk’s stamped body parts workshop.
Last week he chose to walk away from the factory, which had paid him over 45,000 roubles per month.
“They don’t need so many technicians anymore.” Asked how many workers had chosen to accept the severance, Avtovaz told Agencies it would disclose the final number after this month, adding that those workers on reduced hours would go back to a five-day week at the plant from Aug. 29.
The company did not elaborate on its plans for Izhevsk, though it said earlier this month it remained committed to the plant, which it said would be retooled to make the first Russian-made electric car, the Lada e-Largus, and would retain service and support functions.
“In the current situation of sanctions pressure and a growing number of variables, we are taking comprehensive measures to maintain employment,” Avtovaz President Maxim Sokolov said at the time.
Ruben Enikolopov, a professor of economics at Moscow’s New Economic School, said the auto sector’s struggles were being masked by “hidden unemployment”, where workers were not laid off but instead placed on indefinite furlough.
He said he expected unemployment to rise towards the end of the year, when he said it would likely become clear that sanctions were unlikely to be lifted in the near future.
“In Russia, economic crises don’t tend to produce mass unemployment because of the specifics of the Russian labour market like the furlough practice,” Enikolopov said. The Russian economy ministry declined to comment for this article.
This month, Economy Minister Maxim Reshetnikov dismissed any talk of a dramatic rise in joblessness, which official data pegged at a record low of 3.9% in June.
“I think that in autumn, we will move away from these record low numbers but let’s not over dramatize, the situation is under control,” he told a conference in Yekaterinburg.
In another sign of official optimism, amid high oil prices and popular policies to cushion the impact of inflation, latest government forecasts indicate the depth of Russia’s economic contraction will be less severe than previously feared this year.