Essay: Russia's economy is that of a shrinking, aging, and poorly qualified population

During his annual phone-in with the public in 2019, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia.

Russia is currently experiencing a demographic crisis due to its below replacement fertility rate and its falling/aging population (see: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse). Russian demography has long been an existential issue to Vladimir Putin. In 2021, he declared “saving the people of Russia is our top national priority".

In 2019, during his annual phone-in with the public in June this year, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia.

Currently, Russia has a significant labor productivity problem (See: Low labor productivity is one of the most acute and important problems facing Russia).

Investopedia says about the importance of labor productivity to an economy, "Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Labor productivity is directly linked to improved standards of living in the form of higher consumption." According the Yahoo Finance: "According to Yahoo Finance: "Efficiency in production, also coined as productivity, is one of the major driving forces behind economic resilience in a country."

Question: How does Russia stack up in terms of labor productivity?

Question: What are Russia's future prospects in terms of labor productivity?

In 2023, the USA was over 200% more productive in terms of labor productivity than Russia when measured using purchasing power parity. See: The USA has one of the highest labor productivity rates in the world - significantly higher than both China and Russia

On February 7, 2024, Reuters reported:

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According to Rosstat, Russia's labour productivity index, one of Putin's key national development goals, fell 3.6% year-on-year in 2022, its steepest annual fall since the aftermath of the global financial crisis in 2009. Labour Minister Anton Kotyakov has said Russia needs to increase labour productivity in order to become more technologically self-sufficient. Labour productivity data for 2023 will not be published until late-2024, but the authorities' warnings about manpower shortages suggest there was no rebound in that figure last year.

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Russia's labor shortage

See also: Russia's labor shortage

The Center for European Policy Analysis reported on March 9, 2024: "Towards the end of last year, experts from the Institute of Economics of the Russian Academy of Sciences estimated that Russia faced a shortfall of nearly 5 million workers in 2023, which is already impeding economic growth. The total workforce is a little under 74 million. See: Russia's labor shortage

For more information, please see: Russia's labor shortage

Russia's economy is that of a shrinking, aging, and poorly qualified population

The flag of Russia

There is currently a talent war in the world due to technology and labor productivity increasing being important in terms of the prosperity of a country. Countries’ competition for talent is forecasted to become fiercer over the next ten years as both uncertainties and international tensions continue in trade, investment and politics. And right now, the United States is competitive in this talent war and China/Russia are not which is one of the reasons why people are fleeing China/Russia (See: Top 12 reasons why people are flocking to the USA and leaving the corrupt, authoritarian countries of China and Russia and The world’s best and brightest are flocking to these countries, CNBC, 2023).

On December 15, 2023, The Insider noted:

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The nationwide mobilization (and the resulting outflux of qualified professionals abroad) exacerbated the crisis in the Russian labor market, already profoundly affected by the demographic decline. Russia's workforce shortage will only increase, experts warn, and may reach 4 million people by 2030. Developed economies compensate for insufficient human resources by driving labor productivity (using such tools as AI, among others), but Russia is also faced with the degradation of industrial processes due to international sanctions. Igor Lipsits, Doctor of Economics, explains how Russia's government policy has caused a labor market catastrophe and why the deteriorating educational system cannot remedy the situation... As early as 15 years ago, when the 2020 Strategy was in the making, the debate was ongoing as to whether defense spending should be cut in favor of supporting education to prevent its decay. No practical steps were taken, though, and Russia currently ranks 82nd in the world by education spending... Since 2006, Russia’s working-age population has shrunk by 13 million. That is, this category is going through a rapid decline. The resulting workforce shortage will cost Russia 1-2% of its GDP each year, according to a market study by Yakov & Partners (former partners of McKinsey in Russia)... From 2018 to 2023, the number of vacancies in Russia has grown by 80%, exacerbating the shortage of human resources. By 2030, the gap will have reached 2–4 million employees. The most affected category is professionals with vocational training (1.1–2.2 million people). The shortage of specialists with a high education will vary from 700,000 to 1.4 million. Russia is not the only nation facing depopulation. Japan, which has it the hardest, has chosen to remedy the situation through robotic engineering. By contrast, Russia is among the planet's laggards in terms of production automation, with its robotic automation pace equaling one-seventieth of the global average... According to the Center for Education Quality Assessment under Russia’s Ministry of Education, around 10% of Russia's schools offer subpar tuition. That’s an optimistic assessment, considering that testing has revealed 22% of Russia's secondary school students to be low-performing. They struggle to grasp the meaning of texts and cannot objectively assess themselves. What further education path is available to such students? Sixty-six percent enter various vocational schools, 26% go to high school anyway, and 7% call it quits. They often consider joining the military as a viable option, ending up in the war with Ukraine, in which Russia is losing both its population and genetic pool. As a result, 25-28% of Russia's adult population is more of a burden to the nation, only preventing its economic development... The quality of schooling has grown even poorer, with Russian schools ranking 31st–33rd among 79 countries, according to 2018 PISA tests in several fields. In 2022, Russia didn't participate in the study due to the war. The quality of higher education, including the PhD level, has also dropped. Thus, from 2010 to 2021, the number of colleges offering postgraduate programs dropped by 3.4 times; the number of available Ph.D. positions decreased by 1.9 times; the Ph.D. graduation rate plunged by 2.4 times, and the number of Ph.D. students who graduated by defending a thesis fell even lower, by 6.4 times.

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The flag of Japan.

In 2023, annual sales of industrial robots in Russia didn't exceed 2,300 pieces, whereas Japan sold as many as 38,000 with a much smaller population.

The Insider further noted:

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According to pre-war data by the Russian Association of Robotics (today's indicators are likely even lower), annual sales of industrial robots in Russia didn't exceed 2,300 pieces, whereas Japan sold as many as 38,000 with a much smaller population. Russia ranks even lower than Mexico and Thailand. At the end of the day, Russia is both losing human resources and failing to replace them with robots; as its population is shrinking, so is the share of young workers capable of amassing human capital. Demographic forecasts suggest that by 2031, the share of the most productive workers aged 20-39 will have shrunk by 25% compared to 2020. Even by 2035, this indicator won't have rebounded to its 2020 level. As a result, Russia's economy is that of a shrinking, aging, and poorly qualified population.

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The RBC Group, a Russian media group headquartered in Moscow, reported on December 4, 2023 in their article Experts estimate the level of Russian GDP losses due to personnel shortages:

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According to experts, in order to eliminate the deficit, it will be necessary to achieve labor productivity growth of at least 2.4% per year - this is twice as fast as the historical level (the average rate over the last ten years is 1.2%) and higher than the forecast (for 2023-2026 it does not exceed 2%). Over the period since 2018, the maximum increase in productivity was observed in 2021 (3.7%), last year it fell by 3.6%. “The growing need for qualified personnel is most noticeable in the regions, especially if you pay attention to the increase in the proposed salary. It is worth noting that in the regions the proposed salary for qualified personnel is growing faster than in Moscow,” noted Vladimir Dzhuma, director of the Center for Digital Transformation and Data Analysis of the All-Russian Research Institute of Labor.

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Articles and videos on Russia's labor shortages

• Russia, especially its “depressed” regions, is suffering from a labor shortage. The decline in the workforce is evidenced by both employers who are unable to find workers and updated statistical data

Videos:

• Russia faces record labour shortage, TRT World, 2024 (Turkish news company)
• Russia's War Economy: A Labor Crisis Unfolding, 2024

Pioneer no more: The degradation of Russia's space capabilities

In August 2023 Russia launched its first lunar mission in decades – Luna-25 – before it unexpectedly crashed into the moon's surface.

Janes is an intelligence company that specializes in military, national security, aerospace and transport topics.

The 2023 Janes article Pioneer no more: The degradation of Russia's space capabilities indicates:

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In August 2023 Russia launched its first lunar mission in decades – Luna-25 – before it unexpectedly crashed into the moon's surface. This was likely after a malfunction in its propulsion system that led to a thruster firing for 127 seconds instead of the intended 84 seconds, in turn affecting the safe landing of the spacecraft by Roscosmos. In a 21 August 2023 statement, Director General of Roscosmos Yury Borisov blamed the “negative impact of almost 50 years” of inactivity in Russia's lunar programme. Moscow's last successful mission to the lunar surface was the Soviet Luna-24, which returned lunar soil samples for scientific study in 1976. Similar to Luna-25, the failures of the Mars 96 mission to Mars in 1996 and Phobos-Grunt, which targeted Mars's moon Phobos in 2011, were major setbacks to Russia's interplanetary space exploration programme in their respective decades. While Luna-25 is a unilateral mission, similar incidents have also affected Russia's multilateral co-operation on the International Space Station (ISS). Although the incident ultimately did not result in any damage, Russia's newest segment for the ISS, Nauka, unexpectedly fired its thrusters and briefly spun the ISS out of position while docking with the space station on 29 July 2021. According to NASA flight director Zebulon Scoville, who was part of the mission control during the incident as quoted by the New York Times in a 2 August 2021 report, the ISS “spun one-and-a-half revolutions – about 540º – before coming to a stop upside down. The space station then did a 180° forward flip to get back to its original orientation”. Despite being one of the few remaining avenues of continuing co-operation between Russia and the West, the ISS is reaching the end of its life and will likely be decommissioned after 2030. Sanctions and break with the West Roscosmos has also been affected by sanctions imposed on it by the Group of Seven (G7) countries after the 2014 annexation of Crimea and the 2022 invasion of Ukraine. Dmitry Rogozin, the then director general of Roscosmos, told the Russian State Duma in a June 2021 hearing that Roscosmos was unable to complete the manufacturing of some satellites because they could no longer import certain microchips from the West after sanctions. Rogozin also oversaw the breakdown of Roscosmos's commercial relationship with the European Space Agency (ESA), many G7 countries' governments, and private customers following Russia's invasion of Ukraine in 2022. In March 2022 Roscosmos cancelled the launch of 36 satellites from UK company OneWeb in response to the UK's sanctions against Russia. In addition to this, Rogozin demanded the UK government divest from OneWeb as well as guarantee that its services would not be used for military purposes, to which neither OneWeb nor the British government complied. Later that month, India's state-owned NewSpace India Limited successfully launched the satellites.

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Russia is experiencing a large brain drain

• Russia's massive brain drain is ravaging the economy - these stunning figures show why it will soon be smaller than Indonesia's, Business Insider, September 2023

• Russia's economy faces a 'massive brain drain' as over 1 million young workers exit labor force, Markets Insider, 2023

• The Great Russian Brain Drain, Novaya Gazeta Europe, 2023

• As Russia sees tech brain drain, other nations hope to gain, Associated Press, 2022

2023: In Russia, the shortage of personnel in the oil and gas industry was assessed

See also: Low labor productivity is one of the most acute and important problems facing Russia and Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

The Russian economy is too dependent on oil/gas.

Countries and economies that are more diversified in revenue sources are more resilient, stable and sustainable.

The Oreanda-News agency was founded in August 1994 in Moscow, becoming one of the first independent news agencies in contemporary Russia. Since 2007, it has been based in Saint Petersburg, Russia.

In 2023, Oreana-News reported in an article entitled In Russia, the shortage of personnel in the oil and gas industry was assessed:

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Currently, the Russian oil and gas industry lacks 25 thousand employees. Elena Kuznetsova, partner of Yakov and Partners, told RIA Novosti about the shortage of staff. She noted that the need for personnel in the sphere is 90 percent higher than at the beginning of 2021. Companies are particularly in need of welders, locksmiths, machinists, engineers and drillers. Moreover, problems with the lack of workers are fixed not only in the energy sector. In particular, companies are actively looking for sales specialists, IT specialists, builders and managers. Kuznetsova emphasizes that it is most difficult for employers to find medium- and highly qualified personnel, since they cannot be replaced quickly. Experts attribute the shortage of labor to the relocation of specialists, the low attractiveness of work in remote regions, as well as the aging of existing personnel and low motivation of young people. Earlier, the head of the Central Bank, Elvira Nabiullina, said that the shortage of personnel is the main problem of the Russian economy. According to the representative of the Bank of Russia, for further economic growth, it is necessary to ensure not the availability of money and loans, but to increase labor productivity.

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Military recruitment in Russia aggravates Russia's labor shortages in oil industry. Russian backlash due to terrorist attack in Moscow causes many migrants to return home

On April 5, 2024, Reuters reported:

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Russian oil producer Lukoil (LKOH.MM), opens new tab has signed a deal with Uzbekistan to hire workers from the Central Asian state on temporary contracts, in a sign of how labour shortages are forcing Russian firms to recruit staff from abroad. The deal, announced by Uzbekistan's ministry of poverty alleviation and employment, comes as Central Asians living in Russia face heightened suspicion and hostility after a mass shooting at a Moscow concert hall last month in which at least 144 people were killed... Russia's labour shortages have been aggravated by military recruitment for the war in Ukraine and the fact that hundreds of thousands of people have left the country since it started in February 2022. The jobless rate fell to a record low of 2.8% in February. The working-age population has particularly been decreasing in Russia's Arctic and far east regions, where much of its oil and gas production is concentrated. Russia's workforce includes several million immigrants from Muslim countries of Central Asia which used to be part of the Soviet Union. Last week, however, Tajikistan said there had been a surge in the numbers of migrant workers returning home, some saying they were afraid amid signs of a backlash following the concert shooting. Kyrgyzstan, another Central Asian state, urged its citizens last week to put off unnecessary travel to Russia.

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Lower future production/profits due to future higher extraction costs, labor issues and other inefficiencies

See also: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies

In 2023, OilPrice.com reported in an article entitled Analysts Predict 42% Decline In Russian Oil Production By 2035:

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But Moscow cannot continue defying the odds indefinitely. BP Plc (NYSE: BP) has predicted that the country’s output is likely to take a big hit over the long-term, with production declining 25%-42% by 2035. BP says that Russia's oil output could decrease from 12 million barrels per day in 2019 to 7-9 million bpd in 2035 thanks to the curtailment of new promising projects, limited access to foreign technologies as well as a high rate of reduction in existing operating assets. In contrast, BP says that OPEC will become even more dominant as the years roll on, with the cartel’s share in global production increasing to 45%-65% by 2050 from just over 30% currently. Bad news for the bulls: BP remains bearish about the long-term prospects for oil, saying demand for oil is likely to plateau over the next 10 years and then decline to 70-80 million bpd by 2050. That said, Russia might still be able to avoid a sharp decline in production because many of the assets of oil companies that exited the country were abandoned or sold to local management teams who retained critical expertise.

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Stratfor, an American strategic intelligence publishing company, reported in their 2020 article The Golden Age of Russian Oil Nears an End:

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In the next 10-20 years, Russian oil will become more expensive as extraction from less accessible basins becomes necessary to maintain current export levels. Internal inefficiencies within Russia's oil sector, as well as the remote locations of remaining reserves and potential shifts in future oil demand, add up to a murky future for the country's energy-reliant economy. Moscow may adjust its budget to ensure plummeting oil prices don't cut into its government spending, but proper economic diversification away from energy remains a complex and unlikely process.

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Russia's labor productitivy in comparison to other countries in the world

See also: Low labor productivity is one of the most acute and important problems facing Russia

Investopedia says about the importance of labor productivity to an economy, "Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Labor productivity is directly linked to improved standards of living in the form of higher consumption."

According the Yahoo Finance: "According to Yahoo Finance: "Efficiency in production, also coined as productivity, is one of the major driving forces behind economic resilience in a country... The United States has one of the strongest economies in the world. The country hosts some of the largest companies in the world, which contributes to the high GDP per capita in the country."

As can be seen in the map above, the USA has one of the highest labor productivity rates in the world.

For more information, please see: The USA has one of the highest labor productivity rates in the world - significantly higher than both China and Russia

Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

See also: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

Russian demography has long been an existential issue to Vladimir Putin. In 2021, he declared “saving the people of Russia is our top national priority".

Shortly before the pandemic broke out in 2020 Vladimir Putin stated: "Russia's destiny and its historical prospects depend on one thing: how many of us there are and how many of us there will be."

According to the Russian demographer Salavat Abylkalikov the war in Ukraine makes Russia's demographic crisis worse.

Salavat Abylkalikov indicates:

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In 2022, Russia's population growth rate was -0.38%. Assuming this rate persists, the population will halve in 184 years (according to Rosstat figures, Russia currently has 146.4 million inhabitants — The Bell). According to the UN's latest projection, Russia's population will be 112.2 million by 2100 under average circumstances. The Covid-19 pandemic caused life expectancy in Russia to fall by 3.3 years. It quickly began to recover in 2022, rising by 2.7 years. However, the war has disrupted this progress, and life expectancy is now impacted by war-related deaths and stress-induced substance abuse. Lower incomes and worsening access to medication, diagnostics, equipment and treatment are further reducing life expectancy. The war may also cause a decrease in inward migration, which has previously helped offset Russia's natural population decline. From 1992-2019, the natural loss was 13.8 million people, but inward migration compensated with 9.6 million. Russia could now find itself in a situation where natural and migratory losses reinforce one another... Shifts in the age structure of the population pose a substantial demographic risk for Russia's economy. The generations born in the 1990s and 2000s, when Russia's birth rate was at its lowest, are now entering the labor market. This will exacerbate the existing crisis due to a lack of young workers. Meanwhile, the post-war generations of the 1950s and 60s are aging and approaching retirement.

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The main consequences of Russia's demographic crisis according to the Russian demographer Salavat Abylkalikov

The Russian demographer Salavat Abylkalikov says the main consequences of Russia's demographic crisis will be the following:

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According to the average version of the UN forecast, Russia's population by 2050 may be about 133.4 million people, which is 14th in the world and below countries such as Egypt, the Philippines, and Mexico. But if Russia goes not according to the average, but according to the low option that is quite likely at the present time, then with a population of 123.2 million people we will drop to 16th place and will already be neighbors with Tanzania and Vietnam. Thus, the price of switching to the low scenario could be -10 million people, as well as a decrease in the place in the top countries in terms of population. Moreover, the low version of the UN forecast did not include too low or even negative migration growth. A smaller population means a country's lower economic potential, a shrinking domestic market, worsening demographic problems and an aging population, as well as a decrease in the country's geopolitical power. The population size still correlates with the weight in international relations, the ability to promote their interests on the world stage. And the declining population for the largest country in the world may cause some neighbors on the continent, especially the eastern ones, to be tempted to solve their internal growing problems by some external adventures. But will Russia find anyone and how to fight back, will there be allies?

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Articles related to the war in Ukraine making Russia's demographic crisis even worse

Map of Russia.

Approximately 7% of Russia's land is arable and suitable for agricultural production.

• Russia Facing Population Disaster - Demographic Crisis, Employee Shortages & Economic Crisis
• Russia stares into population abyss as Putin sends its young men to die, The Telegraph, February 2023
• Dramatic Population Drop in Russia, as War, COVID and Emigration Exacerbate Declining Births, 6/03/2023

Russia, fertility rate and demographics videos

• Demographics of the Orthodox Christain world by Peter Zeihan
• Russia's Demographic Crisis Explained - TLDR News
• Updates on Russian Demographics
• Russia’s Demographic Crisis is Getting Worse
• (Russia is DONE) Russia's Catastrophic Demographics Collapse is Here.
• The Future Demographic Destruction Of Russia

See also

• Why I am not bullish on Russia's future
• Why the corrupt, authoritarian regimes of China and Russia are losing their long term competitive edge relative to the USA