Russia's labor crisis

"I stress that, given the demographic challenges, Russia's economy will face large workforce needs and even a workforce shortage in the coming years. This is absolutely certain. We should understand that. We will live with that in the next few years," Putin said at a congress of Russia's Federation of Independent Trade Unions.

According to the Eurasian Research Institute:

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Depopulation, aging and shrinking number of the working-age population are some of the biggest challenges which Russian labor market face today. The year 1995 is an important year for demographic dynamics in Russia because after that year number of population continuously decreased and according to forecasts it will fall even further in the near future. The current problems could be solved by either natural or migration-based option. First, option refers to solve the issues of the labor market with increasing the natural growth of the population while the second solution advocates attracting a large number of migrants to Russia (Rosstat, 2016). However, total fertility rate of Russia is below sustainable growth rate indicating that Russian population will decline and consequently the number of working-age population will decrease. Moreover, the current level of the migration flow is not large enough to compensate the losses in the number of population and working-age population (World Bank, 2016).

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The fertility rate in Russia decreased to 1.5 children per woman in 2020 from 1.58 children per woman in 2019 (A replacement level of births is 2.1 children per woman).

In 2023, Politico reported:

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Russia has recorded its worst labor shortage since President Vladimir Putin first came to power amid Moscow’s invasion of Ukraine, a new survey has shown. The poll by Russia’s Yegor Gaidar Institute for Economic Policy, which surveys managers of around 1,000 industrial enterprises in the country each month, found in April that 35 percent of enterprises lacked workers. The institute said that was the highest figure since 1996. The shortage was partly down to Russia’s “partial mobilization” of its population starting from September last year, according to the institute. Russian outlet RBC reported Thursday that Sergey Tsukhlo, the institute’s head of business surveys, told a conference where he presented the findings that understaffing in the country represented “a deep and long-term problem” that was holding back the country’s industrial growth... Putin admitted in April that the country “does not have enough workers,” while Russian Economic Development Minister Maxim Reshetnikov in March said issues with training and labor productivity were becoming “questions of survival” in the country.

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On December 24, 2023, Reuters reported:

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Russia was short of around 4.8 million workers in 2023 and the problem will remain acute in 2024, the Izvestia, opens new tab newspaper reported on Sunday, citing experts and research from the Russian Academy of Science's Institute of Economics. Central Bank Governor Elvira Nabiullina said last month that Russia's depleted labour force was causing acute labour shortages and threatening economic growth as Moscow pumps fiscal and physical resources into the military. Hundreds of thousands of Russians left the country following what the Kremlin calls its special military operation in Ukraine which began in February 2022, including highly-qualified IT specialists... The outflows intensified after President Vladimir Putin, who earlier this month lauded a historically low jobless rate of 2.9%, announced a partial military mobilisation of around 300,000 recruits in September 2022. Putin has said he sees no need for a new wave of mobilisation for now. Izvestia, citing the author of the research, Nikolai Akhapkin, said that labour shortages had sharply increased in 2022 and 2023. It said that drivers and shop workers were in particularly high demand. According to official data, cited by the newspaper, the number of vacancies in the total workforce rose to 6.8% by the middle of 2023, up from 5.8% a year earlier. "If we extend the data presented by Rosstat (the official statistics agency) to the entire workforce, the shortage of workers in 2023 will tentatively amount to 4.8 million people," the newspaper cited the new research as saying. It noted that Labour Minister Anton Kotyakov had said that workforce shortages were felt hard in the manufacturing, construction and transportation sectors, forcing companies to raise wages to try to attract more employees.

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The Center for European Policy Analysis reported on March 9, 2024:

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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. With perhaps a million Russians, including many working-age men, having fled the country, with more than 300,000 dead or wounded in Ukraine, with more than a million men in the military, and a fertility rate of 1.5 — far below the so-called replacement rate of 2.1 — the country simply cannot meet its needs. The head of the Central Bank is among those describing it as the country’s most serious problem, hardly surprising when unemployment is just 2.9% and the vacancy rate is 6.8%. This scarcity is particularly pronounced in the manufacturing, construction, and transportation sectors. According to recruitment agencies and company management, the workforce deficit will worsen in 2024. Beyond skilled professionals, Russia struggles to meet even basic labor demands, including those for military purposes. Increasingly, schoolchildren and students are being enlisted for war-related tasks. Just last week, a major investigation revealed how minors as young as 14 are involved in activities for the “Mayor’s Labor Unit” in Krasnoyarsk, weaving camouflage nets and preparing parcels for frontline needs.

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Russia's labor shortages in the oil and gas industry

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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Vladimir Putin's statements on Russia's present and future labor shortages

Vladimir Putin at a conference

Interfax reported in 2024 concerning Vladimir Putin's statements on Russia's labor shortages:

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The Russian economy will have extensive workforce needs within the next few years, President Vladimir Putin said. "I stress that, given the demographic challenges, Russia's economy will face large workforce needs and even a workforce shortage in the coming years. This is absolutely certain. We should understand that. We will live with that in the next few years," Putin said at a congress of Russia's Federation of Independent Trade Unions. In these conditions, "it is critical to raise labor productivity, modernize industry, agriculture, the services sector and many other sectors of the economy and social sphere with the help of digital technologies and automation of production and management processes," he said. "This, in turn, should directly lead to an improvement of specialists' work conditions and an increase in their incomes," Putin said.

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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

Russia's labor productivity problem

See also: Russia's labor productivity

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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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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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."

Russia's Labour Productivity Growth from March 1996 to September 2023 (Source: CEICADATA.com)

See also

• Economy of Russia