Russian babies up, jobs down

By bne IntelliNews February 12, 2009

Ben Aris in Berlin -

After a decade-long boom, the current crisis has come as a cold shower for many Russians who have unexpectedly lost their jobs. More than 2.2m Russians will be on the dole by the end of the year, the government says, when only a few months ago they were looking forward to big pay rises as competition for experienced staff was running white hot. However, the water can't be that cold, because it seems the unexpected bath hasn't cooled the population's ardour. Russia's demographic decline has slowed.

The country's declining population has been touted as one of the most difficult challenges the country has to face in the coming decades, with organisations like the UN predicting the country will lose nearly 50m people by 2025 - or about two-thirds of today's entire workforce.

The government has become sufficiently alarmed that Prime Minister Vladimir Putin made 2008 the "year of the mum," lavishing extra benefits and money on new parents, but stopping short of reintroducing the "hero mothers" of the Soviet-era who used to get medals if they produced more than 10 kids.

Baby bottoming out

There's no doubt the demographic decline is a serious problem: following the collapse of the Soviet Union in 1991 Russia's population has fallen from its all-time peak of 148.7m to about 142m today - more than 6m Russians have simply disappeared over the last decade and half.

But the falling headcount is approaching bottom. In 1993, the fertility rate of 1.4 (ie. Russian couples produce an average of 1.4 babies) was one of the lowest in Europe and meant Russia was losing people at the rate of 600,000 a year. Experts now say the decline should slow to 200,000 a year as the fertility rate is supposed to increase to 1.6 by 2015.

At the same time, the relative wealth of the country is pulling in more and more migrants, something the state is now actively encouraging: immigration is expected to rise from 40,000 per annum in 2004 to 200,000 in 2008 and 300,000 in 2015, predicts Andrey Kuznetso, an economist at Troika Dialog. Still, there is a gap left to fill and the tightening labour market was sending wages spiralling until last autumn.

"Most quoted forecasts are too pessimistic. The UN, the most quoted source, predicts that Russia's population will fall to 128m by 2025 and 107m in 2050. These numbers cause many concerns about the future of the country's economy. However, the UN uses overly pessimistic assumptions and that the population will be at 137m in 2025. This does not mean that the issue can be ignored, but it makes it much less of an investment concern," says Kuznetso.

At the same time, the ravages of WWII are making themselves felt. Thanks to Stalin's mismanagement of the war and the resulting massacre of Russian men in the early 1940s there is a deep dip in the population numbers at 60 years of age. The silver lining is that while places like Germany and Japan face a rapidly greying population, so few Russians made it through the war that the pension system doesn't have to carry the same heavy load.

The workforce has already peaked in 2007, say experts, and will continue to decline by about 1% a year from here on in. This would have been a major problem up until a few months ago, but with unemployment ballooning thanks to the global meltdown, the falling number of workers will offset the falling number of jobs.

And even the shrinking workforce is not really a problem if companies and the state can improve their workers productivity: currently the average US worker is about three times more productive than the average Russian. Troika estimates that simply buying modern equipment could boost productivity by 6% a year well into the next decade, which would more than compensate for the shortfall of hands at the wheel.

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Russian babies up, jobs down

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