Russian labour crisis looming as unemployment falls and emigration rises

Russian labour crisis looming as unemployment falls and emigration rises
Unemployment is at a record low and migrants are staying away, putting increasing pressure on Russia's labour market. / bne IntelliNews
By bne IntelliNews April 14, 2023

Russia is facing a mounting labour crisis as worker shortages grow, sending unemployment to record lows. Emigration is soaring and immigration tumbling.

Unemployment in Russia is currently at an all-time low, President Vladimir Putin said at a meeting on economic issues on April 11.

"One of the key issues today is overcoming the shortage of personnel. We have been talking about this all the time lately. Amid all the difficulties of the past year, domestic enterprises avoided mass layoffs of employees, retained their teams. Now the situation is fundamentally different. Taking into account the all-time low level of unemployment in general it is 3.5% across the country there are simply not enough workers in many areas," he stated. (chart)

The economics team in the Russian government is becoming increasingly concerned by the lack of workers, made worse after another 300,000 men were removed from the labour force during the partial mobilisation in September to find fresh recruits for the war.

And the war pressure on the labour force continues to increase. bne IntelliNews’ Moscow correspondent reports that in the last few days recruitment posters have appeared everywhere in the capital as Russian Defence Minister Sergei Shoigu attempts to recruit another 400,000 men to the army to bring its overall strength to 1.5mn, but avoiding another unpopular conscription.

Putin’s meeting was the beginning of a Kremlin drive to do something about the shrinking labour pool, and he promised that labour will be one of the main focuses for this year’s St Petersburg International Economic Forum (SPIEF) this summer.

According to the head of state, three main tasks need to be solved to improve the labour situation.

The first is to use the personnel potential of the regions and settlements where the unemployment rate is still high. "And we have such regions as well," Putin said.

The second task is to actively apply lean production and automation technologies in all sectors of the economy and in the social sector.

The third task is to increase investments in the training of specialists in the most important and in-demand professions. In particular, engineering schools will be developed, new university campuses will be built, and funding for the Priority 2030 programme will be increased, Putin said as cited by Tass.

Emigration & immigration

Emigration has also made the problem worse. There have been two waves of mostly young men fleeing the country in the last year.

The first was immediately after the invasion of Ukraine last February, when mostly highly skilled IT professionals with portable jobs left for visa-free destinations such as Georgia, Armenia, Latvia, Kazakhstan and Dubai. Since then many of these people have moved on to more permanent destinations in Europe and elsewhere.

The second wave came after the beginning of the partial mobilisation in September, when a much broader selection of young men left. In all an estimated 1mn Russian men have left the country since the war began. (chart)

At the same time, the number of immigrants has fallen. With its population in decline as the demographic dent caused by the 1990s hits the population pyramid in the working ages, Russia has been highly dependent on immigrants from the Caucasus and Central Asia for labour, especially in the more menial and manual jobs.

This is due to the country’s population decline over the past four years, with a drop of half a million people in the past year alone, leaving the population at 146.45mn people at the start of 2023.

Migration has been on a rollercoaster ride in recent years. The first hit was during the pandemic lockdowns in 2020, when migrants were barred from entering the country due to coronavirus restrictions.

Migration quickly recovered in 2021 as the pandemic eased, but took another hit at the start of 2022, when the value of the ruble crashed after the war. As most migrants send most of their wages home in dollars, the weak ruble meant they took a big wage cut that greatly reduced the appeal of working in Russia. Although the ruble recovered thanks to an emergency rate hike by the Central Bank of Russia (CBR) immediately after the start of the war, the inflow of migrants remains low.

Combining these problems Russia now needs to attract 1mn new migrants every year until the end of the century to maintain its current population levels, according to research by The Higher School of Economics (HSE) in Moscow, cited by the RBC news website.

HSE used three different models, with the worst-case scenario predicting Russia’s population will fall to a mere 67.4mn people unless 1.1mn migrants can be attracted each year for the next 80 years.

Under the best-case scenarios of birth rates and mortality, HSE says the population is expected to decline but Russia would still need compensatory migration until 2036. After that point, Russia’s population would be able to maintain itself without depending on migration.

The median scenario requires 390,000 new migrants arriving in Russia annually.

RBC did not specify the cut-off year for the early forecast period, but even in the average outlook, Russia’s population is anticipated to dip below 146mn without compensation from 900,000 migrants per year throughout the forecast period of 2021-2100.

This is not the first time that Russia has faced dire demographic forecasts, and dealing with this problem has been Putin’s top priority since he took office in 2000, with a great deal of success, as bne IntelliNews reported in a feature, Putin’s babies.

But the size of the demographic dent in the population pyramid is simply so large Russia cannot expect to maintain growth without significant immigration for the next decade.

RosStat recorded a drop in migration to Russia from almost 430,000 in 2021 to just 61,900 in 2022. And the HSE’s forecasts do not factor in Russian military losses or the enormous exodus of Russian citizens following the country’s invasion of Ukraine. According to various estimates Russia has already lost around 150,000 to 200,000 killed in the Ukraine war.

The demographic problems will put additional pressure on Russia’s economy, which is already reeling from the imposition of an extreme sanctions regime. Russia’s economic growth potential was already only 2% before the war after Putin diverted a large part of Russia’s trade surpluses into building a “fiscal fortress” to sanction-proof the economy. As a result of the sanctions that potential has been reduced to around 1% in effect, stagnation.

Unemployment falling

But the government is putting a brave face on things. In the 1990s the UN made dire predictions for Russia’s population, which it said could halve. Not only did that not happen, but during the boom years of the noughties the natural population began to grow again and thanks to the economic prosperity of that period a lot more migrants were travelling to Russia too.

According to Deputy Prime Minister Tatyana Golikova, the number of registered unemployed in Russia decreased by 33,000 people since the beginning of the year, Tass reported on April 13. The current total of registered unemployed stands at 532,000 people out of a population of 146mn – well below the residual unemployment of around 2% most economies exhibit. The Jobs of Russia portal has 1.6mn offers available for job seekers. The level of registered unemployment in Russia remains low at 0.7%, according to Golikova, highlighting the demand for labour.

The Deputy Prime Minister’s office attributes the success of the labour market to previous measures taken to support it, including vocational training for industrial workers, organisation of public and temporary works, and measures to encourage employers to hire specific categories of citizens.

The decrease in registered unemployment is encouraging news for Russia’s economy, says Golikova. “A strong labour market is an indication of a thriving economy. It also means that more people have access to jobs and, subsequently, an improved quality of life,” Golikova said, putting an upbeat spin on the results.