Russia mobilized a large number of men for the war in Ukraine, leading to a shrinking workforce, while the economy was under pressure from sanctions.
In the first quarter of this year, Russian companies experienced their biggest labor shortage since 1998, according to a survey by the Central Bank of Russia. The number of workers under 35 in Russia at the end of last year fell by approximately 1.3 million, to 21.5 million, the lowest level since the early 1990s, according to an analysis by the consulting firm FinExpertiza.
This group accounts for 29.8% of Russia's total workforce of 72.1 million people. In May, Russia's unemployment rate hit its lowest level since the post-Soviet era, as companies and factories faced labor shortages.
According to FinExpertiza, the mobilization order of approximately 300,000 men for military service late last year forced many key workers to abandon their jobs and go to Ukraine to fight. Along with this, the massive exodus of men to other countries to avoid conscription has further exacerbated the labor shortage in Russia, a country that has experienced a declining population in recent years.
As a result, Russia is facing a shortage of workers in every sector, from programmers and engineers to welders and oil drillers. These are essential professions for boosting the economy and supporting the campaign in Ukraine.
To prevent this situation, Russian President Vladimir Putin last month called for measures to curb the brain drain, including financial and social incentives for workers. The Russian government has also proposed tax breaks, preferential loans, and mortgages to attract workers in the technology sector.
The Russian Finance Ministry also announced plans to tax hundreds of thousands of migrants who have moved to countries like Turkey, Armenia, and Central Asia since the conflict began but continue to work remotely for Russian companies. Some lawmakers have threatened to confiscate the assets of Russians who have left the country, although no law on this matter has yet been passed.
Workers at the Magnitogorsk iron and steel plant in Magnitogorsk, Russia, in October 2022. Photo: Reuters
"Losing human resources will have a greater impact on the economy than sanctions," said Vasily Astrov, an expert at the Vienna Institute for International Economic Research in Austria. "The loss of qualified, highly skilled workers will put pressure on economic prospects for years to come."
When labor is scarce, businesses wanting to compete for talent will have to raise wages, leading to reduced company profits and threatening investment plans. The Russian Central Bank also warned that paying high wages to workers would contribute to inflation.
The St. Petersburg Economic Forum, Russia's leading economic conference, dedicated more than a dozen sessions to discussing labor market issues. The Russian Central Bank stated that, amid a shortage of men of working age, manufacturing companies are increasingly hiring women and older workers.
Yuliya Korochkina, human resources director at the construction materials supplier Trade Systems Technonicol, said the company is facing a shortage of basic labor and specialists. To address the situation, the company has lowered its recruitment criteria, increased remote work and automation, and introduced more incentive programs for its employees.
"We are learning how to maximize work with minimal manpower," she said.
Thanks to substantial revenue from oil and gas, the Russian economy has not declined as sharply as Western countries had hoped when they imposed heavy sanctions since the conflict began. However, the decline in energy revenue and the increasing impact of technology sanctions foreshadow a troubled future for the Russian economy.
Russian officials acknowledge that labor shortages are also harming the country's economic growth.
"The labor market is a significant constraint on increasing output," said Elvira Nabiullina, governor of the Central Bank of Russia. She referred to labor shortages in the machine-building, metallurgy, mining, and quarrying industries, which are crucial for Russia's needs in the war in Ukraine.
During a visit to an aircraft manufacturing plant in Ulan-Ude, Eastern Siberia, in March, Putin said that a lack of highly qualified specialists was hindering military production.
"We understand that many businesses are currently operating three shifts a day and are short of specialists, especially highly qualified ones," he said.
Russian President Vladimir Putin visited an aircraft manufacturing plant in the city of Ulan-Ude, Eastern Siberia, in March. Photo: Sputnik
More than one million people have left Russia since the Ukraine conflict began in late February last year. While some have returned, this massive wave of migration has exacerbated Russia's demographic problems. Due to its low birth rate, Russia's population, currently around 145 million, could shrink by more than 1% by the end of this century, according to UN estimates.
Russia appears to be compensating for labor market shortages with immigrant workers from neighboring countries, particularly in Central Asia. The Russian Central Bank reported that the number of immigrant workers entering Russia increased last year, but the number of highly qualified foreign specialists decreased by 29%.
Approximately 35% of manufacturing companies reported labor shortages in April, the highest level since 1996, according to a monthly survey by Russia's Gaidar Institute for Economic Policy.
Marina Petuhova, head of human resources at electrical equipment manufacturer EFK, admitted they are having difficulty finding engineers, designers, and product managers. EFK has stepped up training and incentives for workers of all age groups, including retirees.
"Labor shortages affect the company's ability to launch new products, productivity, and product quality, leading to a decline in sales and the company's brand," she said.
More than half of Russian businesses face a shortage of IT personnel, while the time required to find a suitable candidate has almost doubled, according to a study in April by Moscow-based consulting firm Yakov & Partners and HH.ru, Russia's largest recruitment platform.
"Finding experienced staff has become more difficult. This situation will certainly lead to a decrease in company productivity," said Natalia Danina, head of analysis at HH.ru.
Thanh Tam (According to WSJ )
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