stories

‘A perfect storm’ Russia is facing a severe labor shortage. Economists say it will only get worse in the coming years.

Source: iStories

On December 6, at a Moscow investment forum organized by Russia’s VTB Bank, Vladimir Putin boasted that Russia’s unemployment rate is currently at a near-record low. “As I noted in my speech, [Western countries] probably thought that factories would shut down and thousands of people would end up unemployed in the streets [due to sanctions]. But our unemployment rate is 2.4 percent. All enterprises are working, and we actually don’t have enough workers,” he said. While Putin is right about Russia’s worker shortage, whether it’s something to celebrate is an open question. Meduza shares an abridged translation of an analysis by the independent outlet iStories that explores Russia’s labor shortage, its potential consequences, and whether there’s an end in sight.

Why is Russia short on workers?

Longtime geographic trends

The workers currently joining the Russian labor market are from the relatively small generations born in the 1990s and early 2000s. From 1987 to 1999, Russia’s birth rate dropped by half, demographer Alexey Raksha noted to iStories. He estimated that the number of people leaving the working-age population will continue to surpass the number entering it at least until the generation born in 2007 joins the workforce.

Throughout the 2000s and into the early to mid-2010s, Russia had a high proportion of working-age people, according to Salavat Abylkalikov, a Cara fellow and visiting researcher at the U.K.’s University of Northumbria. On one hand, there were relatively few older people due to the demographic consequences of World War II. On the other hand, there were few children due to the low birth rates of the chaotic 1990s and early 2000s.

Concerns about a severe labor shortage in Russia due to demographic factors began appearing as early as 2021, when the worker deficit was estimated at 2.2 million people — the highest in seven years.

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By the end of 2023, the Institute of Economics at the Russian Academy of Sciences reported a shortage of 4.8 million workers. Over the past two years, the country’s working-age population has decreased by about one million people, said Dmitry Sergienkov, CEO of the job site HeadHunter, in September. The most affected cohort, aged 19–40, which is also the most in-demand group in the labor market, shrank by two million people.

The demographic gap of the late 20th and early 21st centuries is the biggest, though not the only, reason for the decline in the working-age population in recent years.

The war

In June, Vladimir Putin stated that nearly 700,000 people were fighting on the Russian side in Ukraine.

To estimate the number of workers missing from the Russian workforce due to the war, this number must be added to the number of Russian soldiers who have been killed or seriously wounded. Russia has not officially disclosed its casualty count, but as of November 29, Mediazona and the BBC Russian Service had used open sources to identify the names of nearly 81,000 killed soldiers. (The journalists noted that the actual number of war dead is much higher, as not all names appear in open sources.) By July 2024, the real death toll could have reached around 120,000 people, according to an analysis by Meduza and Mediazona based on inheritance data from Russia’s National Probate Registry. In the fall, American media, citing Western intelligence and Pentagon officials, reported that the Russian army had lost around 600,000 people in total, including both dead and wounded. On December 3, NATO Secretary General Mark Rutte put this figure at 700,000.

We can thus conclude that even if Western military reports are exaggerated, the total number of Russian soldiers who are either fighting in the war or have been killed or wounded likely exceeds one million.

Data on the number of drafted soldiers and contract soldiers roughly confirm these calculations. Before the invasion, the size of the Russian group at the Ukrainian border was estimated to be about 190,000 people. According to official Russian figures, 302,500 people were mobilized in the war’s first year, and another 20,000 volunteered to fight. In 2023, about 500,000 people were sent to the front (420,000 contract soldiers and 80,000 volunteers), and in the first half of 2024, 190,000 people signed army ontracts. This totals about 1.2 million people.

However, it’s possible that the Defense Ministry is inflating the number of contract soldiers. For example, calculations from iStories based on federal budget data on army sign-on bonuses show that 166,200 people received these payments in the first half of 2024. From July to September, the number ranged from 49,500 to 83,000 (it’s difficult to estimate more precisely because the payment size was increased during this period).

Anti-war emigration

Journalists and researchers have been trying to estimate how many people have left Russia in response to the war since it first began. In July 2023, the project Re:Russia reported that between 820,000 and 920,000 people had left. How many of them stayed abroad and how many returned, however, is another question. According to Bloomberg’s estimates, as many as 40–45 percent of those who emigrated may have since gone back to Russia. In July 2024, The Bell estimated that around 650,000 people left after the start of the full-scale war and did not return.

The reliability of any of these estimates is questionable. It’s impossible to rely on FSB data about border crossings, as a single person can cross the border multiple times within a given period. Data from other countries on residence permits issued to Russians also fails to provide a complete picture: obtaining documents does not mean a person has not returned to Russia. Additionally, some countries simply don’t publish such statistics. “[Migration statistics] are three-layered; no layer corresponds to the others. The information is incomplete, deliberately obscured, and becoming increasingly scarce,” demographer Alexey Raksha told iStories. He said he estimates that around 400,000–500,000 people have left Russia and not returned.

An outflow of migrant workers

“We’ve started hitting immigrants pretty hard. But guys, without immigrants, our economy today won’t be able to breathe,” VTB head Andrey Kostin said at the end of November. He was referring to the Russian authorities’ anti-migrant policies, which intensified after the March 22 terrorist attack at the Crocus City Hall concert venue.

Migration and discrimination in Putin’s Russia

The Russian economy has long depended on labor migrants, particularly in sectors like construction, delivery services, taxi operations, and housing and utilities. The outflow of foreign workers began as early as 2023. According to Rosstat, 560,400 migrants entered the country that year — 23 percent fewer than the previous year and the lowest figure since 2013. As of September 1, 2024, about 6.2 million migrants were registered in the Russian Interior Ministry’s migration database. In 2023, meanwhile, about 8.5 million workers from CIS countries were registered, according to Russian Human Rights Commissioner Tatyana Moskalkova.

Consequences of Russia’s labor shortage

One distinctive feature of Russia’s current labor market crisis is a high demand for new workers in defense enterprises and companies connected to the defense industry. Between 2023 and the first half of 2024, about 600,000 people began working at defense industry enterprises, which now employ around 3.8 million people, according to Deputy Prime Minister Denis Manturov.

This drives up wages. According to the Industry and Trade Ministry, salaries at military production facilities increased by 20–60 percent between the start of the war and February of this year. Even with higher wages, however, defense enterprises are struggling to hire as many workers as they need, as iStories has previously reported. Job vacancies often remain unfilled for months, with some employers offering exemptions from military service and holding worker referral programs.

The defense industry has forced ordinary employers to join the wage race by cutting costs, sacrificing profits, and reducing staff to raise salaries for remaining employees (while ideally increasing their productivity). However, not all companies can sustain this indefinitely. “Some businesses will shut down, while others will become much more efficient in terms of personnel use,” predicts Dmitry Sergienkov from HeadHunter.

Another issue is that people who have gone to work in the defense industry are no longer producing goods for the real consumer market. “What does the defense industry do? It might modernize a tank, for example. But no one’s going to buy that tank. […] It will go somewhere and most likely be destroyed,” said Alexander Auzan, an economist and the dean of Moscow State University’s Economics Department.

Economist Sergei Guriev has compared war expenditures to handing out cash:

This creates a situation where several million people (3.8 million defense industry workers plus those who went to fight for money) have significantly increased their incomes in a relatively short period while ceasing to produce goods. Wages for other Russians have also risen, but their labor productivity hasn’t increased. “Labor productivity is not only failing to grow, it is declining. This is the limitation of the current growth model,” said Sberbank CEO Herman Gref.

All of this drives up prices: as of December 2, annual inflation reached 9 percent. “This wild surge [in wages], unsupported by productivity growth and fueled by massive federal budget funds injected into the economy, primarily the defense industry, and spreading into other sectors, is unsustainable. It’s a bubble,” said Natalia Zubarevich, an economist and professor at Moscow State University’s Geography Faculty.

When will the labor market recover?

Current expert forecasts are grim. According to Natalia Zubarevich, Russia’s labor market downturn will persist until the mid-2030s. That’s when today’s 10–12-year-olds — who were born during the highest birthrate years in modern Russian history — are expected to enter the workforce.

When the war ends, the labor shortage could potentially be mitigated by people returning from the frontlines or leaving military-related industries. However, this is not guaranteed. "If the conflict becomes frozen, military spending might remain at its current levels. This would support an expanded army and require replenishment of munitions used during the conflict," explained economist Alexander Auzan.

“According to my calculations based on Rosstat forecasts, from 2012 to 2032, the number of workers aged 20–40 will shrink by one third (around 13 million people), while the number of individuals aged 60 and older — pre-retirees and retirees — will double, increasing by roughly the same 13 million,” demographer Salavat Abylkalikov noted. This suggests that until the early-to-mid 2030s, the situation will only worsen. After that, the labor market will start to recover, but at a significantly lower level than today.

The war’s impact on the labor market will come less from battlefield losses and more from increased mortality, particularly among men, due to a subsequent rise in violence, crime, alcoholism, and other social issues. Unless a new wave of mobilization is announced, another spike in emigration is unlikely. However, over the next decade, the country may lose as many people to emigration as during the peak of 2022, with young and skilled specialists making up the majority of those leaving.

Abylkalikov highlighted the loss of foreign labor as the most critical threat. Due to reduced migration appeal, he said, Russia’s labor market could lose millions of workers.

“All these factors, combined with suffocating sanctions and international isolation, are laying the groundwork for a ‘perfect storm’ in the coming years,” the demographer warned.