Russia Suffering Worst Labor Shortage in 25 Years

Russia is facing its biggest labor shortage since records began, which a financial expert told Newsweek poses a bigger danger to the country's economy than the sanctions it has faced over the last year.

A demographic crisis, casualties in the war in Ukraine and an exodus of Russians trying to avoid the draft have formed a perfect storm for Russia's economy, despite its relative resilience so far since the conflict started.

Russia's central bank surveyed 14,000 employers from non-financial sectors and found that the number of available employees was at its lowest level since 1998.

The industries struggling most to find workers were manufacturing, industrial enterprises, water supply, mining and transportation and storage. The smallest worker shortages were found in car sales, wholesale trade and the service sector, the business daily Kommersant reported.

People walk past a currency exchange office in central Moscow on February 28, 2022. A survey has shown that Russian businesses face worker shortages. ALEXANDER NEMENOV/Getty Images

"You could say that this labor shortage and skill set shortage is going to be as damaging for Russia's future economic growth prospects as the sanctions ban on technology," Chris Weafer, chief executive officer of strategic consultants Macro Advisory Ltd, told Newsweek.

Weafer, who has been reporting on Russia's economy since 1998, said that there had been predictions more than a decade ago of workforce shortages by the start of 2020 and warnings that working-age people could drop by 10 percent. "This is a problem that's been known for quite some time."

In 2018, Putin signed into law an unpopular bill that gradually raises the retirement age for women from 55 to 60 and for men from 60 to 65, and helped stem the workforce decline. The same year, Putin announced the $400 billion National Projects development program, part of which would also address boosting the workforce and retraining workers for more productive jobs. It was scaled back in 2020 during the COVID pandemic.

The conflict in Ukraine has "taken the resources away" from the plan, said Weafer. Meanwhile, the armed forces have taken workers away from factories and around 1.5 million Russians have left the country to avoid being drafted, many of whom are in their 20s and skilled.

"That exodus plus the demands of the military have brought what was an absolutely inevitable crisis forward by several years," Weafer said, "and made it worse."

COVID has also claimed just under 398,000 lives in Russia, according to the World Health Organization.

In February this year, Russia's official unemployment rate had fallen to 3.5 percent, according to Trading Economics. However, this masks underemployment, while a tight labor market means that companies would have to pay more to attract workers, and thus accelerating wage growth could outpace productivity growth.

"Such a low labor unemployment rate against a very kind of sluggish economy means that the costs for companies are going to go up and it will be an inflation booster," said Weafer, "it only means one thing—costs are going to go up."

Kommersant reported on Monday that employers surveyed by the central bank said that indexing salaries and training would help tackle the worker shortage, Also, employers expected hiring to pick up in the coming months amid an increase in seasonal labor for construction, processing and trade.