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Bloomberg: War with Ukraine sparks labor shortage in Russia

Russia’s invasion of Ukraine has aggravated a labor shortage that poses a challenge to its military and economic objectives, as workers seek higher pay and more options in a tight market.
Soldiers Russian mobilization
Mobilized Russians. File photo: TASS

Russia’s labor shortage affects Moscow’s ability to recruit men for its armed forces, according to Bloomberg.

Russia’s full-scale invasion of Ukraine is exacerbating a severe labor shortage that exerts a negative influence on businesses and might undermine the Kremlin’s ability to replenish its armed forces.

According to Bloomberg, the competition for workers in Russia has led to substantial salary increases and made the once relatively lucrative military service less attractive, even after a 10.5% increase in monthly pay for participation in the war in 2023.

Professionals such as engineers, mechanics, machine operators, welders, and drivers can now find jobs with salaries comparable to or higher than those in the army after compensation for such work increased by 8-20% last year, according to Russian recruitment online service Superjob.

After Russia’s President Vladimir Putin declared war mobilization in 2022, companies lost employees to the army and defense plants, which offered much higher salaries than even the most generous civilian plants, according to Bloomberg.

US Treasury: Russia’s economy under “considerable strain” due to its war in Ukraine

However, wages in other sectors of the Russian economy began to rise in response, and many businesses eventually regained their competitiveness.

Competition is also evident in the civilian sector, according to Bloomberg. Industrial enterprises compete for workers, as vacancies for security guards, for instance, offer higher salaries than in factories (but with much fewer job responsibilities), a top manager of one of the largest metallurgical and mining companies in Russia told Bloomberg.

According to Russia’s Federal Statistics Service, as of December 2023, the Russian economy needed a record 2.3 million workers. At the same time, the unemployment rate in Russia fell to a historic low of 2.9%.

“Russia’s strategy of recruiting volunteers for the armed forces with substantial sign-on bonuses and high salaries was most likely designed for a short war, according to Russian economist Aleksei Isakov. As the invasion of Ukraine drags on, labor shortages and low unemployment mean that private employers are left with few options other than what the military offers, Aleksei Isakov said.

“As market wages catch up with military pay, Russia will be forced to choose between devoting an even greater share of its public spending to the military, accepting a drop in volunteerism, or relying on targeted mobilization,” Aleksei Isakov said.

The Kremlin continues to rely heavily on volunteers for its war in Ukraine, offering them 210,000 rubles a month (around $2340). The sectors most in need of new staff, namely the public administration and defense sectors, have a shortage of 365,000 workers, according to Bloomberg.

In September 2022, Vladimir Putin’s decision to call up 300,000 reservists provoked the emigration of hundreds of thousands of Russians seeking to avoid war. Many of them were young professionals whose departure further exacerbated tensions in the labor market.

According to Russian Defense Minister Sergei Shoigu, in 2023, about 490,000 people served in the Russian army under contract. According to Shoigu, the Russian military receives more than 1,500 applications for service every week.

Balance of war in Ukraine set to shift, not in Russia’s favor

The labor shortage has become a big problem for Russia’s central bank, which partially doubled its key interest rate in 2023 due to inflation caused by higher wages. Meanwhile, the labor shortage is acting as a constraint on the potential growth of the Russian economy.

Higher wages decrease Russian companies’ profits. In addition to wages, manufacturers offer additional benefits to attract and retain workers. Restaurants and construction companies are also feeling the pressure as labor migrants from neighboring countries leave Russia because high inflation and a weak national currency (Russian ruble) have reduced their income in dollar terms.

Labor shortages have forced Russia to look abroad for workers. About 10,000 people are expected to arrive from Kenya after Foreign Minister Sergei Lavrov visited Nairobi in May 2023 for the first time in 13 years, according to Bloomberg.

Authorities in one of Russia’s Siberian regions are counting on North Korea and Cuba as a source of labor for their construction sites, which are short thousands of construction workers.

Other companies are looking for less traditional domestic sources of labor. At the end of 2023, Dmitry Shakhanov, deputy general director of Russian Railways, said that the company plans to hire convicts for forced labor and has already begun negotiations with the Federal Penitentiary Service.

According to a study by Superjob, the new reality of the Russian labor market is that 85% of companies in Russia are experiencing staff shortages, and 93% are hesitant to reduce staff, even though the number of vacancies increased 1.5 times in 2023.

Current trends in the labor market make it difficult for Russia’s Defense Ministry to attract volunteers to the Russian army and support the invasion of Ukraine.

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