Russia’s military and arms factories are absorbing an ever-increasing number of workers as Moscow prepares for a protracted war in Ukraine, leaving civilian sectors with significant labor shortages, destabilizing the economy.
“The job market is extremely tight,” the head of a major Russian mining company told the Financial Times.
“It’s not just mobilization or people leaving Russia. The main problem is weapons production,” the person said.
The labor shortage has helped expose weaknesses in the Russian economy that contradict the rosy image the Kremlin tries to present.
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President Vladimir Putin has repeatedly pointed to Russia’s GDP growth as evidence of its economic health, but also of the failure – whether of war or Western sanctions – to cause serious damage.
But economists say the figures are inflated by large increases in defense spending and mask structural problems that could potentially destabilize in the long run.
But the war makes Russia’s crisis particularly serious. Last year, 300,000 men were suddenly drafted in to fight after Ukraine partially fended off a Russian invasion. Hundreds of thousands of people, most of them educated young men, fled abroad to avoid conscription.
The move has hit the IT industry and other sectors that depend on skilled labor hard.
Moscow’s decision to put the economy on war footing in anticipation of a protracted conflict has worsened the situation, according to economists and Russian businessmen. With defense companies working overtime to supply the armed forces, civilian industries are struggling to find workers.
“The state directs its financial resources to the defense sector and the world follows,” said Ruben Enikolopov, a research professor at the Pompeu Fabra University (UPF) in Barcelona.
Unemployment is at a 30-year low
Defense workers can be exempt from military service, which makes jobs at such companies particularly attractive to men who want to avoid conscription.
Russia’s unemployment rate has fallen to 3%, the lowest level in 30 years, leaving businesses scrambling to find workers for the labor-intensive industries that dominate the country’s economy.
The exact scale of the increase in production and the number of defense workers related to the war is difficult to estimate from the available data, but “we have seen a 30-40% increase [του δείκτη PMI] in military-related industries from January 2023,” noted Pavel Luzin, a fellow at the Center for European Policy Analysis.
Last month, the Russian government said it plans to spend 10.8 billion rubles ($108 billion), or about 6 percent of GDP, on defense next year, triple the amount allocated in 2021. the last year before the invasion, and 70% more than originally planned for this year.
The exact scale of the increase in production and the number of defense workers related to the war is difficult to estimate from the available data, but “we have seen a 30-40% increase [του δείκτη PMI] in industries related to the military from January 2023,” underlined Pavel Luzin, a fellow at the Center for European Policy Analysis.
“Explosion” of expenses
Last month, the Russian government said it plans to spend 10.8 billion rubles ($108 billion), or about 6 percent of GDP, on defense next year, three times what was allocated in 2021. (the year before the invasion) and 70% more than originally planned for this year.
Independent analysts say the real numbers are likely even higher if estimates of hidden costs are included.
An example of the lack of workers can be traced to the increase in the length of the working week in Russia. It has reached the highest levels of the last decade, analysts at the consulting firm FinExpertiza wrote. Many factories have started to operate in three shifts, which is a… reminder of the Soviet era.
“The Russian labor market and the entire economy is working at its limits, it has reached its maximum capacity and it simply cannot produce more,” UPF’s Enikolopov said.
In the Nizhny Novgorod region, for example, authorities are reporting an unprecedented labor shortage, according to the local edition of the Kommersant newspaper. The number of registered unemployed fell by 27% in September and there are 17,000 manufacturing job vacancies in the region. Of these, 7,500 are in defense industries although demand is growing, with 1,600 jobs added in the last year.
It’s worth noting that Putin acknowledged the problem this summer. “The labor shortage is starting to have some impact on small and medium-sized businesses,” he said during a meeting with manufacturing executives in the Kremlin.
In September, Economy Minister Maxim Resetnikov called the labor shortage “the biggest internal risk to the Russian economy.”
Oleg Deripaska, the metals and mining magnate, agreed that defense companies are attracting workers from other sectors. “State capitalism has money, capital and orders. They have money, they will recruit, they will compete,” he stressed, speaking to the FT.
The main problem, however, was a lack of investment in automation systems and technology, Deripaska said, calling labor shortages a temporary phenomenon. “Do not [πιστεύετε] that this is due to the war. . . No, it’s the lack of investment.”
The blow to the IT sector
The brain drain caused by the war was particularly intense in the IT sector. Many of Russia’s top developers have left the country, and even special exemptions from military service instituted for IT workers have not reversed the tide.
Russia lacks 500,000-700,000 IT workers, the Digital Development Minister said in August, while a telecoms manager said skilled professionals are a “rare commodity”.
Rostec, the huge state-owned umbrella company that includes the country’s main arms producers and employs nearly 600,000 people, is looking for new workers. “We lack people, we need to hire about 25-30,000,” Rostec chief Sergei Chemezov told the state-run Russia 24 news channel in an interview last week.
This admission was followed by dozens of local news reports – reminiscent of the Soviet era – about the transfer of workers to arms factories: “Cooks and cashiers are posted to work in military factories,” read one.