Vladimir Putin’s hopes of getting his economy growing again quickly are likely to be dashed by Russia’s shrinking work force.
Employers, especially in construction, are struggling to find enough people to fill jobs because coronavirus restrictions have halved the number of immigrants. Companies ranging from gold miners to builders say they’ve been forced to push up wages to attract locals.
Almost half of construction companies surveyed by the national builders union said they have increased pay. MIC Group, a Moscow-based constructor, has hiked wages by as much as 15 percent on average and that’s helped bring in more staff, said Andrey Ryabinskiy, head of the board of directors.
“It was hard enough to find qualified workers before the pandemic, but now we’re feeling it much more,” he said.
The Kremlin is relying on a rapid recovery from the pandemic to quell growing discontent over falling incomes and rising consumer prices. Despite the success of its Sputnik vaccine, Russia is behind on its ambition to inoculate 60 percent of the population by the middle of the year.
Russia has already lifted most of its coronavirus restrictions and a recent rally in oil prices should help an economic rebound kick in as soon as the second quarter, but the pace of growth could be limited without an ample supply of workers. A shrinking labor force could shave about 25 basis points off potential growth every year for the next decade, according to Bloomberg Economics.
Russia usually relies on an army of laborers from other parts of the former Soviet Union to help meet the increased demand when the economy picks up, but most borders have been closed for almost a year.
Migrant workers usually make up about 7 percent of Russia’s workforce and contribute to about 6 percent of gross domestic product, according to Evgeny Vinokurov, chief economist at the Eurasian Development Bank.
“Construction sites are still noticing the shortage of workers, despite the fact that they increased wages,” said Anton Glushkov, president of the Nostroi, the national builders union. “This will ultimately result in an increased cost of construction.”
Russia’s already shrinking workforce has also taken a hit from the third-highest Covid-19 death toll in the world last year. The population shrank by almost 700,000 people in 2020, the biggest annual slump in 15 years.
Older people may choose not to reenter the workforce immediately due to increased health risks, according to Sofya Donets, chief economist at Renaissance Capital in Moscow.
“The pandemic has increased demand for workers in key sectors, even as restrictions limit the flow of people. In the long term, the workforce is shrinking, and that will be a more structural drag on growth once the economy recovers,” said Bloomberg Economist Scott Johnson.
Migrants are in such high demand that they made more money on average than Russians in the fourth quarter of last year, according to research by Evgeni Varshaver at the Russian Presidential Academy of National Economy and Public Administration. They earned on average 47,000 rubles ($630) a month, compared to 34,000 rubles for Russians.
Mass vaccinations and border re-openings would help smooth out the bottleneck, but neither are expected in the coming months. Meanwhile, many Central Asian nations, which are a big source of migrant labor, don’t yet have access to any vaccine.
“One of the main outcomes of the pandemic for Russia’s labor market will be a continuing decline in supply, which will keep pressure on wages,” Donets said.