Russia’s War Economy Leaves Businesses Starved Of Labor

As Moscow gears up for an extended conflict in Ukraine, Russia's military and armaments industries are absorbing a growing portion of the total workforce, leading to acute labor shortages in civilian sectors and destabilizing the broader economy. This tightening of the labor market highlights the structural weaknesses in Russia's economy, contrasting sharply with the Kremlin's optimistic economic portrayals.

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Despite President Vladimir Putin's assertions of economic resilience, evidenced by rising GDP, economists argue that this growth is inflated by increased defense spending, masking deeper, potentially destabilizing structural issues. Russia's labor market challenges are exacerbated by an aging and shrinking population, a common issue among industrialized nations, but intensified by the war.

The Impact Of Mobilization And A War Economy

The labor market crisis has been intensified by the mobilization of 300,000 men for combat and the emigration of educated young professionals, particularly affecting the IT and other skilled labor sectors. The shift to a war economy, with defense companies operating at full capacity, has further strained civilian industries in their search for workers. Ruben Enikolopov of Pompeu Fabra University notes the financial and human capital moving towards the defense sector.

Escalating Defense Spending And Labor Shortages

The Russian government's defense spending plans reveal a significant shift in economic priorities. Proposed defense expenditure for the upcoming year is estimated at RUB 10.8 trillion ($117 billion), a substantial increase from previous years. This militarization of the economy is also reflected in the lengthening working week and a change to three-shift operations in factories, reminiscent of Soviet times. The shortage of labor is acute across various sectors, with even the defense industry facing a shortfall of 400,000 workers.

Challenges In The IT Sector And Beyond

The war has triggered a severe brain drain in the IT sector, with an estimated shortage of 500,000 to 700,000 workers, despite exemptions from military service. This exodus has left a vacuum in senior professional roles across the telecommunications and cybersecurity sectors. One employment agency owner observed an influx of junior IT applicants but a lack of qualified candidates for senior positions.

Broader Economic Implications

The labor crisis is impacting small and medium-sized enterprises, as acknowledged by Putin. Economy minister Maxim Reshetnikov and business tycoon Oleg Deripaska echo these concerns, pointing to a temporary phenomenon exacerbated by inadequate investment in automation and technology. Even state-owned Rostec, a major player in the defense industry, is seeking 25,000 to 30,000 new employees. Reports of civilians, including cooks and cashiers, being recruited for military factory work highlight the gravity of the situation.

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