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'No miracles': labor shortage set to hit Russia's GDP

MOSCOW (Reuters) - A dearth of young people joining Russia’s workforce because of a low birth rate will shave several percent off potential economic growth in the next five to six years, Economy Minister Maxim Oreshkin said.

Russian Economy Minister Maxim Oreshkin speaks during an interview at the Reuters Russia Investment Summit in Moscow, Russia September 19, 2017. REUTERS/Grigory Dukor

In an interview at the Reuters Russian Investment summit, he said the labor shortage made it hard for technology companies, among others, to recruit staff they need -- hurting a sector the government has identified as vital to reviving economic growth.

Russia’s birth rate hit a low in 1999 after living standards fell following the Soviet Union’s collapse. The impact is being felt now as people born at that time reach school-leaving age.

“In countries with a normal demographic pyramid, a new generation comes in with modern skills and takes up jobs in a modern economy and modern industries, and with their arrival the labor market changes in favor of new sectors,” he said.

In Russia’s case, Oreshkin said, this was not happening.

“This is a very serious thing. The process is going to continue for five to six years,” he said.

Asked if he could measure the downward effect on growth in Russia’s gross domestic product, one of the main gauges of economic health, Oreshkin said: “Compared to the 2000s, it will be several percent.”

He said that forecasts showed the situation would improve from around 2022. Until then, he said, Russia’s only solution was to retrain people now in their 30s, 40s and 50s in the new skills required for a modern economy.

“To a large extent economic growth depends on how things proceed with the processes of changing people in these middle generations,” Oreshkin said.

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He did not spell out any other solutions to the problem.

The Russian economy grew annually by nearly 7 percent on average between 2000 and 2008 before the global financial crisis caused a slowdown.

A slump in global oil prices and Western sanctions imposed over Russia’s role in the Ukraine crisis in 2014 contributed to a new contraction before the economy returned to growth in 2016. The official forecast for GDP growth this year is 2.2 percent.


The finance ministry predicts a 4 percent decline in the working population by 2035. Others forecast even tougher times ahead.

The Institute for Social Analysis and Forecasting at the Russian Presidential Academy of National Economy and Public Administration (RANEPA) sees the work force shrinking by about 0.8-0.9 million people a year until 2025.

“This will be worsening. There won’t be any miracles, you cannot fool demography,” said Tatiana Maleva, who heads RANEPA.

A RANEPA survey showed Russia’s labor force, which has risen since 1999, stood at 76.3 million people in July 2017, down by 1 million a year earlier.

A decline in immigration and fewer people of retirement age staying in the workforce contributed to the dip, Maleva said.

The figures make grim reading for President Vladimir Putin, who warned during the 2012 presidential election campaign that Russia risked turning into an “‘empty space’ whose fate will not be decided by us” if its demographics did not improve.

Among companies struggling to find enough young people with the right skills is Angstrem, a group of firms that make components for electronic products. It is now offering work experience to people studying technology at university as part of a recruitment drive.

Asked if the company was having difficulty finding qualified young staff, Angstrem public relations director Vitaly Aryshev said: “We have indeed encountered that problem.”

Yandex, which runs an Internet search engine and a ride-hailing service, also struggles to find qualified youngsters.

Sergei Chernyshev, head of academic projects at Yandex, did not directly draw a link with demographic trends.

“But the trend that has been clear for a long time is this: Technology is developing rapidly, traditional education is not keeping pace with it, and the demand for specialists is enormous,” Chernyshev said.

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Additional reporting by Darya Korsunskaya, Andrey Ostroukh, Zlata Garasyuta, Polina Nikolskaya, Maria Kiselyova, Kira Zavyalova and Oksana Kobzeva, editing by Katya Golubkova and Timothy Heritage