Record underemployment: ultra-low unemployment in Russia points more likely to imbalances in the labor market than to growth in employment and economic activity

The unemployment rate in Russia, according to Rosstat estimates, dropped below 3%, and the number of people employed in the economy increased by 2 million people during the war. Both, however, are rather statistical artifacts. The number of people employed in the productive sectors of the economy, on the contrary, decreased due to the departure of workers who participated in the war and died in it, as well as those who left the country. However, official statistics do not see this, and calculate the total number of employed on the basis of unreliable data from the latest census. The labor market is experiencing “overheating”. In the context of declining employment in productive sectors, broad budgetary stimulus and low rates in the middle of the year, many enterprises, as shown by market surveys and surveys of personnel selection services, are experiencing a shortage of personnel. The consequence of this was a wage race - an increase in wages in the market as a whole. At the same time, labor productivity is declining and will continue to decline due to lack of investment. Raising the key rate by the Central Bank will slow down wage growth and further complicate the problem of technological re-equipment of enterprises. Thus, the current state of the labor market is characterized by a combination of a reduction in the number of people actually engaged in productive activities, staff shortages, rising wages and a decline in labor productivity. In other words, what is happening in the labor market quite clearly reveals the paradoxes of the current situation in the Russian economy: high nominal indicators hide the imbalance of the market, leading to overall long-term losses.

Unemployment in Russia dropped to 2.9% in October, Rosstat reported . This is the minimum value since 1991, that is, in the entire history of observations. The number of citizens over 15 years of age employed in the economy has reached, according to federal service calculations, 74.1 million, compared to 72.1 million in October 2022.

There are several reasons for the minimum unemployment rates in Russia. First of all, in conditions of low benefits, widespread part-time and “gray” employment, this indicator should be considered primarily as indicative. In reality, there should be much more people who cannot improve their financial situation due to the lack of decent places on the market. This, in particular, becomes the reason for signing contracts with the Ministry of Defense. At the same time, there is currently a high demand for labor (staff shortage) in a fairly wide range of industries, although it is geographically unevenly distributed. According to a study by the SuperJob service , more than 85% of Russian companies experience staff shortages. The number of vacancies over the year has increased by more than one and a half times. The number of resumes has decreased slightly. As a result, competition for vacancies decreased by a third on average. The largest number of vacancies opens in industry (the increase in the number of vacancies over the year is 122%), logistics (+35%) and construction (+31%). The most scarce positions are skilled workers, truck drivers, special transport drivers, general workers, and engineers.

The reasons for this are also well known. On the one hand, approximately 1 million people dropped out of the real labor market - if we take into account mobilized, contract soldiers and adult relocants who left the country due to war and repression. Their number can be up to 1.5% of total employment. On the other hand, extensive budgetary funding for military needs and infrastructure projects has created increased demand for labor in a number of sectors. Expansionary fiscal and monetary policies in the second half of 2022 and the first half of 2023 supported employment in cyclical sectors (construction, retail trade, financial sector) focused on the domestic market. Even when the economy was in decline, employment remained, including in the financial sector, retail trade and the construction sector, which is not typical for crises, notes Alexander Isakov, chief economist at Bloomberg Economics . This anomaly also has an explanation. A typical Russian crisis of recent decades is associated with a fall in export revenues and budget revenues, which is accompanied by an outflow of capital from the country. The main factor in the 2022 crisis was, on the contrary, a sharp reduction in imports coupled with extremely high export and budget revenues. This made it possible to increase output both in non-tradable sectors and in areas of import substitution available to the economy.

However, from all this it does not at all follow the optimistic conclusion that Rosstat draws, which claims that employment in the Russian economy is growing. Of course, Rosstat considers mobilized and contract workers to be employed, and the absence of those who left the country from the labor market is imperceptible to it - they do not participate in surveys and do not apply for job loss. Finally, another factor of statistical fiction is the base used by Rosstat. These are the results of the latest census, the quality of which experts have huge complaints about. In particular, according to a Levada Center survey , only 57% of Russians participated in it. Alexander Isakov believes that the “census effect” could increase the employment estimate by 1 million people.

However, the statistical fiction of increased employment leads to new distortions. According to Rosstat , in 2022 labor productivity decreased by 3.6% compared to 2021. This is the strongest decline since 2009 (-4.1%). But to a certain extent this should be considered the effect of manipulations with census data. However, some contribution to the decline in productivity was most likely made by the “structural adaptation” of the economy to sanctions due to the loss of a number of highly productive industries (for example, automobile assembly), as well as a lack of investment. The replacement of high-productivity industries with low-productivity ones is an important component of the “technologically regressive” restructuring of the economy, which both the Central Bank and economist Branko Milanovic wrote about more than a year ago .

Such a scenario will make personnel shortages a permanent problem for the economy. The consulting company Yakov and Partners (ex-McKinsey) predicts that in the absence of growth in labor productivity, by 2030 the personnel shortage will reach 2-4 million people. To avoid this, labor productivity must grow by 2.4% per year, which is twice the actual dynamics of the last five years. Billionaire Oleg Deripaska discussed this topic in an interview with the Financial Times : he called the main reason for the personnel shortage not the war, but precisely low labor productivity caused by a lack of investment in the modernization of production.

At the same time, enterprises have recently invested quite actively - precisely in order to compensate for the shortage of personnel by increasing productivity, as noted in the center for economic forecasting of Gazprombank . In 2023, investment activity noticeably outpaced GDP dynamics (in the third quarter - +13.3% in annual terms), but these investments were facilitated by fiscal stimulus and soft monetary policy. And most likely, they partially compensated for the additional costs of companies that arose in the new conditions.

In conditions of almost one hundred percent employment, the immediate prospect of the labor market is the redistribution of workers between sectors. An increase in the key rate will hit employment in cyclical sectors (construction, retail, finance), which, in turn, will further increase the flow of labor to enterprises related to the military-industrial complex, predicts Alexander Isakov from Bloomberg Economics. Despite the fact that they demonstrate the highest rates of employment growth (for example, in the production of fabricated metal products - +13% year-on-year), the shortage of personnel is far from being satisfied. Thus, the deputy head of Rostec, Nikolai Valuev, recently estimated the state corporation’s need for “qualified engineering personnel” alone at 20 thousand people.

At the same time, another consequence of the rate increase may be the end of the wage growth cycle observed in 2023. In September, real wages (that is, minus inflation) increased by 7.2% in annual terms against 9.5% in August, and nominal wages by 13.6% against 15.1% a month earlier. Experts interviewed by RBC say that the wage race has begun to lose momentum and now salaries will change in proportion to inflation. Thus, the current state of the labor market is characterized by a combination of a reduction in the number of people actually engaged in productive activities, staff shortages, rising wages and a (probable) decline in labor productivity. In other words, what is happening in the labor market quite clearly reveals the paradoxes of the current situation in the Russian economy: brilliant nominal indicators hide the imbalance leading to overall long-term losses.