economists expect employees to have an advantage over Russian employers in the labor market

The overheated labor market, most economists are convinced, will become almost the main limitation to the accelerated economic growth of Russia in the foreseeable future. Analysts from the ACRA agency, having updated their medium-term macro forecast until 2026, note that low economic growth in the forecast period will be accompanied by increased interest rates, rising labor costs in real terms and budget deficits.

Current structural changes have already led to high utilization of existing capacities and labor resources, the level of which, as a result of the combination of the post-pandemic situation in 2021 and the growth of government demand in 2022-2023, has now reached historically very high levels, ACRA estimated. This will limit economic growth on the supply side, as a result of which annual GDP growth rates will decrease from approximately 3% in 2023 to close to the potential 1–2% on the forecast horizon (in 2024 – about 1%). “At the level of the economy as a whole, labor productivity, human capital and intersectoral efficiency in the use of production factors are the only real sources of sustainable growth.

As in other countries with post-industrial demographics, migration trends are likely to increasingly influence economic policy,” the authors of the assessments conclude.

At the same time, having analyzed the current Rosstat data on employment and its structural changes that occurred from September 2022 to September 2023, Bloomberg Economics records that by the end of the third quarter of 2023 the figure was the highest since 1991 – 74 million people, and the number employed in September 2023 in annual terms increased by 2 million people. There are three reasons for this peak, according to analysts.

• The first is the hyper-stimulating budget and monetary policy of the second half of 2022 – the first half of 2023, which supported employment in cyclical sectors aimed at the domestic market: the financial sector – plus 50 thousand people, retail and construction maintained employment levels, which is not typical for a recession, notes author of the assessments Alexander Isakov.
• The second is mobilization, a campaign to recruit into the RF Armed Forces for a contract and an increase in the output of the military-industrial complex: processing – plus 0.7 million people, military and public sector – plus 0.14 million people.
• The third is statistical effects: the census could increase the employment estimate by a million people.

The authors of the Telegram channel “Hard Figures” record that the main donors of the annual growth in demand for people in the military-industrial complex, military and officials (here employment grew with an overall near-zero dynamics of those employed in the economy, with the elimination of the “census effect”) were trade (0.5 million people), agriculture and science (0.4 million people each). “The result of such “structural adjustment” is shortages in the labor market,” they believe. Bloomberg Economics adds that in the third quarter of 2023, the main suppliers of labor to these industries were mining (minus 0.2 million employed) and agriculture (minus 0.1 million employed). “The potential for growth in business activity through labor mobilization has been exhausted. An increase in the key rate and a decrease in budget impulse will hit employment in cyclical sectors: construction, retail, finance,” Mr. Isakov is convinced.

In the same logic, a decrease in employment in cyclical sectors will expand unemployment and lead to a flow of employment into the processing sectors associated with the military-industrial complex and into the public sector as a whole. We note that the nature of the future labor market stresses over the next two years is not obvious—given that the nature of the “natural rate of unemployment” may be disputed (see “Kommersant” dated November 17), labor mobility in the Russian Federation is traditionally limited, and sanctions restrictions and, conversely, large investments in import substitution affect employment with strong lags, the expected figures for future unemployment are difficult to predict.

Artem Chugunov, Dmitry Butrin