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Thirdly, many people left Russia after the invasion of Ukraine – because they were anti-war, or because they feared being made to fight. Most of them are probably still included in official statistics, but this outflow undoubtedly dented the labor market.
The authorities face a tough choice. There are social and political risks in allowing more migrants into the country. And limiting military recruitment is hardly possible when there’s a war on. Nor are there many more workers left in occupied Ukraine. If we dismiss fantastical plans like recruiting workers from North Korea, the Kremlin has few options.
Structural change
Russia’s economy is undergoing structural changes as labor-intensive industries play a bigger and bigger role. Previously, Russia’s exports were mostly capital-intensive (such as mining), and the labor force required to produce them was minimal. In good years, the authorities spoke of the need to increase the role of labor in the economy and, ultimately, in wages. But wage growth happens either because an economy becomes more sophisticated (spending on education, healthcare, science and, as a consequence, getting increased labor productivity), or when it degenerates – causing labor to displace capital. In Russia, the latter process is the one underway at the moment.
Today, there is a belief that governments can improve either inflation, or productivity, at the expense of the other – but not for long. The theory of a natural rate of unemployment (i.e. the level of unemployment at which inflation is steady and there is no upward or downward pressure on prices) – reckoned to be 4% in Russia – assumes that, everything else being equal, the economy will return to its average levels. Russia’s economic potential could be higher if it could increase productivity, perhaps with innovation. However, this is hindered by Western technology sanctions, and the relatively small size of the Russian market.
Why the world should care
To ensure stability, the Russian authorities seem set on using all instruments at their disposal to stimulate economic growth. This will continue to increase the demand for labor, and boost salaries. But it can’t last forever. Bringing in
34 RUSSIA Country Report August 2024 www.intellinews.com