The effects of depopulation in Russia to its labor market

Abstract

For the last two decade, demographic situation in Russia has deteriorated. The number of population and workforce has significantly fallen which increases the concerns regarding the future of Russian population and its workforce capacity. In addition to that average age of working-age population reached to 40.6 years where only 22% of the workers are under 30 years old at the same time age dependency ratio increased to 43.1% in 2015. Depopulation, aging and shrinking number of the working-age population are some of the biggest challenges which Russian labor market face today. The year 1995 is an important year for demographic dynamics in Russia because after that year number of population continuously decreased and according to forecasts it will fall even further in the near future. 

Russian population between the 2000-2015 years decreased 2.5 million falling to 144 million and forecasts indicate that by 2050 it will fall 17 million to 129 million. [1]. Moreover, during the 2011-2015 period, the  number of total working-age population is decreased 3.6 million. In addition to that, the last 23 years average working age in Russia has aged 2.3 years increasing to 40.6 years in 2015. [2].

Considering all the numbers represented above the significance of the two is issues better understood. Moreover, due to their structure, it is quite difficult to change the demographic situation through natural ways in a short time. Therefore, solving the problem through natural population growth requires a long-time and long-term planning in order to address both problems. During this period, Russian labor market could suffer from a shortage of labor that will affect the businesses and economy in general.[3]. However, increasing the immigration flow to a country would raise the overall population and supply the labor market with a new workforce.  Therefore, countries could prepare long-term plans and initiate them but in the meantime, they have to increase their attractiveness to pull international migrants and (who would settle in the host country permanently) labor migrants to provide a short-term solution for their problem.

On the issues of depopulation and shrinking working age Federal State Statistics Service (Rosstat)  has  prepared a population estimation report in 2010. The report forecasts the demographic dynamics of the Russian population till 2030 and provides three possible scenarios and all of them are migration-based. On this point, analysis of foreign workers indicates that current incoming migrants profile would significantly contribute to the aging and depopulation problems of Russia. For instance, at the end of 2015, the number of foreign workers who are legally working in Russia reached to 1.65 million (the number represents the patent holders). Among the arriving migrants, the share of the 18-49 years group was 91% whereas the share of youth consisted 41%.  Meaning, the age structure of the labor migrants is suitable to decrease the average working age in Russia. [4]. It is important to note that besides official workers there are approximately 3-5 million foreign workers reside and  work in the country illegally [5]. But this paper will focus on only to legal labor migrants.

A falling number of working-age population and shrinking population will be the major challenge for Russia  to satisfy the demand of labor market. The future of Russia’s economic development relies on the capabilities of the Russian government to provide realistic solutions for the two major problems of the Russian labor  market. With scarce labor resources, the demand for workers will increase and this situation will eventually increase the wages of workers. On this point, the fertility rate and migration flow to a country are important indicators for economic security in the context of sustainable labor supply within a country. [6].

It could be said that if there won’t be any significant changes a perfect storm waits for Russian labor market in near future. In the short-term optimal solution for these structural problems is to accept more international (permanent) and labor migrants. The difference among these two is that international migrants are coming to Russia to settle permanently whereas the duration of labor migrants’ stay depends on their employment.  Therefore, it is important to analyze the current state of Russian labor market and profile of labor migrants in order to assess their usefulness to Russian labor market.

Graph 1. Age Dependency Ratio 2000-2015 Source: World Bank, 2016. 

Age dependency ratio is an important indicator for demographic and labor market studies. The dependency ratio indicates the share of dependents (who are below 15 and over 65 years old) to the total workforce (15 to 64 years old). [7]. This ratio divides the population into two groups, working and non-working group and this information is useful to determine the economic cost of non-working people to working ones. On this point, the higher ratio could lead to an increase in taxes on those who are working in order to compensate for the non- working dependent group. [8]. According to World Bank population statistics of Russia, the number of the dependent groups is reduced from 44.3% in 2000 to 38.8% in 2010. However, the last 5 year the ratio climbed back to 2000 level with 43.1% in addition to that forecast shows that the ratio will continue to increase reaching 55.3% in 2025 and 62.9% in 2050. [1]. Another reason for an increase in the number of population is due to significant fall in the death rates where date rate (per 1,000 people) reduced from 16.1 in 2005 to 13.1 in 2014. [9]. During the last decade, a decrease in the number of the population has caused a serious challenge for Russia where the number of the population has reduced from 146.5 million in 2000 to 142.8 million in 2010. However, starting from 2012 the natural decline of the population has stopped and even started to slightly increase in the following years. Having said that forecasts are pessimistic about the future of the demographic situation and indicate that a number of population in Russia within 15 years will decline 4.3 million and by 2050 this number will reach to 15 million. [1].

In the beginning of the 2000s, demographic situation in Russia was reaching to an alarming situation where the gap between birth rates and death rates reached almost a million people and a number of international migrants stood at only 359.3 thousand which eased the decline in overall population. Although natural decline numbers started to recover during 2000-2005 years but the decrease in migration flow reduced the overall population to - 669.3 thousand in 2005. Later on, starting from 2005 combination of all three factors increase in birthrates, decrease in death rates and increase in migration flow has immensely contributed to the improvement of a number of overall population. In following years 2010 marked as a breakeven point for the overall population while 2012 for a natural decline due to reaching positive numbers. In 2015 overall population number reached to 630.6 thousand due to continuously increasing migration flow and positive natural growth. [4]. However, concerns regarding the decline in the number of population persist since there are different views regarding reasons of  recent increase in the natural decline statistics.

The first argument expresses that, the Russian government has admitted that there is a demographic problem and start implementing the necessary actions to soften the decrease where government actions has shown its positive effect over the birthrate and manage to reduce the death rates comparing with the 2000s.  Another argument indicates that the Russian family model has been changed comparing with the last decade. Indicating  that in 2000 for Russian women the average age of first birth was 21 whereas this number is increased to 25 in 2012. Meaning first birth time is delayed for a few years, therefore, the current significant increase in birthrates is covering the last five years of low birth rate. [10].

Looking at the total fertility rate (TFR) of Russia, we could provide a different argument for the sharp fall in the 2000s and a recent increase in the number of population. In Russian demographic dynamics collapse of the Soviet Union was a breakeven point for the TFR where within 6 years TFR fall from 2.22 to 1.38 (1987-1993) whereas it only decreases 0.30 within 27 years naturally (1960-1987). The social and economic trauma of the transition period from the Soviet Union to Russian Federation continued in the 1990s where it drops to record low 1.17 in 1999 which also coincides with the time of ruble crisis. It took 12 years for Russian demographic situation to recover from the shock of the collapse of the Soviet Union and surpass the 1993 year level of 1.3 TFR. The following 6 years (2006-2012) TFR is jumped from 1.3 to 1.7 and maintained this level until 2014. [11].

In short, it could be said that the uncertainty after the collapse of the Soviet Union had a certain effect on previous generation’s family concept while the current generation has a different opinion regarding the number of family members within the family concept. Therefore, the new generation seems to be relieved from the concerns about their country’s future and the improved economic situation in the country during 2000-2015 years has also contributed to this increase. [12].

Having said that the Russian TFR is increasing comparing with the previous decade it is still under the average TFR rate in order to sustain a stable population level that is 2.1 TFR. [13]. The current TFR for World is 2.5 while this number for the European Union is 1.54 and for major labor exporting Central Asian countries average is 2.96 [11]. Looking at the depopulation issue from this type of calculation forecasts for future has a base and if not improved in the long-term decrease in the number of population problem will continue to exist.

Graph 2. Employed workers by age 2015 Source: Rosstat, 2016. 

As for aging of workforce issue, the main problem is a low share of the youth among the workforce. In graph 3, the age structure of the employed workers indicates an equally distributive picture meaning there is a balance between youth and elderly workers, which is not a good indicator. Since the share of the younger workers needs to be higher in order to reduce the economic burden on them. However, in 2015 the average of employed person was 40.6 year while this figure is 41.2 for women and 40 for men. The share of the 18-49 age group consists 72% whereas the share of youth (18-29 age) among them is only 22%. [4]. Russian economy as it is in the current state is a labor-intensive economy requires a large number of workers in order to continue its development. Therefore, the number and age of the workforce is an essentially important factor for businesses and economy in general. [3]. The statistics represent that the Russian workforce has aged 2.3 years within 23 years and reached to 40.6 years in 2015.[4]. It could be said that influencing the average age of the workforce is much more difficult than reversing the depopulation problem. The share of youth in the workforce has a limited effect over the average  age since the majority of the workers are middle-aged people. Therefore, only feasible short-term solution on this matter implement policies that will attract a large number of younger foreign workers.

In conclusion, analysis of the effects of depopulation tothe Russian labor market under the aging and shrinking number of population problems represents a pessimistic vision for the future of the Russian population and workforce. Regarding the depopulation issue there are some improvements where the natural growth rate of population has turned positive in recent few years but how sustainable is this new trend is open to discussion. Therefore, attracting large number of immigrants could have a significant effect over the depopulation problem however, at its current level the effect of the migration flow is limited to cover the losses in the number of population.

Reference

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