VZCZCXRO5251
PP RUEHDBU RUEHHM RUEHJO RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHMO #2924/01 3361313
ZNR UUUUU ZZH
P 021313Z DEC 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5561
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHXI/LABOR COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MOSCOW 002924 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS, DRL 
DOL FOR BRUMFIELD 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EIND PGOV SOCI RS
SUBJECT: RUSSIAN EMPLOYERS FRET OVER WORKFORCE DECLINE 
 
REF: A. MOSCOW 1073 
     ¶B. 07 MOSCOW 5522 
 
SENSITIVE BUT UNCLASSIFIED: PLEASE PROTECT ACCORDINGLY 
 
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SUMMARY 
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¶1. (SBU) By 2025, Russia will lose an estimated 14 million 
members of its working age population.  Employers are 
struggling to cope with intensified competition for available 
workers and the divergence of labor supply and demand in 
various sectors and regions.  While the GOR's 2025 
Demographic Policy Concept includes a variety of public 
health measures targeting reduced workforce mortality, 
officials remain disinclined to solve the labor deficit 
through increased immigration.  Recent data also underscored 
the low productivity of Russia's existing workforce compared 
to developed countries.  Favoring a public health solution, 
the GOR is unlikely to take the steps necessary to address 
Russia's poor productivity performance.  End Summary. 
 
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BUSINESSES FACE SHRINKING WORKFORCE 
----------------------------------- 
 
¶2. (SBU) Russian employers face continued workforce decline 
in the near future despite recent positive, demographic 
trends in terms of birthrates and population growth.  In 
2007, the working age population in Russia, i.e. men ages 
16-60 and women 16-55, reached an historic high of more than 
90 million individuals.  However, the GOR statistics service 
(Rosstat) estimates that the working age population will 
decrease by more than one million each year from 2013-2018. 
By 2025, Rosstat forecasts a working age population decline 
of 14 million from current levels.  In a recent report, 
Mikhail Denisenko of the Demographics Institute of the Higher 
School of Economics (HSE) asserted that, given the decline in 
the population of reproductive age women that started in 
2004, Russia would approach the end of the "demographic 
dividend" brought about by higher birth rates in the 1980s by 
¶2010. 
 
¶3. (SBU) At a November meeting of the Russian Union of 
Industrialists and Entrepreneurs' (RSPP) Social and 
Demographic Policy Committee, members expressed concern over 
future workforce qualifications and correspondence to labor 
demand in addition to the overall size of the working age 
population.  Fyodr Prokopov, RSPP Executive Vice President, 
emphasized employers' concerns regarding the future 
availability of educated workers with the necessary skills in 
addition to availability of workers in general (reftel A). 
Prokopov also underscored the importance of the geographic 
concentration of the workforce compared to areas with high 
labor demand.  He stated that declining populations and 
internal migration to urban centers left employers in many 
regions outside Moscow, St. Petersburg, and other major 
cities to contend with a dearth of available workers. 
Businesses in these areas are increasing their labor costs as 
competition over a limited pool of workers intensifies.  In 
addition, Prokopov made particular note of the impending need 
to identify technological alternatives to human inputs in 
physically demanding sectors, specifically construction and 
agriculture, which are not attractive to new workers.  He 
stated that approximately 90 percent of the current 
agricultural workforce would reach retirement age by 2018-20. 
 (Note: President Medvedev identified the agricultural sector 
as one in which Russia enjoyed a comparative advantage in his 
recent annual address.  End Note). 
 
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GOR PROMOTES LABOR GROWTH, BUT NOT THROUGH MIGRATION 
--------------------------------------------- ------- 
 
¶4. (SBU) In recent years, the GOR has prioritized reversing 
Russia's negative demographic trends, including stimulating 
workforce growth.  In 2007, then President Putin signed the 
GOR's 2025 Demographic Policy Concept with the objective of 
reversing population decline and increasing life expectancy 
(reftel B).  Within the framework of the 2025 Concept, the 
GOR is attempting to reduce mortality rates in the working 
age population through various measures, including 
cardiovascular disease treatment and prevention; increased 
road safety; reducing the number of industrial accidents; and 
prophylactic measures targeting cancer, HIV/AIDS, and 
 
MOSCOW 00002924  002 OF 002 
 
 
tuberculosis.  Following the implementation of the 2025 
Concept, the GOR joined the World Health Organization 
Framework Convention on Tobacco Control in 2008 and launched 
an anti-alcohol campaign in August 2009.  Other GOR attempts 
to develop the labor supply include increasing employment 
opportunities for retirement-age workers and extending 
working hours. 
 
¶5. (SBU) Despite experts' claims that stabilizing the 
population will require immigration on a massive scale, the 
GOR and the Russian population remain generally disinclined 
to immigration as a potential solution.  According to a 
recent HSE report, stabilizing the population by 2015, as set 
forth in the 2025 Concept, would require annual inflows of 
200,000 migrants through 2016 and over 300,000 through 2025. 
The report also highlighted the tendency on the Russian labor 
market for Russian workers to occupy positions with higher 
qualification requirements, while migrants often fill 
lower-skilled vacancies that many Russians would not accept. 
(Note:  According to 2007 Rosstat data, 40 percent of 
migrants worked in the construction sector, while another 19 
percent worked in trade.  End Note.)  In 2007, the GOR 
significantly simplified the registration and work permit 
processes for migrants from the CIS.  However, the Federal 
Migration Service (FMS) has since lowered the number of job 
permits for foreigners.  In addition, while the Russian 
population would generally be open to future repatriation of 
ethnic Russians as took place in the 1990s, Russians remain 
uneasy about the prospect of significant inflows of 
non-Russian immigrants. 
 
----------------------------- 
THE LABOR PRODUCTIVITY OPTION 
----------------------------- 
 
¶6. (SBU) Although faced with a labor deficit, Russia fails to 
use the workforce it has efficiently.  According to a 2008 
UNDP report, Russia's population ranks in the top 15 percent 
of developed countries by education level but among the 
lowest 15 percent in terms of the contribution of human 
capital to national wealth.  Assessing the reliance of its 
economy on natural resources as opposed to its intangible 
assets, UNDP experts compared Russia to Moldova or Nigeria. 
In November, RSPP President Alexander Shokhin published an 
article in Vedomosti, noting that labor productivity in many 
sectors of the Russian economy -- particularly the GOR's 
priority sectors -- is far lower than in developed countries. 
 On average, Russian labor productivity is 30 percent that of 
the U.S.  According to Shokhin, improving Russia's labor 
productivity will require modernization of industrial 
technology and infrastructure, upgrading the skills of its 
workforce, and providing for increased competition.  However, 
the room for improvement is vast, especially given the 
results of recent studies such as those conducted by HSE 
showing that productivity in the top 20 percent of Russian 
firms is 6-12 times higher than in the bottom 20 percent. 
 
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COMMENT 
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¶7. (SBU)  The aging of Russia's population will increase the 
burden on a shrinking workforce of supporting a growing 
number of pensioners.  The GOR is likely to continue relying 
on public health initiatives targeting increased birthrates 
and reduced mortality as the primary means of addressing 
Russia's demographic situation.  However, higher birthrates, 
which experts speculate are temporary and not sustainable, 
will not solve the labor deficit facing employers over the 
coming decade.  Modernizing Russia's antiquated industries to 
improve productivity would mitigate the impact of the labor 
deficit.  Unfortunately, despite the right rhetoric from the 
highest levels, the GOR has not yet taken the concrete 
actions to promote innovation and competition that would 
raise labor productivity.  End Comment. 
Beyrle