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Cablegate: Russian Employers Fret Over Workforce Decline

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

-------
SUMMARY
-------

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.

-----------------------------------
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).

--------------------------------------------- -------
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.

-------
COMMENT
-------

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

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