Russia’s Labor Shortage Pushes Kremlin to Encourage Retirees to Keep Working

Russia’s Labor Shortage Forces Kremlin to Target Retirees and Shadow Economy Workers

MOSCOW — Facing a severe labor shortage driven by demographic decline, military mobilization, and emigration, the Kremlin is launching a campaign to push retirees back into the workforce and compel those working in the shadow economy to formalize their employment. The initiative, outlined in recent government statements and policy proposals, marks a shift from previous efforts to address labor gaps through immigration or productivity improvements.

Labor Shortage Reaches Record Levels

A study by the Higher School of Economics, cited in The Moscow Times on May 12, 2025, found that Russia’s labor shortage had increased by 17% over the previous year, reaching a record high. The deficit is attributed to three key factors: a long-term demographic decline, the loss of working-age men to military service in Ukraine, and reduced immigration due to rising xenophobia and stricter policies.

The Kremlin’s response has focused on two underutilized segments of the population: retirees and those employed in the informal economy. Official estimates suggest that up to 15 million working-age Russians are not registered with formal employers, often earning income through cash-based or off-the-books arrangements. The government has framed its campaign as an anti-corruption measure, arguing that bringing these workers into the formal sector will reduce tax evasion and improve economic transparency.

Retirement Age Hikes and Incentives for Older Workers

Russia has already taken steps to extend the working lives of its aging population. In 2018, the government raised the retirement age, with men now eligible at 65 (up from 60) and women at 63 (up from 55). Despite these changes, demand for older workers has surged. According to data from Russian outlet Nakanune, job postings targeting workers aged 55 and above increased by 65% in the culture and education sectors and by 12% in the service industry during the first quarter of 2024.

The Kremlin is now exploring additional incentives to keep retirees in the workforce, including tax breaks for employers who hire older workers and expanded access to part-time or flexible roles. However, analysts warn that these measures may face resistance from a population already strained by economic pressures and the ongoing war in Ukraine.

Crackdown on the Shadow Economy

The government’s second prong targets the estimated 15 million Russians who work informally, outside the tax and regulatory systems. While some of these workers are self-employed or freelancers, others are employed by businesses that underreport wages to avoid payroll taxes. The Kremlin’s proposal includes stricter enforcement of labor laws, penalties for employers who fail to register workers, and potential amnesty programs to encourage voluntary formalization.

Some of the measures under consideration aim to address gender disparities in the workforce. Proposals include eliminating gender restrictions on certain jobs and narrowing the gender pay gap, which could help integrate more women into formal employment. However, critics argue that the overall push resembles Soviet-era labor policies, where state pressure was used to fill workforce gaps rather than improving productivity or working conditions.

Teenagers Recruited as Workforce Stops Gap

With older workers and informal laborers targeted, businesses have also turned to younger recruits. Job advertisements seeking applicants as young as 14 surged by 119% in the first quarter of 2024, while demand for workers aged 16 to 18 doubled. The government has facilitated this trend by lowering the legal working age to 14, a move that has drawn criticism from labor rights groups concerned about exploitation and the impact on education.

Economic Strain and Inflation Risks

The labor shortage has exacerbated broader economic challenges. Wages have risen sharply as employers compete for scarce workers, contributing to inflation, which reached 9.9% in early 2025. Labor Minister Anton Kotyakov warned in a recent statement that Russia would need an additional 10.9 million workers by 2030 to replace retirees and fill new jobs, a gap that could widen if productivity does not improve.

Kotyakov also highlighted the risk of a “personnel shortage” if current trends continue, noting that the government’s projections assume productivity gains that may not materialize. The Kremlin has acknowledged the need to boost birth rates, with President Vladimir Putin framing the issue as a matter of “ethnic survival.” However, demographic experts argue that such measures will take decades to yield results, leaving the labor market dependent on short-term fixes.

Broader Implications for Russia’s Economy

The labor crisis is unfolding against a backdrop of economic instability. Western sanctions, imposed in response to the war in Ukraine, have limited access to foreign technology and investment, while military spending has diverted resources from other sectors. The banking system has also come under strain, with Russian lenders reporting a surge in risky loans as businesses and households struggle with higher borrowing costs.

Finance Minister Anton Siluanov has warned of mounting pressure on regional budgets, with local governments taking on more debt to fund services and infrastructure projects. The combination of labor shortages, inflation, and fiscal strain has raised concerns about long-term economic stagnation, particularly if the war in Ukraine continues to drain resources and manpower.

Public Resistance and Policy Challenges

The Kremlin’s labor policies have faced skepticism from both workers and employers. Many retirees, already coping with rising living costs, have resisted calls to return to work, while younger Russians express frustration over the lack of opportunities in a war-dominated economy. Businesses, meanwhile, have criticized the government’s focus on expanding the workforce rather than improving productivity or investing in automation.

Journalist Vladimir Ruvinsky, writing in Russia Post in November 2024, argued that the Kremlin’s approach reflects a broader failure to address structural economic issues. “Instead of reforming labor laws or incentivizing innovation, the government is reverting to Soviet-style labor mobilization,” he wrote. “This may provide short-term relief, but it does little to address the underlying causes of the labor shortage.”

What Comes Next?

The Kremlin’s labor campaign is expected to unfold in stages, with initial measures focusing on tax incentives for employers who hire retirees and informal workers. Stricter enforcement of labor registration requirements is also likely, though the government has yet to announce a timeline for these changes. In the longer term, the success of the initiative will depend on whether it can balance workforce expansion with efforts to improve productivity and economic stability.

For now, Russia’s labor market remains in flux, with businesses scrambling to fill positions and policymakers grappling with the limitations of their approach. Without meaningful reforms or an end to the war in Ukraine, the labor shortage is poised to remain a defining challenge for the Russian economy in the years ahead.