ECONOMICS
Since the start of Russia’s full-scale war in Ukraine, payments to soldiers have increased dramatically — not because the state has more money, but because it has become harder to lure men to the front. In many regions, investments in the defense industry have led to higher wages, making contract military service relatively less appealing to local men of fighting age. The Insider found that the presence of military-industrial enterprises has a significant impact on the incentive packages offered to prospective soldiers, forcing the state to spend ever more to replenish its ranks. At the same time, the regular economy is losing out: logistics companies, agriculture, and railways all complain that the war is siphoning off workers.
Putin's war in Ukraine is drawing more and more people out of Russia’s civilian economy. Nearly 430,000 Russians signed up for contract service in 2024 alone, and another 210,000 contracts were signed in the first six months of 2025. But the impact extends far beyond the number of men under arms. The main “vacuum cleaner” pulling workers out of the civilian economy is the military-industrial complex, which now employs nearly 4 million people.
The relative quantity of military service contracts — along with the incentives offered to those who enlist — can vary significantly by region. Areas that are home to an advanced defense industry tend to offer higher payouts, a result of the fact that many employers have boosted wages in an effort to keep their workers. Not only that, the defense sector and the civilian economy are competing with one another, forcing the state to spend even more on staffing the military.
Military production is driving up all costs
Regional lump-sum payments for those signing contracts with the Defense Ministry continue to grow, albeit at a slower pace than before. In 2024, the nationwide average surged almost sixfold — from 150,000 to 900,000 rubles ($1,800 to $10,100) — but in the first five months of 2025, the rise averaged only an addition of 190,000 rubles ($2,300). Several regions, including Nizhny Novgorod and Belgorod, have even somewhat reduced the payouts.
Regional trends over the past three years have been highly divergent. Half of the regions increased payments by 400,000 rubles or less ($4,800), while the other half raised them by anywhere from 500,000 to 2.5 million ($6,000 to $30,000). There are several reasons for the disparity.
The army's main competitor for bodies is the defense industry. Defense enterprises are largely responsible for setting off the wage race, which in turn spilled over into the rise in contract payments. Defense plants also provide draft exemptions, reducing the pool of potential conscripts. In addition, defense enterprises that receive state contracts can generate revenue for regional budgets, while other regions may simply lack the funds to raise military contract payments.
To test this hypothesis, we divided the regions into two groups — those with defense enterprises and those without. In early 2024, the difference between the two groups was barely noticeable. However, a divergence had emerged by August of that year, and by December, payouts in defense-oriented regions had become noticeably higher.
Judging by the June 2025 data, this gap has persisted. In regions with defense enterprises, payments were 280,000 rubles ($3,350) higher in December 2024, and by June 2025, the difference had grown to 330,000 rubles ($3,950). Presumably, regions with a defense industry have more resources at their disposal and may use them to lure workers away from factories and towards the front. These regions have developed a high degree of involvement in the military economy, both by encouraging men to put on a uniform and by supplying the manufactured goods soldiers depend on.
Other types of industry do not produce the same effect
To rule out the influence of remuneration patterns in other sectors, we built a linear regression model and added two variables from the state statistics agency Rosstat: the share of the manufacturing industry in the gross regional product and the average regional wage.
The results can be interpreted as follows.
- The presence of military enterprises in the region correlates with an additional 350,000 rubles ($4,200) in the one-time payment.
- Meanwhile, the overall share of manufacturing has almost no effect on the size of the military contract payments.
- An increase of 1% in the region’s average wage raises the payment by 3,700 rubles, which is logical. Using this variable as a control allows us to account for the region’s economic situation and isolate the effect of defense industry enterprises, all else being equal.
Following these criteria, analysis confirms that it is specifically defense sector presence — not manufacturing industry as a whole — that significantly drives up one-time payments compared to regions without a defense sector.
The military industry as a sponsor
“After Russia was hit by international sanctions, manufacturers had to go local, and supply chains became longer. This led to additional growth in labor demand,” notes economist Tatiana Mikhaylova, a visiting assistant professor at the University of Pennsylvania. However, she agrees that the main factor driving the phenomenon is labor demand from the defense industry, since the military sector raises wages to poach civilian workers. The growing demand for workers in the civilian sector also contributes to wage growth. As a result, regional authorities are forced to increase army contract bonuses.
However, if one considers military service contract payments as the price of labor at the front, Mikhaylova continues, then like any price, it is determined by supply and demand. While the supply — that is, the number of people willing to fight — largely depends on regional wages, demand is influenced by entirely different factors. As she explains the situation:
“Federal authorities need to recruit contract soldiers to wage their war. But there is either no money for bonuses or no political will to spend it. As a result, the costs are partially shifted onto regional budgets.
Wealthy regions can offer more money than poorer ones. And here, the federal center and the regions engage in opaque bargaining over recruitment targets for contract soldiers. Wealthy regions are being pushed to recruit more people and therefore to pay more. Poorer regions complain that they lack funds and are likely to be given lower targets. On top of that, a similarly opaque form of bargaining could be going on between regional authorities and big businesses, which are being pressured to allocate money and to support the recruitment effort.
Regions always address their economic and infrastructure problems at the expense of local companies. Defense industry enterprises that receive state contracts could also serve as such ‘sponsors.’ Besides, one can sign a military contract in another region — meaning well-off regions can poach non-locals with high bonuses.”
In authoritarian regimes, state entities often compete with each other for resources, influence, and control over key functions — including the management of human capital. The consequences of this rivalry can be adverse, with resources wasted on intra-elite struggles, redundant functions, and conflicts between security agencies. In Russia, this process manifests itself in an increase in the cost of labor.