Editor’s Note: The following is an edited excerpt of Yakiv Smolii’s May 28, 2020 address to the Annual Research Conference of the National Bank of Ukraine and Narodowy Bank Polski. At the time, Smolii was the governor of the National Bank of Ukraine. However, on July 1, he resigned from the position, alleging political interference in his work.
1. Poorly educated workers
One of the systemic problems has for years been the mismatch between job seeker skills and employer requirements. Late last year, a third of companies cited labor shortages as being one of the key factors limiting production, according to business surveys. This partially explains why unemployment in 2019 was quite high despite significant demand for labor from businesses. The Ukrainian education system does not keep up with the changes in the modern labor market, which are taking place under pressure of globalization and technological progress. As a result, according to the State Statistics Service, in Ukraine about a third of employees with higher education work in a profession that does not require it. This is one of the highest rates in Europe.
2. Low productivity
Despite having grown over the past 15 years, productivity is still low. Ukraine is below the top 100 countries in an International Labor Organization ranking of countries by productivity. In 2019, labor productivity in Ukraine was lower not only compared to EU member states, but also relative to several former Soviet countries.
3. Population decline, aging
Ukraine ranks 12th in the world in terms of population decline, according to World Bank data. Overall, Ukraine has 11 pensioners per 10 employees. As a result, the Pension Fund needs constant additional contributions from the state budget. This diverts public funds from being spent on investment and education, and weighs on potential economic growth. The high workload on employed individuals further increases the already elevated levels of informal employment. In 2019, one in five workers in Ukraine was employed informally. According to the ILO forecast, by 2024, the burden on the working population by dependent people will increase compared to 2019 even more, by 6%.
4. Labor migration
There are no exact data on the number of Ukrainians working abroad. However, according to various estimates, it is about 3 million people. Some of them are seasonal workers. Last year, an average of 2.5 million of our citizens were abroad at a given point in time, according to NBU estimates. For us, this presents a double challenge. Not only does labor migration affect the quantity and quality of labor resources and labor productivity in Ukraine, but also it makes our economy heavily dependent on remittances. Ukraine ranks 12th globally in terms of total incoming remittances and is in the top 15 countries by the remittances to GDP ratio.
5. Low labor force participation
In particular, the labor force participation of women in Ukraine is insufficient compared to Europe. While the labor force participation of men in the population aged 15 and older is 65%, that of women is 49%. This is due to difficulties with accessing childcare services, and the low availability of part-time employment. Low labor force participation puts a drag on potential economic growth.
