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Ukraine. Labor market in crisis

Ukraine. Labor market in crisis

In Ukraine, the outbreak and spread of COVID-19, along with quarantine and lockdown measures, has led to adverse consequences for the labor market. Entire sectors of the economy are confronted with suspension of their activities for a year or even more, while small, medium-sized enterprises, and micro-businesses are on the verge of total extinction.

Small business owners already held protests in several regions of Ukraine (KhersonPoltavaChernivtsiVinnytsia), denouncing the lack of support for small enterprises dealing with harsh restrictions. Farmers claim that they cannot sell their agricultural products and are pushed to throw them away or sell them at a lower price, while large supermarkets and grocery stores remain open, raising produce prices and amassing high profits during the quarantine. Small entrepreneurs repeatedly claim that they do not have any substantial assistance from the government – they lack the money to purchase food for their families, let alone keep their businesses afloat. Fearing a national revolt, the government decided to open food markets on April 29.

The given situation unfolds on the backdrop of numerous failures of Ukraine’s government, large-scale corruption scandals and oligarchs remaining in control of strategic spheres of the economy and regions. In reality, it creates almost feudal clientelistic dependencies. The government course of action thus far has neglected the core issues important to any country’s well-being – its human resources and public health. Incompetence with regards to labor market regulations has been especially apparent, already resulting in systemic mistakes or lack of actions, and potentially leading to catastrophic consequences for the people of Ukraine. The functionality of a free market in Ukraine is distorted by aggressive monopolies and hidden groups of interests, making small and medium businesses the main victims of this situation, and limiting entrepreneurial freedom.

The situation in the labor market of Ukraine is dramatic, as around 30% of workers were employed informally in the shadow economy pre-quarantine. This figure may have been even higher due to unreported data. Many Ukrainian labor migrants returned from abroad and currently are also unemployed. According to Oleksandr Okhrimenko, director of Ukrainian analytical center, at least 200 000 Ukrainians returned home since the onset of quarantine and lockdown measures. However, precise data is not available because of illegal employment abroad. Thus, under various methodologies and experts` opinions, from three to seven million Ukrainians (including those who are on ‘unpaid leave’) are now out of work, out of an officially estimated eighteen-million workforce.

Fact sheet of the labor market in Ukraine during the COVID-19 crisis:

  • The Ministry of Economy updated its macroeconomic prognosis for Ukraine, estimating a drop in GDP by 4.8%, an increase in unemployment by 9.4%, and a decrease in real wages by 0.3%. One of the worst-case scenarios provided by Ukrainian businesses’ association, outlines a drop in GDP by 9%, a 12% increase in unemployment, and a 30% decrease in real wages. Estimates by the association suggest that 51% of enterprises in Ukraine will not be able to stay afloat longer than one month if the quarantine were to continue.
  • A poll conducted by Advanter Group and published on April 6, has found that, on average, businesses in Ukraine will see an income drop by over 50%. And 28% of companies in Ukraine may experience a decrease in revenue by more than 60%. According to Open Data Bot, a site that monitors Ukrainian state registries, micro-enterprises in Ukraine have reported a 90-100% drop in income since the onset of quarantine.
  • A poll by Info Sapiens, which surveyed 800 randomly selected Ukrainians, has shown that 60% of the working population has been earning significantly less due to covid-19 quarantine; 16% have temporarily lost their source of income, 38% are being paid less, 14% lost their jobs.
  • According to the State Employment Service, as of April 28, since the beginning of the quarantine 127,000 people are registered as unemployed. As of April 16, the number of people who filed for unemployment has increased by 27% (over 86500 people registered as unemployed) compared to the same period in 2019. During April 13-17, 29 900 people applied to the State Employment Service (on average, 6000 people per day).
  • Overall, official state statistics estimate that 431 900 are unemployed in Ukraine. This is an increase of 38 percent over the same period last year. The limitations of state statistics have to be taken into consideration here, as many individuals do not qualify to be registered as unemployed, and the state census in Ukraine has not been held for about 20 years.
  • In addition, according to Hennadiy Chizhikov, head of the Chamber of Commerce, the unemployment level in Ukraine is now higher than in the past 15 years, currently at 13.7-15.4%. Chamber of Commerce data suggest that the total number of unemployed workers in Ukraine is estimated at 2.5-2.8 million, taking into consideration the number of labor migrants who lost their jobs abroad and returned to Ukraine throughout the initial weeks of the quarantine.

SC and LI experts state that these numbers could be much higher due to the cost of hidden unemployment – workers being pressured to take upon an unpaid vacation or unpaid leave. Such workers cannot register as unemployed and receive allowances from the state.

  • According to Pavlo Rozenko, ex-Minister of Social Policy, the number of workers who are ‘on leave’ is growing exponentially. People do not have any alternative, as massive layoffs in the country are accompanied by an unfavorable labor market situation and the reduction of new jobs and vacancies.
  • According to Kyiv city mayor Vitaliy Klychko, half a million Kyiv citizens are now on unpaid leave.
  • The Chamber of Commerce of Ukraine offered different numbers, presented during a TV show on April 24th. According to the new data, up to 5,1-5,5 million Ukrainians are on ‘unpaid leave’, and 600,000-700,000 enterprises stopped their activities.

In addition, SC and LI experts emphasize that the majority of those who are unemployed or ‘on unpaid leave’ have to take care of their rent, utilities, and loan payments, especially in Kyiv or other big cities. The government did not issue any policies to assist families and individuals with rent expenses or housing alternatives. No recommendations were issued either, all this amid growing cost of living and rent prices – for instance, it costs around 10,000 hryvnias ($370) per month to rent a one-bedroom apartment outside of the city center in Kyiv.

The quarantine became a challenge for the State Employment Service because of the mass flow of applicants.

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  •  Due to amendments to the laws, the minimum amount of unemployment allowance was increased from 650 (24$) to 1000 hryvnias (37$) per month, small and medium-sized enterprises are entitled to a benefit in case of partial unemployment, all categories of workers obtain their allowances starting from the first day of their registration as unemployed.
  • According to the Labor Initiatives legal clinic, many employees faced obstacles applying for their legal status as unemployed. Despite the positive efforts and announced digitalization of the filing procedure, employees often have to cope with bureaucratic procedures preventing prompt registration and payment of allowances. Moreover, the amount of allowances is insufficient to cover even basic living expenses. Recently, even the Prime Minister of Ukraine stated that8000 UAH (296$) per month is insufficient for a family with a single breadwinner.
  • The government of Ukraine is planning to create 500,000 New Deal-type jobs with monthly pay ranging from 6000 to 8000 hryvnias ($200 to $300). Jobs will be created mainly in municipal works and road construction. The President of Ukraine also mentioned the New Deal-style reforms in his speech April 1.
  • However, according to work.ua, one of the most popular job search engines in Ukraine, the number of job vacancies has fallen by half in the past four weeks.
  • At the same time, migration tendencies and demand for Ukrainian workers persist even amid the quarantine. For instance, around 200 Ukrainian labor migrants went to Finland via a charter flight, as Finnish businessmen do not have enough workers in the agricultural sector and are ready to organize further charters for Ukrainian migrants. Polish businessmen also expressed their readiness to bring labor migrants from Ukraine. However, on April 28, the Ukrainian government stated that each request on seasonal workers from foreign countries will be considered individually.

Solidarity Center and Labor Initiatives highlight that the post-quarantine period will be characterized by increased internal migration as well as emigration. Currently, there is a great demand for workers among enterprises in the agricultural sector, located predominantly in the southern regions of Ukraine. Service and entertainment sectors, popular in the capital of Ukraine, are unlikely to hire new employees.

The statements of high officials emphasize the problems of unofficial employment, high level of unemployment, potential layoffs, etc., unfortunately without outlining any specific steps or details to tackle the crisis.

LI and SC experts note that a number of policies that were implemented by the government prior to the COVID-19 crisis in fact deepened the problems Ukraine faces today. The absence of rational human resources and employment policies, aggressive attacks on basic labor rights, coupled with a high level of informal employment that was in part caused by a labor inspection which was de-facto paralyzed for prolonged periods of time, resulted in multiple violations in the labor sphere during the COVID-19 pandemic.

The current dramatic situation in the labor market of Ukraine demonstrates the importance of a serious and urgent revision of the present short-sighted, ineffective labor policy in order to promote inclusive development of Ukraine. The analysis of existing problems within Ukraine’s labor market can be a step towards further governmental policies that would put sufficient emphasis on labor rights. Labor is the defining part of life for every person – whether for a worker or a private entrepreneur, domestic worker, at large plants or small cafes. Right to free enterprise, rule of law along with freedom of association and labor rights protections are core safeguards to avoid catastrophic consequences for the people of Ukraine, and contribute to Ukraine’s economic development.