Ukraine’s labor market is in a state of stagnation and depression, opportunities to find productive work are very limited, and prospects for creating new jobs are bleak, says a World Bank report. An underdeveloped private sector is the main cause of our protracted stagnation. Newly-established firms are usually small in size and number and, as a rule, resort to employment cronyism. “This in turn results from an unfavorable investment climate created by a high risk level, as well as by costs and barriers that obstruct entrepreneurship in Ukraine,” says Jan Rutkowski, the World Bank’s leading expert on human development economics.
One can, of course, rejoice over the low level of unemployment — under 8 percent, which is lower than in most Western European countries. Yet the World Bank claims this is a temporary phenomenon. “Ukraine’s labor market is at a relatively early stage of a transitional period,” the report says. “A major part of the workforce still remains employed in the state sector.” This means that we have yet to see a powerful wave of job and labor displacement accompanied by growing unemployment. Moreover, World Bank economists have tallied up Ukraine’s unemployed. “The percentage of unemployed people does not reflect the overall picture,” the report points out. “Limited opportunities in Ukraine’s labor market are mainly the result of the fact that a small part of the workforce is involved in productive work. Disappointed with their failure to find a job, many employees have quit the workforce. As a result, the ratio between the number of employed individuals and the population, which is the most telling indicator of the utilization of labor resources, is low in Ukraine.” The World Bank estimates that fewer than 60 percent of able-bodied Ukrainians are really employed. Thus we are “topping the bottom” of the list — of course, among civilized countries and those “on the road to civilization.”
Another problem highlighted in the report is “black jobs.” This term does not refer to heavy manual labor but illegal employment. Today, out of every 100 hryvnias paid to the employee, the employer gives 42 to the state budget. It is no secret that in order to evade taxes many entrepreneurs do not disclose the sizable number of their employees. This is harmful not only to the Ukrainian economy but workers, who are deprived of numerous privileges, work seniority, old-age pensions, and the possibility to buy goods on credit. To combat this phenomenon, the report offers the same “prescription” as for creating new jobs: improving the investment climate and conditions for small business.
COMMENTARY
Larysa LYSOHOR, Candidate of Sciences (Economics), leading research associate at the Department of Human Development Research, Institute of Demographic and Social Studies, National Academy of Sciences of Ukraine:
“In my view, it would be wrong to characterize the labor market of Ukraine as tense. It may be called unstable, but stability will only be assured if investment economy mechanisms are brought into play. To reduce the unemployment level, the government should pass more flexible laws, ease pressure on small business, and, most importantly, support its own, i.e., state-run, enterprises and thus stimulate job creation. This primarily applies to farm businesses. So I can conclude that the root cause of unemployment is not insufficient development of the private sector, as the report says, but, the exact opposite: the state’s insufficient attention to state-run businesses. According to official statistics of the State Employment Center, in the first six months of 2005 the unemployed accounted for 7-9 percent of Ukraine’s economically active and able-bodied population.
“To get rid of ‘black wages,’ the state must make an effort to legalize illegal employment, create decent conditions for employers, and devise methods for influencing the functioning of shadow employment centers.”
