Higher wages abroad are not the only reason why Ukrainians emigrate

(Thisisbossi, CC BY-SA)

The Ukrainian government is trying to stop the emigration to the West, including Poland. However, there are few signs that the it could succeed in its efforts.

According to various estimates, 7 to 9 million Ukrainians are already working abroad and contributing to the development of other countries’ economies. The World Bank estimates that in the past year the country lost almost 1.5 per cent of its workforce compared with 2017, and in this year 500,000 additional workers will leave the country to work abroad.

Ukraine was ranked first on a list of countries with the highest decline in the size of the workforce, prepared by PwC. The rate of decrease in the labor force in Ukraine is greater than in other countries of the CSE, such as Bulgaria, Romania, Lithuania, Hungary, Latvia, Moldova, Croatia, Russia and Belarus, which are also recording strong declines.

The domestic economy is not so good

The answer to the question of why Ukrainians are leaving their country can be found in the results of the research work carried out by the Ukrainian sociological laboratories. In a survey conducted in the spring of 2018 by the Kiev International Institute of Sociology, the respondents were asked to assess the state of prosperity in their country and in their families. The responses of very good, good, average, poor, and very poor, were assigned the values of +100, +50, 0, -50 and -100, respectively. The situation in the country had an average score of -46, and the situation within the families had a score of +8.

On the other hand, a survey conducted in mid-2018, at the request of the American International Republican Institute, shows that a stable negative sentiment has persisted in Ukraine since 2011, with the exception of a slight fluctuation in the spring of 2014, when 34 per cent had an optimistic assessment of the situation, and 48 per cent saw the reality in a negative way. Today, 70 per cent of respondents declare that things are going in a bad direction, while only 15 per cent believe that things are going in a good direction. According to 8 per cent of the respondents, the economic situation has improved, while 67 per cent believe that it has deteriorated, wherein 37 per cent believe that it has deteriorated significantly. At the same time only 9 per cent of the respondents saw a slight improvement in the situation of their household, while 59 per cent felt a deterioration, wherein as many as 32 per cent of the respondents believed that the living circumstances of their families had deteriorated significantly. At the same time, there were no respondents believing that their situation had significantly improved.

Among the problems mentioned by the Ukrainians as the most important, the increase of prices ranked the highest, with as many as 65 per cent of the respondents indicating this problem. The war in the Donbass region — the second most often indicated source of adversity — was indicated by over two times fewer respondents (30 per cent). The subsequent items on this list include: unemployment and the concentration of jobs in large centers and the complete lack of job opportunities in the countryside (28 per cent), the functioning of the health care system (25 per cent), the social welfare system (21 per cent), and the devaluation of the UAH (20 per cent). Some 12 per cent of the surveyed Ukrainians fear a total collapse of the health care system in the near future, and 11 per cent believe that there will be a massive collapse of the banks and the financial system, as well as a crash in the economy, to an extent that threatens the livelihood of their family.

According to the data of the State Statistics Service of Ukraine (Ukrstat), the average earnings of Ukrainian workers currently amount to UAH10,573, , but in most regions they do not exceed UAH9,000. Additionally, labor market research shows, that 65 per cent of Ukrainians receive a wage that is lower than the average, while the median wage was 15 to 30 per cent lower than the official average wage in the recent years.

Work in your own country

At the bus station in Lviv, from where thousands of emigrants leave for work in Poland, there is a poster printed by the authorities. It says: “Do not abandon your native land. Work in your own country”. On the poster, however, someone has scribbled a sarcastic annotation: “for next to nothing”. And this isn’t much of an exaggeration — it’s not just that the wages in Ukraine are several times lower than those that can be earned abroad for similar work performed in much better conditions. Thousands of Ukrainians also have to wait in order to receive their overdue payments.

Ukrstat published that in November 2018 the employers’ liabilities in respect of wages not paid in time increased by a staggering 21.8 per cent y/y, and reached a total amount of UAH2.88bn. This is the equivalent of almost 700,000 minimum monthly wages in Ukraine. Out of this amount, as much as UAH1.7bn is the debt of active enterprises, which are simply exploiting their employees and postponing the payments as much as possible, taking advantage of the “devaluation bonus” provided by the weakening UAH.

According to studies, as many as 8 per cent of Ukrainians see the problem of delayed payment of wages as important and as one that touches them personally.

Unlike those employed legally in Poland, the employees in Ukraine and their family do not have access to basic health care services. Although the Ukrainian constitution states that health care is provided free of charge, in practice an employee that falls sick or needs hospital treatment pays 100 per cent of the prices not only for all the medications, but also for any instruments or medical supplies used during surgery. As a result, any serious illness faced by a worker or a member of their family usually means complete financial ruin.

“As soon as I started working abroad, I immediately received medical insurance. You don’t have to worry if something happens to you,” said one of the many economic emigrants quoted in the Ukrainian media.

Following 2014, “there was a decline in GDP and in the incomes of Ukrainians, caused by the devaluation of the UAH (three-fold on average). This had a strong impact on the Ukrainians’ ability to provide financial security for themselves and their families. It also led to the intensification of the emigration processes, which have already affected a third of all Ukrainians capable of working,” said Vasily Voskoboynik from the Ukrainian Association of International Employment Agencies.

All hope lies in the minimum wage

The main way in which the government is trying to stop the outflow of employees is by raising the minimum wage. On January 1st, it was increased from UAH3,723 to UAH4,170. This was another increase in recent years, following a 100 per cent increase from UAH1,600 to UAH3,200, which took effect in 2017. And although this increase is significant in terms of the percentage, its real effect is negligible. Even after the increases, Ukrainian salaries are among the lowest in Europe. At the same time, as indicated by experts, behind the verbal declarations of concern for the employees there is an attempt by the authorities to shift the burden of filling the state budget gap onto the entrepreneurs — the higher the minimum wage that businesses are officially required to pay to the workers, the higher the budget revenues from the associated fiscal burdens.

The former Ukrainian Minister of Economy Viktor Suslov points out that for the countries of Eastern Europe the threshold of poverty is defined by an income of USD5 per day, which means that even after the increase, an employee receiving the minimum wage will remain in poverty. In Ukraine there is virtually no amount of income that is tax-free — the exemption only applies to UAH17, while an employee pays an 18 per cent of tax on the remainder of their earnings. Additionally, the current wage increases are close to the level of inflation, which means that real wages are not growing.

The situation looks even worse, if we take into account the structure of prices’ increases that are included in the official statistics. The basket of basic products purchased by a Ukrainian employee is becoming more expensive at a much higher rate than the officially reported inflation rate.

Although the government is taking some attempts to stop the economic emigration, it is simultaneously pursuing measures which affect not only fathers or mothers, who are already working abroad and who could potentially return to Ukraine after some time, but which could actually encourage entire families to emigrate. And in such a situation there is little chance of them ever returning home. Ukraine’s Minister of Social Policy Andriy Reva announced that his ministry would deprive the family members of economic emigrants who did not declare their earnings obtained abroad of the right to receive subsidies for the gas tariffs, which have been dramatically increased in recent years. Meanwhile, people who include the earnings obtained by a family member working abroad in their family income will also lose the right to receive the subsidies. As a result, the government creates a situation in which people forced to leave the country for work will be hurt either way. As a result, it will be more beneficial for them to bring their families abroad rather than losing additional money to support them back home.

How to increase productivity

The rate of outflow of employees will not decrease. There is a very strong market demand from four EU countries which introduced employment facilitations for foreigners — Poland, Hungary, the Czech Republic, and Germany. This demand for Ukrainian workers will continue to grow. In order to counteract the situation it is necessary to activate and coordinate the efforts of the authorities, which should support and facilitate the return of Ukrainian emigrants. However, they are not doing this the right way — assesses the Ukrainian association “Europe without barriers”.

“The government has already noticed the problem of the outflow of workers – and that is a success, considering that it was still a taboo subject just two years ago. Now we need to develop a strategy of cooperation between the state and the economic emigrants, and launch realistic programs that will assist their return and reintegration into the society,” said Vasily Voskoboynik.

During a debate in the Ukrainian parliament in January, it was pointed out that the problem cannot be solved by raising the minimum wage to a level that is still several times lower than in Poland or in the Czech Republic. Instead, it is necessary to address the situation of workers in a comprehensive manner – by investing in the development of social infrastructure, and by stimulating the development of small and medium-sized enterprises and agriculture, which, taken together, should provide the Ukrainian workers the opportunity to earn a decent living at home.

According to Timofiy Mylovanov, the Deputy Chairman of the Council of the Ukrainian central bank NBU (National Bank of Ukraine), the primary cause of the low earnings of Ukrainian workers is that the labor productivity in Ukraine is two times lower than in European countries. The responsibility for that lies with the Ukrainian employers. Their main “sins” include: the insufficient capitalization of businesses and, as a consequence, their low level of technological advancement, the poor management practices which don’t respond to the challenges of the modern world — the lack of formalized internal procedures and the micromanagement of the personnel, employing cheap labor force instead of a smaller number of employees supported by modern technologies. “Companies that do not change this approach will continue to lose their best employees, because they will be the first to quit their jobs. The economy also needs programs enabling less effective and talented employees to improve their qualifications. In Ukraine there is a tendency to solve social problems by paying out subsidies, regulating wages and utilizing other social assistance measures. If such a policy is continued on the labor market, it will not allow an increase in productivity, resulting in an even greater outflow of workers than currently. Ukraine needs to combat emigration by putting pressure on the companies and workers to increase labor productivity,” argued Mr. Mylovanov.

“In these circumstances, the best thing the Ukrainian state can do is to encourage entrepreneurship and to establish clear rules and a playing field for business. This will create the conditions for attracting emigrant entrepreneurs and foreign investors. That in turn means higher earnings in Ukraine, and not somewhere in Poland or Slovakia,” said the economist Julia Ruda from the Centre for Economic Strategy.

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