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Economic recovery in Ukraine

More and better jobs for the Ukrainian people are key to recovery

Read about how the conflict in Ukraine has affected the economic and employment situation in the country and what the ILO is doing to support the recovery.

Comment | 20 August 2015
By Antonio Graziosi, Director of the International Labour Organization Decent Work Team and Country Office for Central and Eastern Europe in Budapest

Antonio Graziosi, Director of the ILO Decent Work Team and Country Office for Central and Eastern Europe in Budapest
Following deep political changes in late 2013 and the outbreak of a military crisis in the Eastern part of the country in early 2014, the International Labour Organization (ILO) has been playing an active role in the United Nations’ response strategy in Ukraine.

In recent years, international attention has been focusing on the political and security aspects of the Ukrainian crisis. But the economic and social consequences are equally important and serious and deserve a strong engagement by international partners.

Historically, Ukraine has not suffered from very high unemployment rates, though the shortage of decent job opportunities would manifest itself in the form of low activity rates, large informal employment and emigration.

According to the State Statistics Service of Ukraine however, real Gross Domestic Product (GDP) declined by 6.8 per cent in 2014 and by 17.2 per cent in the first quarter of 2015. As a result, the unemployment rate in Ukraine rose from 7.6 per cent in the first quarter of 2014 to 9.6 per cent a year later. In the regions directly affected by the military crisis, the unemployment rate increased from 9.1 to 14.4 per cent in Donetsk oblast and from 8.4 to 15.3 per cent in Lugansk oblast. Altogether, it is estimated that up to two million jobs were lost since the start of the crisis.

The immediate impact of the crisis on employment patterns has been related to a large and growing internal flow of people leaving the areas of warfare and needing to find new jobs and income-generating activities somewhere else in the country. The most recent estimates point to at least 1.3 million internally displaced people, one quarter of whom are working age.

In addition, the migration of the working age population to other countries has accelerated since the crisis. Against this background, the ILO has quickly mobilized resources and expertise to provide policy advice and technical assistance mainly to the State Employment Services for the design and implementation of active labour market programmes targeting internally displaced workers and the affected communities.

At the same time, Ukraine is in a process of implementing reforms in the context of the association agreement with the European Union and as part of agreements with international financial institutions, targeting fiscal consolidation and economic and social reforms.

The economic recession and the strained relationships with the Russian Federation mainly affected heavy industry, while other sectors such as agriculture and light industry have shown a higher level of resilience.

As a result, Ukraine is not only struggling with an overall economic recession, but also with a process of economic transformation. Both developments have led to an imbalance of the labour market resulting in rising unemployment, higher inactivity rates and increasing quantitative and qualitative gaps with regard to supply and demand in the labour market.

Against that background, it is the opinion of the ILO that active labour market policies improving labour market information, skills match and labour mediation should be complemented with stronger attention towards the overall impact of economic and fiscal reforms on the quantity and quality of jobs.

This concern has two dimensions. On one hand, the impact on employment of fiscal consolidation and productive restructuring needs to be anticipated and addressed. On the other hand, a number of international financial institutions are planning to increase their lending and investment portfolio in support of the reform process in Ukraine. The ILO believes that it is essential that investment decisions be made on the basis of a thorough assessment of the number and nature of jobs that these investments will generate.

Over the years, the ILO has developed recognized expertise and effective tools on enhancing the impact of investment on better and more equitable employment. It has succeeded in showing that job creation can be very different depending on the choice of sector and technology and, in particular, the utilization of locally available skills, appropriate technology, materials and work methods.

A recent successful experience of cooperation with the European Investment Bank on the assessment of the employment impact of the Bank’s lending operations in Northern Africa has led the two institutions to start a dialogue on possible replication of this experience in other countries, starting with Ukraine.

The ILO also hopes that more international partners and financial institutions will join forces in this strategic endeavour. We are convinced that more and better jobs for the Ukrainian people will be a key factor for the success and sustainability of current and future efforts for recovery and reform.