Four essential questions

How did the war impact the Ukrainian labour market?

In our interview series with leading economists, researchers and policy-makers, we interviewed Oleksandr Zholud, Chief Expert, Monetary Policy and Economic Analysis Department at National Bank of Ukraine. He shared his views on how the war impacted employment, the policy priorities that would help Ukraine rebuild better and the type of support workers and enterprises need to weather the crisis.

News | 24 January 2024
© AFP/Europress              A local resident walks across the debris in front of residential building damaged as a result of a missile attack in Kharkiv, Ukraine on January 23, 2024.
The war of the Russian Federation against Ukraine has been going on for almost two years. At this point, what do you think the impact of the war on the labour market has been?

The impact was huge. In our recent history there have not been comparable losses of life, destruction of assets and magnitude of migration. According to the data of UNHCR and IOM, there were at some point over 10 million internal and external migrants (as of end-2021 the population of Ukraine was estimated at 41.1 million), the largest migration not only for our country but for the whole post-WW2 Europe. Of course, all this had a significant impact on the labour market.

The initial shock in February-March 2022 led to sizable drop in employment. There are data from a survey from early March that suggests that 75 per cent of small businesses halted their work. Public transport in most cities temporarily stopped working, and a massive exodus started from endangered territories. The effect was not as much a hike in unemployment but a record shrinking of the labour force. Most people who lost their jobs were unable (e.g. because public transport stopped) or unwilling (chiefly because of security concerns) to seek a new job. However, already in April 2022 the economy started recovering from the initial shock.

It should be noted that before the full-scale invasion in February 2022, the State Statistics Service of Ukraine was conducting a monthly labour force survey with a sample of over 15 thousand households to gather (among others) labour force data. Unfortunately, since 2022 these activities have stopped, therefore we don’t have official data on the state of the labour force. Therefore, several indirect measures are used, but their size, scope and frequency are much less comprehensive. For example, the central bank used household surveys provided by the InfoSapiens research agency and other data to estimate the unemployment rate in 2022 at around 21 per cent, and expects a gradual decrease to 19 per cent in 2023. Before the full-scale invasion in 2021 it was 9.8 per cent.

One of the main problems is that unemployment turned largely structural; a lot of production assets were destroyed, damaged or occupied, millions of people had to leave their homes and move either within Ukraine or abroad, often to the places where their skills and professions are not in demand. At the same time, like the rest of Europe, the Ukrainian labour force is aging, and therefore there is often a need of acquiring new or updated skills. There are already state programmes that help address these challenges, but much more should be done.

The end of the war is not yet in sight, unfortunately. What kind of support Ukrainian workers and companies need at this point so that they can manage?

I guess that for workers there are two main issues: safety and training. With Russian rocket raids daily and shelling of civil infrastructure across the frontline, plus a notable amount of mines, it is plainly dangerous to work and this can be solved only by pushing the frontline away and destroying Russian capacity to wage war by all means, including strengthening of sanctions. Helping people to acquire new skills demanded by the economy (especially for internally displaced persons and veterans) should become one of the cornerstones of the labour policy. For companies, one of the most painful issues is narrowed export opportunities, including due to problems with transportation (both by sea and by land)) of goods.

How do you see the role of the government, especially the Ministries of Finance and of Economy, in supporting enterprises so that they can maintain high quality employment opportunities in the country? Does the Central Bank have a role to play in making finance accessible to Small and Medium Enterprises?

It is a hard question, especially now, when Ukraine's budget resources are restrained, and defense and security account for the lion’s share of budget expenditures. On the other hand, a sharp widening of the fiscal deficits (the country ran an over 25 per cent of GDP deficit in 2022 and is likely to have even larger deficit in 2023) since Russia's full-scale invasion of Ukraine indirectly support the recovery of economic activity, including in mechanical engineering and metallurgy, construction and the transportation sectors. However, even more vital role in promoting and sustaining economic growth the government plays via creating a favourable environment for doing business and investing. The agenda in this area is still wide. Fortunately, Ukraine's aspirations towards EU integration can be a necessary reform anchor and, simultaneously, an important driver of improvements in the investment and business environment.

On the National Bank of Ukraine's (NBU) side, its primary objective is price stability, which is an integral part of overall macroeconomic stability and a necessary precondition for sustained economic growth. So, during the wartime period the NBU's primary efforts were to stabilize the market, anchor expectations and then support recovery. And it was quite successful in these efforts. The Ukrainian financial system was well functioning despite the full-scale invasion and terrorist attacks, the national currency was performing all its functions, inflation has decreased to single digits (5.1 per cent in November 2023, down from 26.6 per cent in 2022). So currently, monetary policy is transitioning from its stabilization role to supporting the recovery one. First measures have already been taken in accordance with the Strategy for Easing FX restrictions, Transitioning to More Exchange Rate Flexibility, and Returning to Inflation Targeting, which are important steps towards supporting economic recovery and promoting business activities, and thus improving situation in the labour market.

What should be the policy priorities concerning employment so that Ukraine can rebuild better?

Ukraine should utilize its strength. For example, we have a lot of people with high education, but there is often the case when people are overqualified for the current occupations. The share of women with high education is even higher than the corresponding figure for men, but participation of women in the labour force is lower than the EU average and has a tendency to decrease among some age cohorts. Creating conditions for women to increase their participation should be an important policy goal. The war has already traumatized a lot of people (both military and civilian) and bringing them back to society in general, including creating inclusive workplaces is very important. Alas, to fully achieve this is only possible after a stable and lasting peace is established, although some measures or programmes can be implemented even now, from reconstruction with inclusivity in mind to an equivalent of US post-WW2 G.I. bill.

There were 3.7 million internally displaced persons according to IOM estimates as of September 2023. These people should be helped adapting to their new place of living, including getting access to work, because surveys show that unemployment among them is notably higher than for other groups of the Ukrainian population. The estimated number of refugees from Ukraine is 6.3 million currently, according to UNHCR (including over 1.3 million in Russia and Belarus, large share of whom were transferred against their will). Most of them are women and children under 18. It is important that both Ukraine and recipient countries create a framework to help refugees return to Ukraine after their safety can be guaranteed.

Lastly, the world is changing rapidly, so life-long learning should become a norm and it should be promoted and supported both by the authorities and businesses.

Oleksandr Zholud, Chief Expert, Monetary Policy and Economic Analysis Department at National Bank of Ukraine