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Employment Prospects Declining in Ukrainian Industry: ILO Survey Documents Deepening Crisis

ILO/95/28

Press release | 06 December 1995

ILO/95/28

GENEVA (ILO News) - Both employers and workersare facing increasing uncertainty in Ukrainian industry,according to an industrial survey just published by theInternational Labour Office Endnote1. Although the registered unemployment rate inUkraine remains low at around 0.5%, almost one in every threeworkers in Ukrainian factories is in concealed unemployment.In addition, the survey found that nearly one-quarter of allfactory managers believed there was a strong possibility thattheir firms would go bankrupt in the next 12 months, with afurther 20% expressing uncertainty about the future.

The survey, carried out in the spring of 1995, is thelargest and most comprehensive ever carried out in Ukraine,covering all major industrial regions and manufacturingsectors in the country. It involved 566 firms - whetherpublic, private or mixed ownership - employing over 538,000workers. Since independence in 1991, Ukraine has experiencedsharp economic decline. Output has shrunk by one-half.Pervasive macroeconomic problems, including very highinflation, have contributed to a steady worsening ofenterprise finances and the labour market situation. Otherfindings from the survey:

• Among the firms surveyed, nearly 40,000 jobs werecut in less than a year, making for a 7.4% reduction of totalemployment. At the same time, capacity utilisation levelshave shrunk to an average of 48.5%, according to themanagements of the factories themselves.

• In early 1995, no less than 45% of industrialfirms had workers on unpaid leave. Overall, 34% of allworkers in these firms were on unpaid leave. Over 10% wereworking short-time. Most workers were putting in eight hoursless than the standard work week.

• The managers of nearly two out of every fivefactories believed they could cut employment further withouthaving any effect on output, and nearly 27% expected to cutemployment in the next 12 months.

All manufacturing sectors in the survey are reported tohave fared badly in the recent past: 80% of allestablishments reported a more widespread decline in sales in1994-95 than in 1993. Barter is increasing, accounting fornearly 7% of total output.

In terms of distribution of output, Ukranian industryremains heavily oriented to the domestic market, whichaccounted for 81% of sales in 1994. On average, roughly 9% ofoutput was exported. Exports have declined steadily since1992, the survey reports and fell sharply in the last yeardue to a decline in engineering products, which hadpreviously been among the most export-oriented sector.

The absence of domestic growth and exports means thatcapacity utilisation rates are crashing and surplus labour isgrowing. Unemployment is edging upward, but hiddenunemployment is surging. Women appear particularly vulnerablehere. The survey finds that about 15% of all women workers inthe firms surveyed - or 7% of the entire workforce - wereclassified as being on maternity leave. However fertilityrates are low in Ukraine and the percentage of women onmaternity leave was much greater in firms that hadexperienced declining sales, low capacity utilisation andrelatively high job cuts.

Other methods of concealed unemployment include unpaidadministrative leave, short-time work and use of internaltransfers to avoid outright redundancies. Guy Standing, theauthor of the survey says that "at present, a large partof the actual employment cut has been disguised. But theworkers put on unpaid leave or unpaid employment aresuffering terribly, while distortions in the labour marketare multiplying."

Another pronounced trend in Ukranian factories has beenthe growing number of workers who are paid practicallynothing, but are none the less expected to turn up for work,often in return for access to fringe benefits, such assubsidised food or health services.

Payment of wages have also suffered due to the absence ofearnings, with large-scale enterprises (both public andprivately owned) being the most affected. Two-thirds of allfirms admitted to having been in arrears on paying theirworkers' wages. Over 60% of all factories had been unable topay contractually agreed wages. In cash-strapped industries,there has been increasing recourse to using non-monetaryforms of remuneration, notably by substituting benefits (forexample, food, housing or health care) for money wages. Thenumber of firms selling or even giving output to workers(often in lieu of wages) has also increased steadily since1992. The energy sector reported the highest average earningsand benefits; firms in engineering, chemicals, buildingmaterials, wood products and food processing paid lowerwages.

The ILO is addressing these problems with the UkrainianGovernment and the social partners by providing advise andtechnical assistance for the strengthening of labour marketresources and employment and social programmes.

The report of the survey also identifies what is called aHuman Development Enterprise, the type of firm that hasrelatively good labour market practices in Ukrainianconditions - defined as providing training and retraining,practising having a non-discriminatory recruitment andtraining policies, equitable wage practice, occupationalsafety and health mechanisms, and worker participation indecision-making. The analysis shows that enterprises thathave relatively high scores on the resultant HDE index faredbetter in terms of employment and had generally a lowerlabour cost share of production costs. It concludes byrecommending that firms should be encouraged to restructuretheir governance to enhance "human development"characteristics.

Endnote1

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*/ Labour Market crisis in Ukrainian industry: the 1995ULFS, by Guy Standing and Laszlo Zsoldos. Labour MarketPapers No. 12, ISBN 92-2-110061-8. Employment Department,ILO, Geneva 1995.