Why creeping wages increase does not reduce large-scale labor migration in Ukraine

Author : Olena Holubeva

Source : 112 Ukraine

Ukrainian companies raised wages by 15–20%, still in 2018, 206,000 Ukrainians migrated to seek a better life
13:00, 8 April 2019

Open source

Last year, employers in almost all sectors raised wages to their employees. The largest growth dynamics was demonstrated by large companies aimed at maintaining the leaders’ position. Salaries have increased most significantly for those occupations, which are highly demanded abroad. In 2019, the trend for salary increases would continue. At the same time, the companies would not be able to endlessly increase their pay, sooner or later they would plunge into the ceiling of economic opportunities

Against the background of rising prices for consumer goods in Ukraine in recent years, wages have increased. On average, all Ukrainian companies raised wages by 15–20% in 2018, Yuriy Perch, regional director of ANCOR Ukraine (the company specializes in employment) noted: “Of course, this increase was uneven, depending on the industry and the size of companies, but each company has raised salaries by less than 10%.”

Related: Wages of public officials not to be increased in 2019

Salaries have increased most significantly in large companies, experts say.  For example, last year Metinvest group, the leader of the metallurgical industry, raised the level of wages twice: in April, employees’ incomes grew on average by 20%, in October – by another 10%. In 2018, the average salary at the Group’s enterprises in Ukraine was about 640 USD. Since April 1, 2019, the Metinvest group has increased the wages to employees of their Ukrainian enterprises by an average of 15%. The greatest increase in salary was received by repairmen, process engineers of average qualification and line managers. The increase did not affect business leaders and employees of the management company.

Ukrtelecom, Ukraine’s monopolist telephone company, for two years (2017-2018), the average salary increased by an average of 35% and as of the end of 2018 was more than 300 USD.

Salary at the OKKO filling station network increased on average by 30.5% in 2018, the press service of Galnaftogaz, Ukrainian chain of gas stations, reported.

Wage growth was also observed in the agrarian sector, but it was quite uneven: large enterprises could provide a larger increase. “Over the past three years, in the agricultural sector of Ukraine, the average salary increased by 2.5-3 times. In previous years, wages accounted for no more than 18-19% in the cost structure in the agricultural sector. Now, this share is about 21%,” Leonid Kozachenko, President of the Ukrainian Agrarian Confederation, said. He added that the reason is that the total amount of expenses increased (cost of energy, fuel, mineral fertilizers, and other cost components). According to Kozachenko, the average salary in the agro-industrial complex is now approximately 535 USD. In agricultural holdings, the average salary can reach up to 700 USD, and in small agricultural enterprises, it is 420 USD.

Why wages are rising

The main reasons for the growth of wages in Ukraine are inflationary and devaluation processes, but also this process is seriously affected by the factor of labor migration. At the same time, not all professions are in demand abroad; therefore, the impact of migration is significant in those sectors where employees are in demand abroad. Thus, labor migration has become one of the main reasons for the shortage of workers in the agrarian sphere. “Ukrainian agrarian specialists are in great demand in the EU countries. With an average salary of 420 USD at home, in Poland, they can be offered up to 1,700 USD. And this is also one of the most serious factors because of which, Ukrainian agricultural companies are forced to raise wages. Agricultural specialists from Ukraine are in demand not only in Poland, but also in Hungary and Slovakia, or even in Germany. IT-specialists from agroholdings get jobs in the United States and in China, they get some 10,000 EUR and more there,” said Kozachenko.

Related: Real wages in Ukraine grow by 19% in 2017

A similar difference in salary offers could be observed in other industries. “An ordinary specialist in laying fiber-optic communication lines in Asian countries can receive 2,000 – 3,000 USD per month. In Ukraine it is just impossible,” press service of Ukrtelecom company says.

According to Yuriy Perch, today migration of entire brigades (clusters) of workers, involved in a complex technological process in Ukraine, go abroad to similar entities. “There are cases when the employer had to immediately raise up to 30% of the salary to employees involved in a certain technological process in order to avoid stopping it,” said the expert.

Visa-free regime with EU has simplified circular migration, Perch notes: “People who go to work in Europe usually work there for 3-6 months, and about 80% of those who leave do not intend to stay abroad. Of course, this also puts pressure on the labor market: for example, a tile setter earns 7-10 USD per square meter for his work in Ukraine, and he earns about 30 USD per square meter in Belgium. Such specialists work abroad for half a year, after returning they don’t rush to work in Ukraine for less money.”

At the same time, the mass travel of Ukrainians abroad precisely after the visa-free regime is not even discussed. According to Ancor, from 2001 to 2015, an average of 400,000 people left the country per year. The peak was observed in 2007 when about 700,000 people left the country in one year. In 2015, about 16,000 people left Ukraine. In 2016, 127,000 Ukrainians migrated, in 2017 – 204,000, in 2018 – 206,000. The growing trend speaks about Ukraine’s economic problems, and local business has become a prisoner of government economic policy. In general, about 14-16% of the population of Ukraine are labor migrants.

Related: Average salary in Ukraine increased by 35,5%

Destinations of Ukrainian labor migrants

For several years now, Russia has ceased to be the most attractive destination for Ukrainians and the main competitor for Ukrainian employers in the labor market. Poland remains the most popular Ukrainian labor migrant, although interest in working in this country is gradually declining. In 2017, 1,7 million invitations were issued for Ukrainians to work in Poland, and in 2018 – 1,45 million. But this does not mean that the number of Ukrainians working in Poland decreased by exactly 250 thousand people, rather, this fact indicates that a significant number of fraudsters who sold invitations were leaving the market.

Ukrainians also eagerly go to Lithuania, Latvia, and Estonia. In the near future, the quota for Ukrainians for employment in the Czech Republic is expected to almost double. In 2018, this quota was 20,000 people a year, now it should be increased to 40,000. Ukrainians work in Hungary and Slovakia, but there are much fewer of them than in Poland.

One of the most anticipated events for Ukrainian labor migrants is the simplification of employment conditions in Germany. It is expected that it can enter into force from the beginning of 2020. Of course, this will further exacerbate competition for labor. In East Germany, the average salary is 2,700 EUR, in West Germany – 3,300 EUR. The minimum wage is 1,600 EUR. For comparison, in Poland, the average salary is 1,150 EUR, and the minimum salary is about 550 EUR. From January 1, 2019, the minimum wage in Ukraine is about 150 USD, and the average salary fluctuates around 320 USD.

Related: Statements v. salaries: Would “DPR” enterprises benefit from nationalization

Not by salary alone

One of the largest Ukrainian agricultural holdings, Myronivsky Hliboproduct, which belongs to president’s Poroshenko’s close associate and adviser, Yuriy Kosiuk, oligarch billionaire, provides service housing at the company's expense; builds modern hostels, and houses. In addition, the company compensates rental housing for professionals ready to relocate to another region. At the expense of the company, a transfer to the place of work and back is organized. At the holding's enterprises, employees of sanatoriums, as well as weekend trips, regularly undergo rehabilitation.

Related: IMF forces poverty upon Ukraine, - MP

In addition, Yuriy Kosiuk shared an innovative practice of firing off unhappy and fat employees because they are less productive that fit and happy ones. The cameras installed at the enterprises of the Myronivsky Hliboproduct record the emotions of the employees, as Kosiuk says. According to Kosiuk, happy people are more efficient. To increase the cheerfulness of employees, psychologists work with them. But if psychologists do not help, then sad people are fired from Myronivsky Hliboproduct.

Independent media and civil society reports suggest that Myronivsky Hliboproduct’s environmental and social impacts do not respect Ukrainian and EU standards at all, as European Parliament stated on its official webpage in July 2018.

Ukrainian residents of three of the villages – Zaozerne, Kleban, and Olyanytsya – “filed a complaint to two of the world’s largest development banks, protesting against the development of the giant poultry farms which they say have profoundly affected their health, their water, and their homes,” The Guardian wrote.

Related: UN: 60 percent of Ukraine’s population below poverty line

During the years of Poroshenko’s rule, monopolist Myronivsky Hliboproduct became one of the main recipients of state subsidies for the development of animal husbandry.

The Metinvest enterprises, which employ 80,000 people of four generations and different preferences, created the most comfortable and interesting conditions, ranging from household and comfortable clothing to medical insurance at the expense of the company, as well as individual packages of additional benefits and opportunities.

The OKKO gas station network to nonresident employees is compensated for rent payment. It also provides an opportunity to attend domestic free English courses, compensates for the costs of professional development. “For the third year in a row, the company has a Career Lift program, in which the best sales consultants from gas stations are preparing to head gas stations themselves or occupy vacant positions. More than 70 graduates of the program have already become gas station managers,” the press service reported.

Galnaftogaz representatives note that all employees of the company are given formal employment and paid “white” wages, which increases their social security, guarantees a decent level of pensions in the future. Employees are provided with corporate mobile communications. They are also given special discounts on the purchase of fuel at OKKO filling stations, food and beverages in restaurants and cafes, goods in stores that are part of the network.

All this is an important component to preserve the loyalty of employees, experts say.

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