Why labor migration leads Ukraine to dead end?

Author : Olena Holubeva

Source : 112 Ukraine

Mass labor migration from Ukraine reached the scale of a national disaster in recent years. It is gaining momentum in the conditions of the failed economic policy of the authorities, who use it to lower the degree of social tension and reduce unemployment rates. Nobody is systematically addressing the problem of labor migration, but the other day a group of MPs registered a bill, with the help of which they hope to resolve a number of problems related to the phenomenon.
23:31, 15 May 2019

However, even if it is accepted, it will not help globally to improve the situation, experts say. According to them, if the solution to labor migration is not considered systematically, the consequences will be serious and irreversible.

MPs recognized guest workers

After a long absence of initiatives and attempts by the authorities to regulate the phenomenon of labor migration from Ukraine, on May 6, a group of MPs from different political forces registered in the Parliament the draft law “On Amendments to Certain Legislative Acts Regarding Overcoming and Preventing the Negative Effects of Mass Labor Migration of Ukrainians abroad.” The document prohibits taking a fee from a potential job seeker for employment abroad. It also assumes the simplification of conditions for the employment of foreigners in Ukraine by abolishing the requirement for the size of their minimum wage. As explained by Vasyl Voskoboinyk, the head of the All-Ukrainian Association of International Employment Companies, this is a discriminatory norm that obliges domestic employers to pay foreigners no less than 10 minimum wages (that is, about 42 000 UAH / 1527 USD per month).

Related: Russia might use Ukrainian labor migrants to influence elections, - Foreign Intelligence

The director of human resources at METRO Cash and Carry Ukraine (3,000 employees), Iryna Bryzhak, believes that this is one of the most serious problems that does not allow companies to replace their employees with foreigners. The fact is that they are often required for positions that do not imply high qualifications. In other words, a loader or a cleaner who does not have Ukrainian citizenship should receive 1,500 USD, which, of course, is not economically feasible.

Even if the discriminatory rule is eliminated, speedy changes and the influx of labor from abroad would not take place. "Legislative barriers to attracting labor from abroad certainly represent a huge problem. However, it is unlikely that we can hope for speedy improvement. In addition, there is a much lower tolerance for extraneous cultural and religious phenomena than in Europe. For this reason, even the most distressed Syrian refugees, mostly Muslims, tend to go to France and Germany, but not to Ukraine," Oleg Ustenko, executive director of the International Blaser Fund, said.

Labor migration from Ukraine is gaining momentum in the context of the failed economic policies of the current Ukrainian authorities, the growth of utility bills and food prices in the country and the authorities' complete inaction regarding this phenomenon, experts say. "The Ukrainian authorities all these years practically did nothing to solve the problems associated with labor migration. I would not rule out that (at least at the initial stage) the authorities' inaction was deliberate. Migration, paradoxically, is profitable as a mass phenomenon. It helped channel protest sentiments and reduce social tensions. If there were no labor migration, then unemployment rates in Ukraine could be one and a half times higher than those that exist now," Oleg Ustenko said.

Related: Labor migrants to transfer $12,2 billion to Ukraine in 2019, - National Bank

But now the business suffers from the outflow of labor, and soon the whole country may suffer, because the state does not receive taxes from guest workers, but will have to pay them pensions and other social benefits.

The Ministry of Foreign Affairs has not even concluded agreements with countries where Ukrainians work most, economist Oleksandr Okhrimenko said: “These are labor migration agreements that can resolve issues such as taxes, pensions, and labor disputes. But for now, the Foreign Ministry is dealing with anything except that."

We need systemic steps, and the proposed bill, which affects only a few aspects of the problem, will not improve the situation globally, experts say. At the same time, it once again described the scale of the disaster that labor migration from Ukraine acquired in recent years.

Scale of disaster

According to the World Bank, Ukraine is in the group of leading countries in the dynamics of labor migration, said economist Oleksiy Kushch. According to the conclusions of leading Ukrainian experts in the field of demography and economics, Ukraine today is facing a critical situation in the loss of labor: “This threat was formed as a result of many factors, in particular, the difference in economic development between Ukraine and its neighbors, political instability in the country, the introduction of new migration policies in many EU countries that have simplified the involvement of Ukrainians in the production process in their territory. " The size of both the minimum and the average salary in Ukraine is significantly lower compared to all EU countries, including Eastern Europe. Companies in former East Germany pay an average of 2,700 euros to employees, and 3,300 euros is paid in Western Germany. The minimum wage in Germany is 1600 euros. In Poland, the average salary is 1,150 euros, and the minimum is about 550 euros. In Ukraine, as of January 1, 2019, the minimum wage is UAH 4,170, or about $ 150, and the average salary is around UAH 9 000 (327 USD).

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According to the Ministry of Social Policy, to which the authors of the bill refer, 3.2 million Ukrainians are constantly working abroad, and up to 9 million people — a quarter of the country's population — are involved in the labor migration process. If in 2013 the number of labor invitations for Ukrainians from Poland amounted to 218 thousand, then in 2017 it increased to 1.7 million. "These figures deeply demonstrate the scale of the phenomenon that occurs in our country. Current employers and investors in Ukraine feel lack of labor of various qualifications, even with competitive salaries. All of this reduces the country's competitiveness and hinders the attraction of foreign direct investment, which can primarily stimulate economic growth and contribute to social and economic growth as well as political stability," says the explanatory note to the bill.

More disadvantages than profits

It should be noted that this phenomenon has much more negative consequences than positive ones, Ustenko notes. When it comes to the benefits of labor migration, its supporters traditionally name two aspects: foreign currencies transfers to Ukraine and 0.5% of GDP growth due to these revenues. In particular, Olexandr Okhrimenko speaks about this: GDP growth in Ukraine in 2018 at 3.4% is largely due to the money of guest workers, who, taking into account the transfer of cash, invested about $ 20 billion in Ukraine’s economy in 2018.

Related: Ukraine’s population might significantly reduce due to labor migration

However, do not forget about the pitfalls. The topic of transfers is overly mythological. As a rule, when it comes to currency transfers from abroad, the “only figure” is analyzed, not their structure, says Olexiy Kushch. He notes that according to the World Bank, the total amount of private transfers last year amounted to $ 14 billion, while the National Bank gives slightly different data - $ 11 billion. "The discrepancy can be explained by the fact that Ukrainians spend about $ 3 billion on living in countries where they work. In the same countries taxes are paid: several hundred million dollars a year, "said the expert.

"Of the $ 11 billion that goes to Ukraine, up to $ 3 billion comes from schematic transactions, when, under fictitious service agreements, the currency is set up on the firms' accounts, which is then used in the shadow economy and in corruption. Of the remaining, 8 billion US dollars are paid as the work of Ukrainian specialists at an outsource (the same IT) or as payment for the sale of hand-made goods on international trading platforms. The number of such specialists ranges from 150 to 200 thousand, and this is the so-called internal migration. As for transfers from the labor of people who have been abroad for more than a year, their contribution is extremely small - less than $ 1 billion,” explained Olexiy Kushch.

As for circular migration, it accounts for only a few billions of revenue. "At the same time, being in Ukraine, 3 million permanent migrants and 5-6 million guest workers could produce more than 60 billion dollars of GDP, if conditions were created for this. And this is 50% of the current gross product. Instead, we have a cumulative effect on the level of GDP at a rate of 0.5% and leveling the balance of payments by a few billion in surplus, which should be considered as a short-term positive effect. We have peculiar scales when we have in one cup up to 8 billion dollars and 0.5% GDP growth in the context of migration, and in the other - $ 60 billion and 50% of GDP, in terms of its termination", says Kushch.

Related: Ukraine's new struggle for labor and wages unshadowing

The transactions of Ukrainian labor migrants are decreasing every year, and this cause concern, says Oleg Ustenko: "And this is the evidence that more and more families are being reunited, take children and remain to live abroad. That is, if earlier, for example, a person had a wife abroad who sent money to Ukraine, then after moving abroad, there is no need to transfer money to the country."

What happens if we leave migration issue as it is

If steps to improve the economic situation inside the country are not taken in the short term, creating conditions for motivating people not to leave Ukraine, the consequences for the state may be the most serious and irreversible, experts warn. "Labor migration forms medium and long-term risks to slow down the economy, not to mention strengthening the fiscal burden on the rest, when those who work in Ukraine must provide pensions for the parents of those who have temporarily left and maintained the country's social infrastructure (medicine, education), and also finance the payment of subsidies and other expenses of the budget, "says Olexiy Kushch.

The growth of the fiscal burden on citizens who have not left the country is a serious problem, Oleg Ustenko agrees: "In particular, the acute question of financing the Pension Fund, which is already experiencing serious problems with filling. And this happens against the background of the deteriorating demographic situation and the aging population."

Related: How much Ukraine loses from labor migration?

A direct consequence of the growth of labor migration is that Ukraine loses its potential for economic development, reduces the attractiveness for investors to enter the country's economy, which does not have sufficient labor resources and, accordingly, cannot generate economic growth. According to Oleg Ustenko, this is reminiscent of the crisis in Ireland in the middle of the 19th century: "Then there was a very strong migration from the country that for a long period lost its labor resources, as well as opportunities for economic growth."

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

Related: International cooperation: Law enforcers close illegal migration channel at Ukrainian border

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