Already twice this year the National Bank of Ukraine has turned the public eye to the consequences of labor migration for our country. In its inflation report for January 2018 it was pointed out that migrants make up around 8% of the population between 15 and 70 years old. If one were to believe these figures, then really, the scope of labor migration in Ukraine has become threatening for the future of our economy. This, by the way, is further underlined by the inflation report for July of the current year.
A new wave of labor migration from Ukraine is caused by a number of factors, most importantly, by the military aggression, a deep and continuous economic crisis, unemployment. It is natural that Ukrainians are seeking higher wages and better public welfare systems.
One should be reminded that the unemployment rate among the Ukrainian work force in the first quarter of the current year stood at 9.7% (according to the Labor Protection Ministry methodology), and at 10% for the working age population. And even though these figures are slightly better than they were during the same period of last year, they nevertheless reveal the tense situation on the national labor market. Hence, the current wave of labor migration of Ukrainians is somewhat of a discouragement amid the restricted employment opportunities at decent positions at home.
Earlier, I have written that Eastern European nations have faced similar emigration challenges in the past. Eastern Europeans began mass migration to Western European member states even prior to their countries joining the European Union. A substantial outflow of working population was observed in countries that were not part of the union. For Poles, Latvians and Lithuanians Ireland and the United Kingdom then became primary destinations, while Estonians chose to move to Finland and Romanians settled mostly in Spain and Italy.
Fore example, between 1990 and 2005, some 9% of the entire country's population left Romania. In 1990 alone, close to 100,000 Romanian nationals settled overseas for permanent residency; and similar numbers were leaving the country for the following few years. According to an OECD report, the Romanian emigration was initially made up mostly of ethnic minorities, and then was spread out to employment-seekers. By 2007, the year Romania joined the European Union, the majority of Romanian emigrants has already left the country.
I think Ukraine is on a similar journey to that of other Eastern European countries. Both theory and practice confirm that in the long run migration may bring many benefits not only for migrants themselves and their family members, but also for their countires of origin.
Lower unemployment, decline in poverty, higher income and well-being are not the only benefits of migration for the migrants and their relatives. Often, there are many more positive consequences of migration for human development, including improvements in education and healthcare. In its turn, the state receives large volumes of remittances, which are far less volatile and far more reliable sources of foreign currency compared to routes of capital in many developing countries. By the way, the volumes of private remittances have increased in Ukraine as well – to 8.4% of GDP in 2017 (according to the new National Bank methodology) and are continuing to improve this year too (in January-May they reached $4.5 billion and exceeded last year’s figure by 30%).
However, in the long run, the consequences are far less positive: the state is left with less workforce, is losing educated young people and qualified professionals, is experiencing greater pressure on its public finance. Significant migration to overseas destinations (including the movement of highly qualified professionals) and the ageing population – altogether pose a great challenge for the state, taking into account the need to support a competitive economy. For example, the “brain outflow” means a loss of public resources invested in their education, a shrinking volume of manufacturing, a worsening of the business climate within the country.
So what needs to change in Ukraine in order for people to be incentivized to work here? I believe the most important thing is to reach substantial economic growth. And, by the way, the Board of the National Bank shares this viewpoint in its publications and recommendations for the management of the regulator and the Ukrainian government.
This is the reasonable grounds for securing a growth and population’s disposable inclome. Unfortunately, the Ukrainian wages cannot be compared to the European level. For instance, according to the data from OECD, the average annual wage in Poland in 2017 was PLN 50.8 thousand (close to $13,500), in Portugal – EUR 17,000, in Spain – EUR 28,000. At the same time, in Ukraine it is around UAH 100,000 ($3,800). Therefore, in order to curb the levels of labor migration, the Ukrainian wages need to get closer to the European levels, based on a higher productivity. As we can see, the government is already taking action in that direction. For example, the real wage index in June 2018 stood at 113% relative to June of 2017.
When it comes to discouraging the migration sentiment, the world experience including the history of Eastern European nations indicates that a comprehensive approach should be implemented. As such, the priority should be given to the creation of decent employment conditions, to the improvement of public institutions, to the creation of conditions for higher employment, to the improvements in productivity and in the economy overall.
In order to manage migration more effectively, we need to implement these fundamental ideas.