What's the main reason for low salaries in Ukraine?

Author : Pavlo Vernivsky

Our country has more serious structural problems that lead to the difficult situation at the job market
22:32, 4 June 2019

Motor Sich engine, workers
The Washington Post

I don’t want to criticize employers. In fact, the issue of unemployment and low wages is a market phenomenon. There is a demand for labor. There is an offer.

Depending on the industry and specialization, it may vary. Somewhere demand is higher, somewhere there are a lot of candidates. Another problem is aggravated by globalization, where competition for labor exists not only between companies, but also between states. But this is not a key problem.

In Ukraine, there are more serious structural problems that lead to such situation at the job market.

1. Poor performance. According to the World Bank, on average, every working person in the country manufactures products for $ 5,000 per year or $ 400 per month. This is a very small amount! Because an employee who produces $ 400 a month physically cannot be paid more than this amount.

2. Low wages themselves create another problem - low consumer demand. In simple terms, a person eats less. Spends less on clothes. At a cafe, cinema, another kind of rest. For example, our meat consumption is almost three times less than in Europe. The Ukrainian consumes 13 kg of pork per year versus 33 kg in Europe. Given that pork is our national product, it is a very small amount! It is clear that weak consumption is reflected in the performance of the business!

3. The vicious circle of low productivity and consumption gives rise to the following problem - high dependence on exports. If the Ukrainians themselves are not able to consume enough products, then it must be sold to foreigners. And here Ukraine does not have success. Our exports amount to only 1200 dollars per inhabitant. In Poland, this figure is 6 500.

Related: Average Ukrainian salary grows, but income of citizens decreases

Why does the country have such big problems with the economy?

The first reason is a high proportion of the agrarian economy. All over the world the agrarian sphere is considered the most low-productive. For this reason, until now, in order to maintain high productivity, there are subsidies to the sphere in Europe.

Developed countries still maintain high import duties. A striking example is Switzerland. The world's highest duties on agrarian sector (40%) support the high incomes of farmers and make products of other countries non-competitive. For this reason, the country has very expensive food prices.

The second. The fall of the role of industry. In fact, the industry is still many times more productive than the agrarian sector. The paradox of Ukraine is that part of the industry is not working at full capacity, but for outsourcing.

And it turns out that we are not creating our own product with a high added value, but working on small commissions to create this product for other countries. This is how IT works, manufacturing factories for well-known brands, textile production. All this affects the decline in productivity, wages and exports.

Third. Ukraine produces less and less finished goods with high added value. It also leads to low productivity, wages and exports rate.

Related: Miners protest for increasing of salaries in Kryvyi Rih second day

Related: One third of Ukraine's workers survive on salary lower than minimum subsistence level

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