Labor shortages: How to save Ukraine?

Author : Oleksiy Kushch

Source : 112 Ukraine

IMF has published a horrifying study, trying to analyze the projected indicators of the able-bodied population in the world economy by 2050
20:38, 30 July 2019

Open source

When the Ukrainians were busy with the snap parliamentary elections, the IMF has published a horrifying study, trying to analyze the projected indicators of the able-bodied population in the world economy by 2050, including in Ukraine.

The situation is worsening for us by two basic factors: unlike our western European neighbors, who are participants in the EU common labor market and can compensate for labor shortages through positive labor migration from Asia, Africa, and Ukraine, we cannot count on such long-term loss compensators of their labor resources. Moreover, the pan-European labor market plays a rather negative role for us, rather than a positive role.

Related: Poroshenko became president thanks to populism and cheap hype, - lawyer Porntov

 Assessing the prospect of engaging in elderly people as part of the workforce, the IMF was overly optimistic in relation to Ukraine: neither life expectancy, especially for the male population, nor the state of health, nor the basic standards of living in our country, contribute to the mass work of the elderly people.

For example, people in Germany at the age of 60, begin their “third youth,” while in Ukraine, a person over 60 is considered an old man or woman.

The most representative figures of the study: by 2050, the labor resources of such countries as Bulgaria, Latvia, Poland, and Ukraine will be reduced by more than 30%. The growth of human capital for this period is expected only in Turkey, while in other European countries there will be a significant reduction, the question is only at the depth of the fall. And we will have a real demographic "Martian hollow."

How will this affect the economy and the level of income? Extremely negative. By the middle of the century, the average income level in Ukraine will be 20% of the pan-European. Our country (along with Albania and Serbia) will be on the list of the poorest economies of the continent. The mortality rate is projected to be twice as high as in Germany.

According to this indicator, we will "compete" with Belarus and the Russian Federation. At the same time, the average life expectancy growth of Ukrainian men by the middle of the century will be only 5.5 years.

Related: By 2030, Ukraine's population may shrink to 40 million, - UN report

As a result of the aging of the economically active population, we will lose 1.7% of GDP growth, and the general fall of gross product, calculated on the basis of purchasing power parity, by the year 2050 will be minus 38%, including cumulative loss of industrial production - minus 17%. GDP loss will be more than a third per capita.

The IMF calculated three scenarios for involving older people in labor turnover for Ukraine: basic, moderate, and "ambitious." According to the first scenario, in the 2050s, 43.3% of men and 26.6% of women will work. The second option is 76.5% and 63.8% respectively. Well, the "ambitious" plan assumes that 78.7% of men and 68.6% of women will work.

Aging of the population will increase the social burden on the budget: on average, it is projected that by 2050 so-called age-related expenditures (pensions, health care) will reach 20% of GDP in Europe and 25% in Ukraine. This will force the country to go on unpopular labor market reforms linked to an increase in the retirement age and employment of people over the age of 60. And if in the EU the capital intensity of such labor reform would cost half a percentage of GDP, then in Ukraine it would be 1.5%.

Related: UN World Population Prospects: Ukraine would face major depopulation by 20%

In the current commodity paradigm, Ukraine cannot really grow more than 2-3% in the coming years. In order to grow in the range of 5% + (and only in this dynamics, poverty can be overcome in the foreseeable future), new debut ideas are needed that are far from the popular clichés.

The country is waiting for an economic inversion. This concept can be characterized as "turning" indicators of negative demographic dynamics and indicators of GDP growth. Now the population is declining, but the currency equivalent of GDP is increasing, as the real and nominal figures in the national currency increase. But this will not always be the case, because the structure of demographic indicators is very heterogeneous.

If you take a group over 60 years, it increases, while the indicators of the economically active population and the number of regular workers are reduced. In the first case, the budgetary burden increases, because pensioners need to pay pensions and provide benefits and subsidies. In the second, the capitalization of the economy and its ability to be “a milking cow” declines.

We have two opposite tendencies: a decrease in the efficiency, productivity, competitiveness and capitalization of the economy, and on the other hand, the growth of an unproductive fiscal burden on the remaining real sector. Hence the high propensity for the shadowing of economic operations and labor migration. The classical institutional trap of economic and demographic destruction. Or inversion trap.

After 2045, Ukraine will have economic growth, when the rate of linear reduction of the population exceeds the positive dynamics of GDP. If the economic growth would achieve 2-3%, Ukraine will reach the economic extremum of the currency equivalent of GDP in the range of 150 billion dollars (at current prices), and then this indicator will increase very slowly against the backdrop of degrading infrastructure.

Everything indicates that the current five-year political cycle will be the last in the context of the continued possibility of activating structural reforms and less comfortable for the ruling "elites."

Related: Almost fifth part of the working population of Ukraine is abroad, - Ministry of Finance

From 2028 to 2045, Ukraine will enter a high-probability economic-demographic inversion and the appearance of a bifurcation point, after which the sluggish GDP growth will no longer block the dynamics of the population decline (the potential for increasing labor productivity in the current commodity model will be completely exhausted).

Each of our ministers should be familiarized with this IMF report and its demographic prospects of Ukraine. And there is no need to wait for 2050, accelerated labor migration will do its job much earlier.

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