How did the labor market in Ukraine change during the war?

The government of Ukraine hints at harsh measures to adapt the economy to the war (Al Jazeera)

Kiev -

The beginning of 2024 does not seem to herald that the economy of Ukraine and the Ukrainians will be fine, as the authorities are moving towards adopting harsh exceptional measures to adapt the economy to the state of war that has been in place for nearly two years.

The matter was not urgent before now, as Ukraine today faces many challenges, the most important of which is a budget deficit amounting to about 41 billion dollars out of a total of 93 billion, including 47 billion for the defense sector, and this is parallel to a clear Western desire to limit the support provided to Kiev.

In the words of Finance Minister Serhiy Marchenko, “The country’s priority is to win the war with Russia, and the Ukrainian economy must be turned into rails on which the war train runs.”

Thus, according to the minister, Ukrainians must change their priorities in life as well, and reduce the level of consumption of goods and services several times, especially imported ones, so that foreign currencies will be directed exclusively to the army and the military industries sector.

Finance Minister Serhiy Marchenko: Ukrainians must reduce consumption of goods and services (Al Jazeera)

War model

Here, experts believe that Ukraine's economy must move to the model of the economies of countries participating in World War II, when measures are taken that direct most of the budget and domestic output to military spending.

Economist Andrey Ermolaev, head of the Sophia Center for Studies, says: “During World War II, government spending on the military constituted 42% in the United States, 55% in the United Kingdom, 70% in Germany, and 74% in Japan.

He explained to Al Jazeera Net that this model “has also been applied in Ukraine since the beginning of 2023, allocating about 50% of the budget, but it must be accompanied by limiting the volume of personal consumption, as the matter is a combination of several strategies, encouraging saving, or even prohibiting the import of some goods.” In support of the local economy.

He continues, "For example, between 1943 and 1945, American consumers were unable to buy new cars, but in Ukraine today, everything is available, and life has returned to normal in many cities, as if war and challenges no longer existed."

Economist Andrey Ermolaev: Life returns to normal as if the war had become a thing of the past - Ukraine (Al Jazeera)

New tax systems

In conjunction with this, the Ministry of Finance hints at the possibility of imposing “new tax systems” during the current year, or at the beginning of 2025, covering both public and private companies.

Expert Ermolaev says, “These systems work to expand the tax base, to include larger numbers of the general public who do not pay income taxes (about 18-22%), including those who work informally in one or more places, and they also increase the amount of taxes imposed.” On companies, especially those that depend on foreign imports, by what may reach 90%.”

Therefore, the expert points out that “the matter will not be easy for everyone, as it may cause a state of popular anger, because it will be through mechanisms of controlling the size and sources of bank transfers, then closing or confiscating them, and then imposing restrictions on income sizes, in a society where the poor have become 60% of it is due to the war, instead of 39% before it.”

He added, "Parliament did not agree on any project or idea put forward in this regard. In the end, even the massive increase in tax revenues will not be enough to cover the war expenses. In fact, most wars are not funded solely by taxes," he said.

Economist Andrey Ermolaev: Control of bank transfers may cause anger among the people (Reuters)

Positive indicators

It appears that the government is basing this approach on its positive indicators of economic recovery, income growth, and a decline in the number of unemployed in 2023.

According to the Ministry of Economy, the gross domestic product in Ukraine grew by 5% in 2023, after declining by 28.8% in the first year of the war, 2022. Inflation rates also declined from 26 to 9% in the same period, and the income level rose last year by an average rate estimated at about 29%. %, reaching 19 thousand hryvnia (about 500 dollars).

As an indication of this, data from the Ukrainian “Work” website (Work.ua) indicate a clear increase in offers, by rates reaching 174% in some provinces, and the State Employment Service also indicates a decline in the number of unemployed, from 295 thousand in December. December 2021 (10.1%), to 186.5 thousand in December 2023 (9.1%).

The site also indicates an increase in the demand in Ukraine for specialists, as was the case before the war. Today, about 18% of job offers belong to industrial processing companies, 16% relate to the field of trade, 13% relate to education, 9% to agriculture, and 8% to the field. Healthcare, 7% for transportation and postal delivery services, and 7% for administration.

GDP growth in Ukraine by 5% according to the Ministry of Economy (Reuters)

Inflation and unemployment

But other governmental and specialized bodies believe that this is not the case, as it does not reflect an improvement in reality, and hides facts that lead to doubting those announced government numbers, especially since they are linked to new factors imposed by the war.

Economist Ermolaev says, “With the increase in the level of income, the rates of inflation in the prices of local goods and government services may have actually decreased, but the inflation in the prices of imported goods has jumped at large rates that do not take into account income, exceeding an average of 74%, and this is what is witnessed in the prices of vegetables and fruits in the markets, for example.”

Regarding unemployment, Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Fiscal, Tax and Customs Policy, says, “In fact, the actual unemployment rate in Ukraine is twice what it was at the end of 2021, and not the other way around. Official statistics do not reflect those who avoid mobilization in the army by enlisting.” "With any symbolic action, this is a widespread phenomenon."

The representative also points out that “immigration and displacement have pushed millions of Ukrainians to leave work, and those actually looking for offers and opportunities are as before in the largest provinces, such as Kiev Province, where opportunities declined to 79% compared to before the war, and Kharkiv 40%, while opportunities actually increased in Vinnytsia to 125%.

Indeed, the National Bank of Ukraine had expected that the real unemployment rate in the country would reach 19.1% by the end of 2023, in 2024 it would reach 16.5%, and in 2025 it would reach 14.2%.

Source: Al Jazeera