To have better salaries, Ukraine should develop innovative industries and match education to the needs of the labor market – experts

Kyiv, March 22, 2017.

To gradually increase salaries in Ukraine, the country should develop high-tech innovative industries with high added value, promote promising professions and match education and distribution of state-funded courses at universities to these needs, to promote “lifelong learning” approach, to modernize labor legislation and encourage dialogue between employers and employees, say Ukrainian experts. These conclusions were drawn from a discussion about salaries and situation with labor rights in Ukraine that was held at Ukraine Crisis Media Center in partnership with the Institute for Social and Economic Research.

How high salaries should be and how to increase them?

According to social surveys, the salary considered “good” varies between UAH 5-15 thousand. The youth tends to claim UAH 10-15 thousand. Anyway, this salary, equal to nearly USD 300-450, is significantly smaller than in rich European countries, where the average salary is EUR 1.5-2 thousand (however, difference in cost of living should be taken into account). Percentage-based calculations also show that Ukrainian salaries are lower. In many countries the minimum salary equals to nearly 60 per cent of the average salary. According to these calculations, minimum salary in Ukraine should have been UAH 4.5 thousand, while even after recent increase the minimum salary is UAH 3200.

The experts did not give exact figures on how high a fair salary should be. However, they all agreed that work in Ukraine is undervalued. “Over the last decade the work of our people has been undervalued. Ukraine almost in the bottom of the rating of salary level even among the countries of the former Commonwealth of Independent States. The increase in minimum salary brought us closer to European standards (….), but obviously, this level of minimum salary is not sufficient to let people save money for anything,” noted Viktor Ivankevych, state secretary of the Ministry of Social Policy of Ukraine.

The main reasons lie in the economic situation. One of them is labor productivity. In the developed countries, there is direct correlation between salaries and productivity of labor, which is time necessary to produce a unit of output. In Ukraine, labor productivity is usually low because of obsolete equipment. “Salaries should be increased through economic methods, not through administrative measures. […] The first objective for us is to increase labor productivity, because it will result in higher salaries,” noted Marianna Onufryk, director of social programs of the Institute for Social and Economic Research.

The second reason is that only a small segment of Ukrainian economy produces goods with high added value. Therefore it is almost impossible to increase the share of salary in the product cost. For instance, in Ukraine this share is 10 per cent, while in Europe it is up to 50 per cent. To change the situation, Ukraine should shift its economy to high-tech and export-focused industries, such as ІТ, air & space industry, pharmaceutics, automatized agriculture.

Victor Ivankevych added that the Ministry of Social Policy will consider possibility of adding new indices to the formula of salary calculation, such as optimum salary of a very good professional in the field. Andriy Kochukov, representative of the Council of all-Ukrainian Trade Unions Association “Rivnist” added, that in other countries salary is often calculated as 25 per cent of profit brought by an employee to his employer. However, there would be difficulties in applying this method in Ukraine, because many big enterprises conceal their real profit.

Recipe against unemployment: flexibility and soft skills

As of February 1, nearly 350 thousand Ukrainians were receiving unemployment allowances. This is 15 per cent less than in 2016, so the situation has improved slightly. The main reason for unemployment is lack of jobs: there are about 8 candidates per one job, Marianna Onufryk says. The majority of the unemployed have a university degree. According to the experts, these figures point out that education doesn’t match the needs of the labor market. This is a challenge not only for Ukraine, but for Central & East European countries in general. For instance, in the countries of Western Europe nearly 25 per cent of employees work in the sphere for which they haven’t been trained. In Central and Eastern Europe, this rate is 50 and 60 per cent respectively. In addition to this, science and technology are developing very fast and the needs of the market are constantly changing. In this situation, employees, education and state programs risk falling behind.

The first necessary step is to switch from “learning skills” to “learning how to learn”. “The recent research of the World Bank has shown that nowadays “soft skills”, such as empathy, flexibility, ability to work in a team and individually, ability to adjust to the new conditions, are even more appreciated by the employers than professional skills,” noted Olena Ivanova, expert of UN Development Program. So it is necessary that education and courses of re-qualification be focused on formation of these “soft skills” and offered flexible programs. In addition, Kochukov noted, not only the state but also employers should take care about training programs for their employees: it would bring them benefits and would motivate the employees.
The second step is to consider forecasts for the labor market for 5-10 years when planning distribution of state-funded places at universities among various fields of study. According to International Labor Organization forecast, in the next decade there will be a growing demand for blue collars and high-tech professionals.

Labor rights: there is law, but it doesn’t work

According to the research of the International Trade Union Confederation, Ukraine is among the countries where there are practically no guarantees of labor rights. On the one hand, the country has all the necessary legislation in this field, sometimes advantages for employees are even more attractive than in several EU countries, but very often all this doesn’t work in practice. For instance, there are provisions prohibiting labor discrimination, but there are multiple cases of age-related discrimination, or gender discrimination when young women have smaller chances to be employed because employers don’t wont to pay for their potential maternity leave, or when employers prefer a male/female employee for a certain vacancy, or cases when employers impose excessive requirements to candidates for a vacancy. The labor rights of those who work off the books are not protected at all.

Obsolete legislation is one of the main reasons of the problem. The code of laws on labor was adopted in 1971, when the environment was absolutely different. Moreover, a new draft Labor Code which has not been adopted yet, is already out-of-date. For instance, it still refers to employment record books which are to be cancelled, but it has no regulations for outsource and freelance. The second important reason is the absence of social dialogue, cooperation between the state, employers and trade unions.  According to Andriy Kochuk, the majority of trade unions are not efficient as an instrument to protect employees’ rights. Even those which really work have practically no leverage on employers, except for protest in the streets.

The Ministry of Social Policy agrees that changes are required. “We have set a course for an open economy, so our labor legislation has to be approximated to EU legislation. There are many useful provisions from which both employees and employers would benefit,” Viktor Ivankevych noted.
The experience of Western countries has shown that mechanisms of social guarantees are more efficient when they give advantages both to employers and employees, said Olena Ivanova. For instance, the French fund for support of workers with disabilities helps the employers to adjust the workplace to the needs of their employees with disabilities.