Ukraine, “Orange” Isn’t Only The Name Of A Phone Company It Seems

Well, three years after the famous “orange” revolution Ukraine is at it again. Voting I mean. At the time of writing only 60% of the votes have been counted, and the margin is a narrow one, but the pundits all seem to be suggesting that the bloc of of parties lead by former premier Yulia Tymoshenko, part of the Orange alliance, have done rather better than expected and might even secure a governing majority (in a neck and neck finish) in alliance with Our Ukraine, the party supporting Viktor Yushchenko.

Now analysing the details of the electoral process in the Ukraine is a bit beyond my ken, but Election Resources on the Internet Manuel Alvarez does have an excellent background piece on Global Economy Matters (including three maps of Ukraine’s most recent elections, which Serhij Vasylchenko kindly sent) which he is constantly updating. I also have an accompanying piece offering an in-depth analysis of Ukraine’s recent economic performance, so I will here offer here only those of my findings which I feel may be of most interest to Afoe readers.

Basically whoever, at the end of the day, wins the elections whose results are being counted in Ukraine today, one thing is certain: they will have their work cut out, since Ukraine is a country with a very large accumulated set of problems, and of course, its size (in a European context) means that it is also a country which few (and especially those countries in the European Union) can afford to ignore.

The fundamental situation is that – even if this sounds very dramatic – Ukraine as a country is dying. Slowly but steadily it is dying. The population – as you can see in this chart here – has been reducing steadily year by year since the early 1990s.

One of the reasons for this decline is, of course, long term very low fertility – see chart. But there are two additional factors which influence population decline in Ukraine. One of these is life expectancy, and the other is migration. The fact of the matter is that life expectancy in Ukraine has been falling in recent years (again see chart, but note that male life expectancy at birth is now very low, somthing like 63, and this of course places a great restriction on the ability of Ukraine to draw on increased labour participation in the older ages to compensate for low fertility, as I try and explain in some detail in my GEM post).

Now earlier this year the World Bank published a very comprehensive report on the demographic future of Eastern Europe and Russia entitled “From Red to Gray – The Third Transition of Ageing Populations in Eastern Europe and the former Soviet Union“. The key topic addressed in this report was the impact of long term low fertility on Eastern Europe’s ageing labour force. The World Bank offered three policy remedies, more labour productivity, higher participation rates, and more migration.

If measures are taken to improve labor productivity, this would clearly outweigh the losses due to a smaller labor force. Output in aging countries can also receive a boost from increases in labor force participation through raising retirement ages and encouraging flexible forms of employment. And politics permitting, shortfalls in labor supply can be minimized by interregional migration.

The first of these is, I think, self evident, but what is involved is a fairly long term process to raise the education level and human capital content of the entire Ukranian population. The second one, the potential of increased participation rates to resolve (or at least mitigate) the problem is analysed in my GEM post, so it is the third factor which is in play here – migration in the Ukraine context – which will now occupy the rest of this post.

For purposes of analytical convenience we can break down the evolution of migration in the Ukraine context into three phases. The first of these covers the period of 1991-1993, the second runs from 1994-1998, while the third started in 1999 and is ongoing (I owe this classification to the work of Olena Malynovska, see reference below).

The first phase followed the break-up of the old Soviet Union and was characterized by massive migratory movements – or so-called stress migration processes. During this phase, there was a strong migratory surplus into the Ukraine.

Such migratory growth was primarily driven by Ukrainians who wanted to live in their own country and who were repatriating themselves from the North of Russia, the Far East and Kazakhstan, as well as repatriation of those previously subject to repression and exile such as the Crimean Tartars. In the forefront of this was a large influx of both Ukrainians and indigenous population fleeing conflicts in Central Asia and Transcaucasia. To give an example of the very large migratory surplus in 1992 60% were ethnic Ukrainians.

On the other hand among emigrants ethnic Ukrainians constituted only 37.7 % of the total in 1991 and 28.8% in 1992.

The second migratory phase -1994 – 1998 – was characterized by a very sharp reduction in the inflow to Ukraine from former USSR republics and a steady increase in the volume of outflow which lead to a migratory deficit in Ukraine of 91,600 in 1994. Altogether, over five years, more than 900,000 people migrated from Ukraine to CIS and Baltic states, whereas only 630,000 immigrated into the Ukraine. This is undoubtedly a reflection of the serious economic crisis which took place in the Ukraine during this time.

The vast majority of Ukrainian emigrants at this time went to Russia (636,000 people in five years or 70% of those who went to the post- Soviet countries), since the economic situation there was better, wages and the standard of living higher and entrepreneurial conditions more favorable. Only 270,000 people arrived from Russia, i.e. the migratory deficit caused by migration to Russia in 1994-1998 was about 366,000.

The volume of population migration between Ukraine and the CIS and Baltic states has decreased significantly since the turn of the century according to the official statistics that register changes of residency. Thus in 2002, the volume of gross-migration was only one eighth of that registered in the early 1990s..

The third phase in the migratory process began around 1999 continues today. This phase is distinguished by less intensity in the migratory process itself (to date) but also by a significant change in destinations. From migrating East the Ukranians are now moving West. Data on this latter movement has not been systematically collected but we have some national data on Ukranians in Portugal, Spain and Italy, and lots of anecdotal information about Ukranian migrant workers in Latvia, the Czech Republic, Poland and elsewhere in the EU 10.

According to information provided by Ukrainian diplomatic missions, 300,000 Ukrainian migrants may be working in Poland, 200,000 each in Italy and the Czech Republic, 150,000 in Portugal, 100,000 in Spain, 35,000 in Turkey, and another 20,000 in the US. According to official information based on the number of permits issued by the Russian Federal Migration Service, some 100,000 Ukrainian citizens currently work in Russia, although the real number of Ukrainians working there is often estimated to be more in the region of 1million.

According to information provided by one Portuguese charity which specifically studies Ukrainian migrant workers, the largest number of Ukrainian migrants are currently working in Russia, at more than 1mn, 500,000 are working in Italy, 300,000 each are working in Portugal and in Germany, around 200,000 are employed in Great Britain, more than 150,000 each are working in France and Spain. Significantly less, but still large numbers of Ukrainians are working in Greece, Turkey and Israel—Greece and Turkey account mostly for seasonal workers—, and smaller numbers work in Northern Europe, the Baltics and the Middle East. (cited in: Andriy Kyrchiv, Labor Migration and National Security in Ukraine – in Ukranian)

This new era of Ukraine outmigration has also been accompanied by a shift in the source countries for in-migration. According to this paper (Popson, 2004, full reference below), which deals exclusively with Kyiv:

In the early 1990s, migration patterns in Ukraine were dominated by repatriating Ukrainians and Russians, Kazakhs, and other Soviet nationalities departing to their titular states. By mid-decade the makeup of migrants began to shift. Although the Ukrainian economy provided few incentives for migrants from the former Soviet Union, migrants from ethnic groups who had not historically resided in Ukraine continued to arrive, and in larger and larger numbers. These migrants came from Asia, Africa, and the Middle East; they arrived through legal, semi-legal, and illegal channels; and they were often on their way to Europe or other destinations. As Ukraine’s borders with Eastern Europe and the European Union solidified, it became more and more difficult for migrants to cross into Europe, and many found themselves in Ukraine for the medium to long term.

Serhiy Brytchenko, the head of the Presidential Administration’s Migration Directorate, published an article in Uryadovyy Kuryer on increasing migration trends in Ukraine. According to Brytchenko, the number of people adopting Ukrainian citizenship in 2004 was far greater than those relinquishing it: in the first six months of the year, the number of people granted Ukrainian citizenship rose 40 percent over the same period in 2003, and by 180 percent in comparison to 2002.2 The article by Brytchenko echoes research conducted by sociologists in Ukraine suggesting that many of these migrants are now seeking permanent residency in the country. While they may not have originally chosen Ukraine as their final destination – either they were in transit further north and west or were simply seeking a safe haven away from political and economic strife in their home countries – they now consider themselves part of Ukrainian society. They are working in Ukrainian markets, sending their children to Ukrainian schools, using Ukrainian state services, and purchasing Ukrainian goods…..

According to official statistics, in 2001, 101,268 foreigners were registered with the Ministry of Internal Affairs in Kyiv. These include foreigners with permanent residency status on business and work permits, students in the city’s colleges and universities, refugees and asylum seekers, and illegal migrants who have been identified by the city’s law enforcement agencies. These figures surely miss a number of illegal migrants who have escaped the notice of city authorities. According to estimates of social scientists working on migration in Kyiv, approximately 15,000 of these foreigners represent ethnic groups that were not present in Soviet times – in particular migrants from Africa, Asia, and the Middle East.
Kyiv is a microcosm encompassing many of the issues created by new migration trends in Ukraine. Changes to the city’s functions (from capital of a Soviet republic to capital of an independent nation) and the consequential shifts in legislation and jurisdiction of particular agencies left an opening for migrants to find their place in the city. The development of a robust shadow economy provided space for immigrants – even those with incomplete or no documentation – to find accommodations and employment. Ukraine’s willingness to accept immigrants and refugees and to offer them many of the same rights as citizens also made Kyiv a welcoming home for many. Added to this, Kyiv has become an important transit point where international routes for the transportation of illegal migrants from Asia and Africa intersect.

The issue of migrants in Ukraine’s cities and towns is an interesting avenue of research for those looking at civil society development. In Kyiv alone there were nearly 500 national and regional ethnic cultural associations who were active in 2000.

However, as well as the flow of migrants into Ukraine who decide to stay, we can also identify another group of migrants who enter Ukraine, and those are the transit migrants. These are normally destined for points further west. According to the Ukraine-based International Centre for Policy Studies(see reference below) the ethnic composition of transit migrants has also been shifting in recent years. In 2003, the majority of transit migrants were Southeast Asian and African nationals. Today, the majority of transit migrants are CIS nationals. Most significant among these are Russian nationals of Chechen origin, Moldovans, Georgians, Uzbeks, Azeris, and Armenians, accounting for 70% of total numbers of detained illegal migrants.

What we can see, is that the numbers of Ukranians currently working outside their country is large, and as the labour market needs of the receiving countries increase this number will undoubtedly rise. The numbers of those now arriving may also be large, but possibly not as large as those who are leaving. This finding (and there are of course questions about the level of accuracy of all the data we have) is consistent with the very tight labour market position which I examine in my GEM posting. As we have seen in Latvia, Poland, Romania etc, this whole process is very dramatic for the countries concerned (and not least of these for cultural reasons) and the stability and sustainability of everything which is happening (and so fast) must be under question.

Outlook For Ukraine

I would like then to close this post by stressing a number of basic points. Basically I am aware that there is a danger here of interpreting what Claus Vistesen and I are saying about the whole labour market situation across Eastern Europe in a very crude fashion, and we are anxious that people do not do this. The rate of labour market tightening (and hence inflation) across all of Europe’s economies depends in part on available labour. This affects those in the EU (like Ireland, the Uk, and Spain) just as much as it does those who are outside (like Russia, Croatia, Ukraine etc). The extent to which this tightening (and hence the wage inflation and the exhaustion of reserve pools) occurs will depend on two things. Firstly it depends on the rate of economic growth, and secondly on the rate of sectoral transition to higher value activities.

Both of these are semi-independent variables which cannot be predicted from simply looking at population numbers and fertility. But they are only semi-independent, since lower population levels and ongoing low fertility (ie over 20 years or more) do have an impact on the relative price of labour. This impact that the combined effect of this double whammy has is to slow growth, and to encourages a transition to more capital intensive activity (as labour becomes more expensive). It should miss no-one’s attention that just this sort of discussion is already taking place inside China, as people begin to worry that the cheap labour intensive product era may be coming to an end as labour market tightening begins to have an effect even there (and here).

So both the immediate and the long term future for Ukraine look none too promising, and fraught with difficulty, from a demographic point of view. Especially when the majority of influential international agencies seem to ignore the fertility component in this problem.

The World Bank has published another report on the EU10 economies just this week, and they are very aware of the growing difficulties represented by the evident labour shortages which are occurring. Here is just a short extract to give an idea:

Unemployment has fallen substantially in virtually all EU8+2 countries since 2004 due to strong growth in labor demand. This has given rise to skill shortages and associated wage pressures, often amplified by out-migration of EU8+2 workers. However, employment/working age population ratios remain relatively low.

Addressing the emerging skills shortages is particularly important, because failure to do so will constrain job creation and future economic growth. To increase the effective labor supply EU8+2 countries need to: (a) improve labor supply incentives through reforming the social security systems, (b) improve worker skills through reforming the educational systems and improving domestic mobility; and (c) import labor with skills that are in short supply by opening labor markets to foreign workers.

There is much that constitutes sound sense in this report, although as I have already indicated it is not clear that labour force participation rate increases can do as much work in a country like Ukraine as they seem to imagine. What I found hard, very hard, to understand is why nowhere, but nowhere, in the whole report is the issue of doing something about the severe underlying fertility problem even mentioned.

Data References

International migration in contemporary Ukraine: trends and policy , by Olena Malynovska, October 2004

Demographic development of Russia and Ukraine: fifteen years of independence
Sergei Pirozhkov and Gaiane Safarova, 2006

Migration in Ukraine and the Case of Kyiv: Suggestions for Preparation of a Research Agenda by Nancy Popson, Kennan Institute (Washington, DC)

Ukraine’s Policy to Control Illegal Migration
, International Centre for Policy Studies (Kyiv, Ukraine) and Institute for Public Affairs (Warsaw, Poland), June 2006.

National Bank of Ukraine

The Ukraine Statistics Office

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

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