De­mo­graphic cri­sis will stunt growth, harm pen­sions, cre­ate la­bor short­age

Kyiv Post - - Business Focus - BY MARK RACHKEVYCH

The grim de­mo­graphic mile­stones that Ukraine will reach by 2020 is push­ing pop­u­la­tion is­sues to the fore­front of the na­tion’s eco­nomic de­bate as it could see growth stunted due to la­bor short­ages with debt im­pli­ca­tions for its pen­sion and health sys­tems.

Con­sumer mar­ket strat­egy re­searcher Euromon­i­tor In­ter­na­tional stated in a re­cent re­port that Ukraine will ex­pe­ri­ence the largest ab­so­lute pop­u­la­tion loss in Europe be­tween 2011 and 2020, which will ad­versely im­pact the coun­try’s long-term eco­nomic growth.

Hav­ing al­ready ex­pe­ri­enced an 11.8 per­cent pop­u­la­tion de­cline be­tween 1991 and 2011, from 51.6 mil­lion to 45.5 mil­lion, Euromon­i­tor re­ported, Ukraine’s pop­u­la­tion stands to fall by about 200,000 an­nu­ally, drop­ping to 44.5 mil­lion peo­ple by 2020 due mostly to the long-term trend of the death rate ex­ceed­ing the birth rate.

In an even more dra­matic fore­cast, the United Na­tions projects that Ukraine’s pop­u­la­tion will de­crease to 35 mil­lion by 2050. De­spite two years of eco­nomic growth, the birth rate was 1.4 in 2011, still be­low the re­place­ment level of 2.2.

Out­go­ing mi­gra­tion, prin­ci­pally among the young work­ing age pop­u­la­tion in the 1990s has also ex­ac­er­bated pop­u­la­tion de­cline. And the smaller birth gen­er­a­tion dur­ing the 1990s that has re­cently joined the la­bor force cou­pled with few in­com­ing la­bor mi­grants is fu­el­ing the present and fu­ture la­bor short­ages.

“Ev­ery year 200,000 thou­sand more peo­ple die (in Ukraine) than are born,” said Ru­mane Verikaite, a Euromon­i­tor data anal­y­sis man­ager.

The re­port said a large num­ber of deaths are due to in­creas­ing life ex­pectancy, an ag­ing pop­u­la­tion and high young and work­ing age male mor­tal­ity. Men in Ukraine can ex­pect to live 10 years less than women due to smok­ing, ac­ci­dents at work and high in­ci­dence of sui­cides for men younger than 65.

“This not only means less work­ers now but less chil­dren in the fu­ture, mak­ing the pop­u­la­tion pyra­mid even less sus­tain­able,” said Ed­ward Hugh, a macroe­conomist who spe­cial­izes in de­mo­graphic pro­cesses and their im­pact on macro per­for­mance. As a re­sult, la­bor short­ages threaten Ukraine’s eco­nomic re­cov­ery.

That’s not the only prob­lem Ukraine faces.

In the wake of the 2008-09 global fi­nan­cial cri­sis, banks are reluc­tant to lend, fear­ing more bad debt. This makes the na­tion’s largely un­di­ver­si­fied econ­omy’s de­pen­dence on ex­ports much more pro­nounced at a time when it needs to build up de­fenses to weather an­other eco­nomic re­ces­sion, said macroe­conomist Hugh.

So with the 65-and-over seg­ment ex­pected to rise to 7.6 mil­lion by 2020, those aged 0-64 will fall to 35.9 mil­lion with the largest con­trib­u­tors of in­come tax – peo­ple aged 15-64 –ex­pected to de­crease by 9.5 per­cent dur­ing 20112020, re­ported Euromon­i­tor.

This means dire con­se­quences for eco­nomic out­put and for the state’s bud­get to cover pen­sions and health care costs.

“Yes, due to the de­mo­graphic trap, the Ukrainian econ­omy can’t grow at 10 per­cent a year, but [will] range be­tween 3 per­cent and 5 per­cent, which seems plau­si­ble de­spite a shrink­ing la­bor force,” said Pavel Il­lashenko, a strate­gist at Astrum In­vest­ment Man­age­ment.

How­ever, Il­lashenko as­serts that the num­bers ex­ag­ger­ate the eco­nomic con­se­quences for Ukraine. He said pro­duc­tiv­ity and in­vest­ments will in the first place mat­ter much more for eco­nomic growth than de­mo­graph­ics. As for la­bor, Il­lashenko said the na­tion’s la­bor short­age ex­isted be­fore the fi­nan­cial cri­sis and only con­cerns qual­i­fied la­bor.

“This is the re­sult of rapid eco­nomic changes and the la­bor force’s low mo­bil­ity – for ex­am­ple, the qual­ity of ed­u­ca­tion in Ukraine is ex­tremely low and this is a real threat for fu­ture eco­nomic growth,” added Il­lashenko.

But Hugh warned that although a la­bor short­age is good for boost­ing con­sumerism due to ris­ing wages – monthly wages grew on av­er­age 13.1 per­cent year-on-year in real terms be­tween 2001 and 2011, ac­cord­ing to na­tional sta­tis­tics –in­fla­tion could rise if not ac­com­pa­nied by pro­duc­tiv­ity im­prove­ments and hit ex­port per­for­mance upon which Ukraine’s econ­omy heav­ily re­lies.

Busi­ness com­mu­nity lead­ers said there’s a way to even­tu­ally re­verse the ail­ing trends.

Euro­pean Busi­ness As­so­ci­a­tion Di­rec­tor Anna Derevyanko said goals must be set to im­prove health, ed­u­cate a skilled work­force, pro­vide pro­fes­sional de­vel­op­ment op­por­tu­ni­ties, shield house­hold and per­sonal in­comes and en­sure bet­ter pen­sions plans.

There are signs that the eco­nomic sys­tem is be­gin­ning to im­prove. Dragon Cap­i­tal’s chief econ­o­mist Olena Bi­lan said in­vest­ments started to pick up in 2011, ris­ing 21 per­cent over the pre­vi­ous year in real terms.

“This sug­gests Ukraine is in­creas­ing la­bor pro­duc­tiv­ity by in­vest­ing in new tech­nolo­gies,” Bi­lan said.

And im­mi­gra­tion could com­pen­sate for the nat­u­ral pop­u­la­tion loss said Verikaite, and “en­sure pop­u­la­tion sta­bil­ity in the short-term per­spec­tive and even would lead to its growth in the long term per­spec­tive.”

How­ever, Verikaite pointed out that this is an un­re­al­is­tic sce­nario since Ukraine doesn’t have at­trac­tive eco­nomic and so­cial con­di­tions for im­mi­grants.

Although any new pol­icy ac­tion taken now won’t pro­vide pos­i­tive ef­fects soon, U.N. Pop­u­la­tion Fund Coun­try Di­rec­tor Nuzhat Eh­san said Ukraine can in­ex­pen­sively start to­day to pro­mote healthy life­styles among re­pro­duc­tive-aged men, the seg­ment in the worst de­mo­graphic sit­u­a­tion.

“This can be ad­dressed eas­ier than (the na­tion’s) fer­til­ity is­sue, which is not be­ing given enough at­ten­tion,” said Eh­san. “There are things that can be done about high mor­tal­ity, the sit­u­a­tion is a bit dis­mal, the fo­cus is too much on num­bers and de­pop­u­la­tion…that’s not the right way to look at things; the qual­ity of life should be ad­dressed.”

The U.N. of­fi­cer said that low qual­ity of life, such as ac­cess to ser­vices, af­fects ev­ery seg­ment of the pop­u­la­tion in­clud­ing peo­ple who don’t get to live “to a ripe old age like in Europe” and the young “who are leav­ing in droves han­ker­ing for a bet­ter life.”

Eh­sand added that women could be do­ing a lot more on the la­bor end but due to the “sticky floor and glass ceil­ing” phe­nom­ena in Ukraine, they don’t have the level of par­tic­i­pa­tion and qual­i­fi­ca­tion that they should.

Stud­ies have shown, Eh­sand said, that in­cen­tives to pro­mote fer­til­ity don’t amount to any­thing, it’s the over­all sense of “well­be­ing and what you can give to your chil­dren, and this means hous­ing, em­ploy­ment, and rec­on­cil­ing work with fam­ily life.”

To do this, Eh­sand ex­plained, fo­cus on pol­icy di­rec­tion is needed that in­te­grates pop­u­la­tion is­sues into pol­icy pro­grams on all gov­ern­ment lev­els, start­ing with a na­tional plan. But to do this qual­ity data is needed in­clud­ing more col­lec­tion of re­li­able pop­u­la­tion data.

But the last time Ukraine con­ducted a pop­u­la­tion cen­sus was in 2000. And So­cial Pol­icy Min­is­ter Sergiy Tigipko re­cently post­poned the next one un­til 2013, three years over­due.

“It’s ex­pen­sive, a cen­sus would cost $2.50-$3.00 per per­son (some $135 mil­lion), un­for­tu­nately (the gov­ern­ment) gives it so lit­tle pri­or­ity,” said Eh­sand.

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected] com.

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