Researchers have used alternative data sources to gauge economic growth and its ingredients (e.g. exports, private consumption, and investment) since the war in Ukraine resulted in the suspension of official statistics (Behrens 2022, Blinov and Djankov 2022, Constantinescu et al. 2022, Skok 2022). There have been some attempts to use labour market data obtained from employment service websites or general business surveys (e.g. National Bank of Ukraine 2022) to capture wages and jobs trends. However, these approaches depend on small and possibly biased samples. For example, using the number of job openings as a proxy for labour demand is problematic, as changes in these numbers might be caused by various factors, some of which are not connected to labour market trends (for a critique of such methods, see Kureková et al. 2014). On the other hand, using business surveys to assess employment dynamics surely underestimates the employment problems caused by closed or dormant businesses.
We use wage payments data made available by one of Ukraine’s largest commercial banks to proxy national wage payments. This method avoids some of the problems with other available methods and can be considered complementary. We are also able to complement obtained results with national fiscal data to generate estimates of employment losses during the war.
Ukraine’s labour market overview
We first report basic facts about Ukraine’s pre-war labour market. In 2021, Ukraine had 7.1 million hired workers participating in the official national payroll. This number does not include employees at micro-businesses, unofficial employment, and people providing services as private entrepreneurs. The latter categories are significant in Ukraine, employing over five million workers, but not covered by official wage data. Also, it is important to note that payments to military servicemen, which have been an increasingly important factor in household disposable income during the year 2022, are also not included in the payroll statistics.
The national wage payments do not closely mirror GDP statistics in terms of sectoral contributions. For instance, in agriculture, much of the labour is employed in ways other than official workers, and thus its share in national payroll was just 5% in 2021 (Figure 1). At the same time, most of public sector services like public administration, healthcare, and education use labour almost solely in the form of hired workers, with the combined share of these sectors being as high as 31%.
We use monthly data on wage payments processed in 2021 and 2022 by Sense Bank, one of Ukraine’s biggest commercial banks. As the bank is a privately owned institution in a financial sector dominated by state-owned banks, there is a significant tilt in its wage processing business towards private enterprise. Thus, we divide our data into two major categories: the private economy and the public sector, according to the division of the national payroll (Figure 1).
Figure 1 Ukraine’s payroll breakdown in 2021
Source: State Statistics Service of Ukraine, authors’ calculations.
The private economy payroll has significant coverage in the Sense Bank data, both in terms of volume and sectoral distribution. We treat estimates based on these data with a high level of confidence. Coverage of the public sector is less robust but still captures the wage payments trend.
Comparing average wages in 2021 and 2022
The private economy started 2022 with vibrant nominal average wage growth of about 20% year-on-year in January. In February, when the war erupted, many businesses supported their workers with advance payments or compensations for being out of work, accelerating nominal wage growth to 34% year-on-year. However, that buoyancy quickly turned into a plunge of 20% year-on-year in April. By the summer, the nominal wage decline stabilised at around a 9% decline year-on-year, improving to an average decline of 6% in the first months of autumn.
Most sectors had similar trends in February-March but diverged strongly in the summer (Figure 2). The trade sector managed to maintain its average nominal pay above that in 2021. The manufacturing sector has also fared better than the average in the private economy. In the energy sector, wage dynamics have been very volatile. Other sectors fared worse, with their average nominal wage declining as much as 34% year-on-year in October.
Figure 2 Productive economy average nominal wage, year-on-year change in 2022
Source: Authors’ calculations based on commercial bank payments data.
Over the year, the private economy saw its average wage roughly the same as in the respective period of 2021. In real terms, wage payments declined fast after adjusting for inflation. Over the course of the year, the decline in the real average wage for the private economy stood at 15%, deepening to 27% year-on-year in October.
The public sector payroll has been more resilient to crises compared to the private sector. The general trend has been smoother, with the sector’s payroll regaining substantial growth in the summer and recording nominal wage growth rates over 20% year-on-year in July-October (Figure 3). In October, the growth rate accelerated to 28%, led by wage increases in the healthcare sector. Over the course of 2022, the public services sector averaged nominal wage growth at 16%. In real terms, that corresponded to a decline of 2%, with real wages in October keeping up with the pace of inflation.
Figure 3 Average nominal wage in two key sectors, year-on-year change in 2022
Source: Authors’ calculations based on commercial bank payments data.
To combine these two sectors into a national estimate, we use the national payroll structure presented in Figure 1, with the ratio for productive economy and public service segments at 69:31. We also make an adjustment for inflation, deriving real average wage change for the economy (Figure 4).
Figure 4 Average wage in Ukraine, year-on-year change in 2022
Source: State Statistics Service, authors’ calculations based on commercial bank data.
Over the ten months of 2022, nominal wages increased 5% (Figure 4). However, in real terms wages dropped 11% over January-October, experiencing a deep 21% year-on-year decline in the second quarter of 2022. Despite accelerating inflation, their decline has stabilised at around 18% since July, supported by the recovery in nominal wages.
Job loss estimates
The change in the national payroll consists of two components: (1) the change in wages and (2) changes in the number of hired workers. Unfortunately, bank data on the number of wage earners are contaminated by factors other than their entry or exit from the workforce. Workers and employers might also be changing their wage processing banks. Moreover, wages might migrate from electronic bank transfers to cash handouts. To address these possibilities, we use fiscal data from the Consolidated Budget of Ukraine on personal income tax (PIT) revenue. This tax is universal, being levied on all official wages. There have been no significant changes in personal income taxation rules in 2021-2022, making it a consistent proxy for national payroll. And taxes are normally being paid at the very moment when wages are received by a worker, implying that there is no time lag in reporting.
Tax data are thus a direct proxy for assessing national payroll dynamics. We have personal income tax data until September 2022, which limits our employment estimates to that period. These data show that the payroll trend was in line with average wage prior to the invasion, but these have two diverged significantly thereafter (Figure 5).
We derive the change in the number of hired employees from the personal income tax change, also using our average wage estimates obtained above. We interpret the steep 22% decline in March as the result of advance payments in the first days of the invasion, which created strong data turbulence as explained earlier. Many employees who received advance payments did not receive wage pay-outs for some time later, creating further noise in the data. This noise recedes in the summer and fall, with hired employment being 11% below its 2021 level in June-August and accelerating its annual decline to 13% in September.
Figure 5 Tax, wages, and employment in Ukraine, year-on-year change in 2022
Source: openbudget.gov.ua, authors’ calculations based on commercial bank data, and national fiscal data.
Our estimates based on commercial bank data show that average pay for hired employees in Ukraine is now slightly above its 2021 level. However, there is a significant divergence between the productive economy and public service sector. This divergence has the potential to create labour market discrepancies and to cement higher fiscal redistribution in the economy and chronic dependence on public procurement (Bosio et al. 2022) and tax incentives (Djankov et al. 2010). Optimising public expenditure is hence one of the primary tasks after the war.
We also estimate that 13% of officially hired workers lost their jobs since the start of the 2022 war. The data show that the job loss trend has gained some momentum in the latest month with available data. This finding suggests that the economy has not turned the corner and that job-support measures should be high on the Ukrainian government’s policy agenda.
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