The labor shortage in Ukraine has reached a historic high—69% of companies cited it as the main obstacle to doing business during the war, according to the Institute for Economic Research and Policy Consulting (IER), based on the results of its 49th monthly survey, which the IER conducted among 469 industrial enterprises.
“For several months now, the ‘labor shortage’ obstacle has been breaking records. This obstacle has remained in first place for over a year and a half, reaching a high of 69% in May. Businesses are concerned about the shortage of workers,” said IER Senior Research Fellow Yevhen Angel.
In May, there was a slight decrease in the difficulty of finding qualified workers—the share of enterprises that found it harder to recruit such workers fell from 62.3% to 60.6%. It is more difficult to find unskilled workers—for 38.4% of respondents in May, compared to 34.3% in April.
Only 2.4% of businesses plan to increase employment over the next three months, while 5.1% plan to place employees on mandatory leave.
“Rising prices for raw materials, supplies, and goods” remains the second-biggest obstacle—the figure fell slightly from 56% to 49%.
The share of those concerned about “unsafe working conditions” has decreased slightly: this issue has become an obstacle for 44% of businesses, down from 46% in April, allowing it to hold third place for the fourth consecutive month.
The pattern of “unsafe working conditions” as an obstacle remains consistent across enterprise size. Medium and large enterprises are more likely to cite this problem—48% and 47%, respectively, in May—as they are more likely to be targeted by enemy attacks.
“From a regional perspective, this obstacle is particularly acute in frontline and central regions—over 80% of respondents in the Kyiv, Vinnytsia, Odesa, Zhytomyr, Zaporizhzhia, and Dnipropetrovsk regions cited it. In the west of the country, this obstacle is less relevant. The only exception is Rivne Oblast,” Angel said.
However, there have been noticeable changes regarding two other obstacles. The obstacle “decreased demand for products/services” rose from 26% to 38%. In addition, logistical difficulties have intensified, as evidenced by the increase in the obstacle “difficulties in transporting raw materials or finished goods across Ukraine” from 24% to 30%.
No significant changes were recorded for other obstacles. “Corruption” and “unlawful demands or pressure from law enforcement or regulatory agencies” remain “in the shadow” of the main obstacles—only 7% and 3% of respondents, respectively, mentioned them in May.
“The relevance of the obstacle ‘power outages’ remains at a relatively low level—20% in May—when compared to the winter attacks on our energy infrastructure,” Angel said.
It is noted that 31% of businesses temporarily suspended operations due to power outages in April, but mostly for short periods of time. At the same time, 41% of businesses operated continuously despite the outages. Already, 28% of businesses experienced no power outages, up from 20% the previous month.
Average working time losses amounted to 4% in April. The greatest losses of working time were observed in micro and small enterprises (57%); by industry, in the chemical industry (6%); and by region, in Kyiv (13%) and Sumy (9%) regions.
Assessments of the government’s economic policy remain neutral. “A large share of enterprises provide neutral assessments; specifically, 64% of respondents did so in May. The share of positive assessments remains low at 6%. At the same time, the share of negative assessments stands at 25%, and this gap between positive and negative assessments has persisted since the summer of 2023,” Angel summarized.
Up to 500 Ukrainian industrial enterprises located in 21 of Ukraine’s 27 regions participate in the IED’s New Monthly Enterprises Survey (#NRES). The survey has been conducted monthly since May 2022.
According to the European Business Association, 75% of companies report staff shortages, and the State Employment Service’s (SES) Unified Job Portal has registered over 200,000 open positions, said Minister of Economy, Environment, and Agriculture Oleksiy Sobolev at The Jobs & Skills 4 Ukraine Forum on Thursday.
“We can see how much the labor market has changed, with 75% of businesses facing a labor shortage. The government must address this. That is why we are developing a labor market forecasting system that will serve as the foundation for state funding of education and training, retraining programs, donor investments, educational programs, and employers’ hiring decisions,” the minister emphasized.
According to him, the new employment policy should be based on several key points. First, it involves data on which professions, skills, and qualifications the economy will need not only today but also in five or ten years. Second, if an employer needs certain skills, the government, education providers, and partners must help people acquire those skills. Third, a more inclusive labor market. Fourth, a new level of partnership with the business sector.
The business environment continues to reduce the number of employees and aggravate the problem of finding qualified personnel, which may become a key factor for the Ukrainian economy in the next months.
These are the main results of the New Monthly Enterprises Survey (#NRES) of the Institute for Economic Research and Policy Consulting (IER).
According to them, in May the rating of obstacles for business has not undergone significant changes. The top three among them have remained unchanged for several months: the danger of working (an obstacle for 56% of respondents), labor shortages (49%), and rising prices (46%).
“56% said that the danger of doing business is the biggest obstacle – and such a high figure was not even at the beginning of the war. Large businesses complain most about this. Also, the problem of electricity supply has been actualized again: compared to April, twice as many businesses complain about it (21% – in April, 41% – in May),” the study quotes the words of IEI expert Eugene Angel.
At the same time, the IEI noted that for the first time in two years the percentage of Ukrainian industrial business operating at full capacity exceeded 15% and amounted to 18% in May, while in April the figure was 13%.
In addition, the percentage of companies that find it difficult to guess what will happen to operations in two years has decreased – from 38.2% in April to 30.9% in May.
The two-year uncertainty rate has been gradually declining since February of this year. Then it was 50.6%, now it is 30.9% and it is the lowest value since October 2022.
The IEI emphasized that a clear trend of stagnation or decline in positive expectations for the two-year period is noticeable.
“That is, businesses understand what they will be doing in two years’ time, but they don’t see that future as positive. Most likely because it is getting more and more used to the view that the war will last a long time,” explained Oksana Kuzyakiv, executive director of the IEI.
At the same time, she added that assessments of the financial and economic situation at enterprises and the general economic environment are growing in the six-month perspective. Accordingly, respondents do not expect deterioration of the situation either at their own enterprises or in the country’s economy as a whole.
Enterprises have had a stable order book for more than three months for almost a year now. The average term of new orders in May amounted to 3.4 months, which is slightly longer than in April (3.3 months), but corresponds to the level of March this year (3.4 months).
In addition, the Business Activity Recovery Index (BAI) increased from 0.33 to 0.40 (on a scale of -1 to +1) in May 2024 compared to April. As explained in the IEI, this was due to an increase in the proportion of businesses that reported that their business activity was better than in 2023, from 45.3% in April to 55.4% in May. Meanwhile, 15.1% (12% in April) said business activity had worsened, with nothing changed for 29.4% (42.7% a month earlier).
The May NRES survey included 534 Ukrainian industrial enterprises of all sizes located in 21 of Ukraine’s 27 regions. The field phase of the 25th wave of the survey lasted from May 20 to May 31, 2024.
