NBU Governor Ms Valeria Gontareva said information that “over 600,000 Ukrainians will be laid off due to the minimum wage increase”, which was circulated by some media that cited a report released by the National Bank of Ukraine, is incorrect.
Estimates presented in the research box of the Inflation Report (January 2017) prepared by NBU experts based on a number of assumptions and concerned the official employment figures rather than “layoffs” (p. 33).
The minimum wage increase up to UAH 3,200 was accompanied by a number of tax amendments, including a requirement for sole proprietors that are engaged in activities to pay social security contributions (SSC)
This document also presents the structure of registered employment (p 31). In particular, sole proprietors and employees employed by sole proprietors account for 19% (about 2.3 million people) of the total number of officially registered employees (12.1 million people).
According to NBU estimates, a reduction in the number of officially registered employees will be mainly attributed to the winding up of businesses run by inoperative sole traders (according to publicly available data, about 160,000 of them had already closed down their businesses as of mid-January 2017).
Overall, in 2017, the number of employees employed in the formal sector is expected to decline by 9%, partially due to the abovementioned effect (5.4%) and demographic trends toward a reduction in the number of economically active population.
The minimum wage increase will have a number of positive effects.
Ms Gontareva underlined that it would encourage stronger domestic consumption and consequently boost economic activity, fueling labor demand and leading to higher employment in the future.
In addition, the minimum wage increase will provide incentives encouraging the discouraged unemployed that have stopped looking for work due to the lack of incentives to return to the labor market.
Overall, the NBU expects the minimum wage rise to spur a 0.5% increase in GDP growth.
It is the minimum wage increase that prompted the NBU to revise its GDP growth forecast upwards to 2.8% in 2017.
“The minimum wage increase along with further progress in implementing structural reforms in Ukraine will have a positive effect on employment in the long run,” concluded Ms Gontareva.