Efficiency of using labor in integration coordinates: experience of neighboring countries

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УДК331.5 Економіка

Institute for Economics and Forecasting, Ukrainian National Academy of Sciences, 26, PanasaMyrnoho Str., Kyiv, 01011, Ukraine

Efficiency of using labor in integration coordinates: experience of neighboring countries

Blyzniuk V.V., PhD. (Economics), senior research fellow, department of social economic problems of labour, Associate Professor, e-mail: vikosa72@gmail.com

Annotation

labor competitiveness social market

Keywords: employment, informal employment, nominal wages, sectoral wage differentiation, labor productivity, minimum wage, subsistence minimum of an able-bodied person, unemployment rate, unemployment benefit.

Анотація

Близнюк В.В., канд. екон. наук, старший науковий співробітник відділу соціально-економічних проблем праці ДУ “Інститут економіки та прогнозування НАН України”, вул. П. Мирного, 26, Київ, 01011, Україна, e-mail: vikosa72@gmail.com

Ефективність використання робочої сили в інтеграційних координатах: досвід сусідніх країн

Актуальним є дослідження особливостей становлення та розвитку ринкових відносин в трудовій сфері в країнах, які пройшли однаковий шлях з Україною. Проаналізовано динаміку індексу та субіндексів конкурентоспроможності в обраних країнах, що дозволило виявити спільні та унікальні характеристики і, відповідно, можливі шляхи пом'якшення суттєвих соціальних ризиків, визначити проблемні елементи функціонування ринку праці. Обґрунтовано, що найгострішими є проблема неефективної зайнятості та деформалізація трудових відносин. Так, для України та Молдови характерними є суттєва, необгрунтована диференціація оплати праці та поширеність неправових практик у трудовій сфері. Глибокий аналіз дозволив обґрунтувати, що зміна секторальних співвідношень зайнятості в Україні зумовлена не тільки економічними факторами, але й інтеграційними та дезінтеграційними процесами, що пояснює явища деіндустріалізації та дезаграрізації праці.

Аннотация

Близнюк В.В., канд. экон. наук, старший научный сотрудник отдела социально-экономических проблем труда ГУ “Институт экономики и прогнозирования НАН Украины”, ул. П. Мирного, 26, Киев, 01011, Украина, e-mail: vikosa72@gmail.com

Эффективность использования рабочей силы в интеграционных координатах: опыт соседних стран

Актуальным является исследование особенностей становления и развития рыночных отношений в трудовой сфере в странах, прошедших тот же путь, что и Украина. Проанализирована динамика индекса и субиндексов конкурентоспособности в избранных странах, что позволило выявить общие и уникальные характеристики и, соответственно, возможные пути смягчения существенных социальных рисков, определить проблемные элементы функционирования рынка труда. Обосновано, что наиболее острыми являются проблема неэффективной занятости и деформализация трудовых отношений. Так, для Украины и Молдовы характерны существенная, необоснованная дифференциация оплаты труда и распространенность неправовых практик в трудовой сфере. Глубокий анализ позволил обосновать, что изменение секторальных соотношений занятости в Украине обусловлено не только экономическими факторами, но и интеграционными и дезинтеграционными процессами, что объясняет явления деиндустриализации и дезаграризации труда.

For the Republic of Moldova and Ukraine, the recent quarter-century has been marked by huge social and economic transformations, while the directions of the changes in two countries are different. The collapse of the Soviet era and the emergence of market-based management took place against the backdrop of impoverishment of the majority of population and deepening property differentiation. There was a large-scale destruction of infrastructure, the redistribution of property, formation of private capital with a simultaneous multiple decline in output, especially in industry, rising unemployment and a drop in real incomes.

Either neighboring country experienced the above processes in different ways, because initially they had different potentials, and initially they chose different market transition strategies. For Moldova, active use of shock tools and rapid de-industrialization were characteristic. Ukraine, on the contrary, chose a gradual, slow transition to a market economy based on the goal of preserving and developing the existing industrial potential. Either country, in different historical periods has experienced a multi-vector political and economic influence of Russia. To date, both countries are facing a loss of part of their territories, and civil confrontation.

All of the above historical and economic aspects, as well as the revival of globalization, have left their imprint on social and labor relations and labor market in both countries. Taking into account the European orientation of either country, we analyze the current state of labor market, and identify commonalities and differences in the transformation of labor markets in the Republic of Moldova and Ukraine. At the same time, we consider specific of labor markets in the neighboring countries, such as Romania and Poland, which have satisfied their geopolitical claims through membership in the European Union.

Labor markets in Moldova and Ukraine. Globalization that is changing the world economy and affecting values creates various challenges to the labor markets in different countries. The global transformation of social and labor relations and the principles of government social policy are manifested in the crisis phenomena of “social state”, which means social equality and development of the middle class in the developed countries. At the same time, the emerging markets are looking for a compromise between a socially satisfied and efficient worker and commercialization of the welfare state. Those are the external determinants that define the development of labor markets and social and labor spheres in Moldova and Ukraine.

In this context, in either country, statements about the need to create an innovative model of economic development rarely go beyond slogans, so both economies are characterized by various non-concerted tendencies with the predominance of raw material based patterns that minimize the involvement of intellectual resource and human capital. Analysis of global competitiveness indicators [1] shows a worsening situation in Ukraine, Moldova and Romania, which is primarily due to the rampant corruption (the importance of this factor for Moldova - 20,6, Ukraine - 14,0), inaccessibility of financial resources (Romania - 16,6), tax regulation (Poland - 20,6), excessively rigid labor legislation (Poland - 14,1), and shortage of skilled labor (Romania - 10,4). As for the component indicator of competitiveness, in the context of the development of human capital (in terms of efficiency of the labor market), the situation in Ukraine seems better (73rd place out of 139) due to such components as labor compensation and productivity (42nd place), and labor costs (50th place). For Poland, Moldova and Romania, the most important determinant of this sub-index is the flexibility of wages (29th, 37th and 31st places respectively) while Moldova occupies a very low place (100th) in terms of labor costs (Poland occupies the 80th place, and Romania - the 6th place).

Statistics show that the growth of wages in Poland since the beginning of the 2000s has been rather insignificant (Fig. 1). Financial crisis and accession to the European Union have affected the dynamics of wages in Romania (their growth is insignificant and inflation is on decline), while in other post-Soviet countries, inflation is much higher.

Compared to those countries, the dynamics of nominal wages in Ukraine shows some positive trends, except for the period of the global financial crisis, when the growth of minimum standards and wages in the public sector was administratively frozen, as well as the growth of pay rate of the first category of the Unified Tariff Grid in the budget sector. In the Republic of Moldova in recent years, the nominal wage has been demonstrating a steady growth. Thus, in 2015 an employee's average monthly salary was 4538,4 lei, which is by 11% more than in 2014.

However, due to the devaluation of national currency, nominal wages in dollar terms decreased from $ 291,3 in 2014 to $ 241,2 in 2015, that is, by 50,1 dollars, or by 17,2%. In Ukraine, the rate of reduction in the nominal wage was even more significant, from $ 293 in 2014 to $ 193 in 2015, i.e. by $ 100, or by 34,1% [2]. As a result, for the first time in recent twenty years, the nominal wage in dollar terms in Moldova exceeded its level in Ukraine.

An important factor characterizing the wage system is the degree of wage differentiation. Among a number of indicators used to assess inequality at the national level are the upper, median and lower decile wage factors. Recent global trends in wage size and share, as stated in the ILO “Global Wage Report 2016/17: Wage inequality in the workplace” [3], should be viewed in the context of deepening wage inequalities arising from the rapid growth of high wages in the upper segment and wage stagnation in the middle and lower segments of the income distribution scale.

Increased inequality is primarily due to the “upward gap” of the most highly paid workers from the majority of workers, as well as the “downward gap”, i.e. increase in theBlyzniuk VV difference between workers with a median wage and low-paid ones. The signs of sectoral differentiation in labor remuneration in Ukrainian economic sectors have been traditional for many recent years and are significant in comparison with European figures [4].

Thus, in Ukraine, there is a significant deviation towards increase from the average salary in financial and insurance activities, in industry (at the expense of wages in the aviation industry), and in the field of information and telecommunications. Significantly lower than country average are the wages in education and health care, that is, exactly in those areas where reproduction and accumulation of human capital occurs (Fig. 2). A similar situation develops in Moldova. In 2016, while average monthly wage per one employee in information services and communications was 2,1 times the average in the economy, and in finances and insurance - 1,8 times, the average monthly salary per one worker in the field of art, entertainment and leisure services was only 66,6% of economic average, and in agriculture, forestry and fisheries - 66% [5].

In January 2017, hoping to decrease the shadow share of the labor market, Ukraine significantly and sharply raised minimum wage (from 1600 UAH up to 3200 UAH). However, in the budgetary sector, the size of the first tariff category was again frozen at 1,600 UAH, and changes were made in the economic content of minimum wage, which is now not a measure of the cost of simple unskilled labor, but only the minimum payment for a certain period of time.

Expected implications for the budgetary sector include, first of all, payment equalization due to the reduction of differentiation, that is, from 1 to 11 tariff categories, workers receive a minimum wage (for reference, teachers of all specialties can have a grade from 10 to 12, while the 1st category includes janitors, cleaning personnel etc.).

The Republic of Moldova maintains a low minimum wage. The problem is exacerbated by the existence of several levels of minimum wages:

A. The minimum wage for general use. It has a very limited scope and is used only to pay to certain categories of workers. For example, it is used to establish monthly remuneration of government representatives in the management bodies of state-owned enterprises and joint- stock companies, as well as enterprises with a predominance of state capital.

In 2001-2015, the minimum wage increased from 100 to 1000 lei per month, i.e. tenfold. The ratio of minimum wage to subsistence minimum of an able-bodied person indicates that, during 2001-2015, the amount of minimum wage covered the value of subsistence minimum by only 14-58% [6]. A similar trend is typical for the ratio between minimum and average wages. In 2015, the value of this ratio, which in the literature is referred to as Keitz index, was 21,7%.

At present, the Republic of Moldova in terms of minimum wages is inferior not only to developed countries, but also to many CIS countries. As of January 1, 2016, Moldavian minimum wage in dollar terms was $ 51, while in Belarus it was 124 dollars (2,4timeshigher), in Armenia - 114 dollars (2,2 times), in Russia - $ 86 (1,7 times), in Kazakhstan - $ 67 (1,3 times), and in Ukraine - $ 57 (1,1 times). Only In Tajikistan and Kyrgyzstan ($ 36 and $ 13 respectively), minimum wage was lower than in Moldova [2].

B. The guaranteed minimum wage in the real sector represents the minimum mandatory state-guaranteed wage, for work performed by an employee in the real sector. In Moldova, from May 1, 2015, the guaranteed minimum wage in the real sector was 1900 lei, and since 1 May 2016, it has been 2100 lei per month. This made it exceed the level of the subsistence minimum of an able-bodied person by 3,1% in 2015 and by 9,0% in 2016. However, these positive changes are clearly insufficient. According to the European Social Charter, the minimum wage should be set by the state at a level no less than 2,5 times the subsistence minimum. Thus, to achieve the recommended European level, a significant increase in the minimum wage is necessary.

Due to the extremely low minimum wage in Moldova and Ukraine, a significant stratum of the poor is preserved in both countries. In 2015, the proportion of employees who had wages below the minimum wage was 0,2% in Moldova and 4,4% in Ukraine (Table 1). For Ukraine, a positive fact is a decrease in the proportion of workers with wages below the minimum wage, from 5,2% in 2012 to 4,4% in 2015, i.e. by 0,8 percentage points. Moldova and Ukraine are characterized by the phenomenon of the working poor, when the availability of work does not guarantee the workers an exit from poverty. In fact, workers living below the poverty line are on the brink of survival. Many of them, trying to earn their living, are forced to work in several places to the detriment of their health.

As noted in the Global Competitiveness Report [1], for Ukraine and Moldova, in general, inefficiency and rigidity of the taxation of labor incomes is common: in term of this indicator, Moldova occupies 109th place, and Ukraine - 124th, for non-professionalism of management, the two countries occupy the 115th and 114th places respectively. But, in terms of the representation of women in the labor force, our countries are much ahead of their European neighbors, which however does not always mean a realized ambition, but often is a sheer economic necessity due to the very low living standards.

Table 1 Distribution of workers by the amount of wages in Moldova and Ukraine, % of total

Source: Global wage report 2016/17: Wage inequality in the workplace International Labour Office. (2016). Geneva: ILO.

The economic constraints on the development of the social and labor spheres of both countries are similar, but the institutional features that have developed are different. Differences and imbalances in the labor sphere, on the one hand, impart dynamism to the processes of the social and labor sphere, and on the other, strengthen the gap and the depth of stratification.

On the one hand, the peculiarities of the social and labor sphere and the presence of structural disproportions of employment represent limits to economic development, and on the other side they are a consequence of the processes of integration and globalization in the world. In this context, a sectoral analysis of employment in Ukraine and Moldova could be indicative. The sectoral structure of employment characterizes civilizational changes in the structure of the economy and the efficiency of economic employment policy in the country, which is manifested in changes in the shares of the primary, secondary and tertiary sectors in the GDP structure.

The long-term dynamics of the world economy testifies to a significant flow of workers from the sphere of agriculture, where almost 80% of the workforce were employed in the beginning of the industrial age, to the manufacturing industry, and later to the service sector. These tendencies of decrease in the share of those employed in the primary and secondary sectors are also observed in the structure of Ukraine's labor market (Table 2). The quantitative characteristics of the developments in the social and labor sphere of Ukraine and Moldova, namely the growth of the tertiary employment sector from 47,2% in 2000 up to 60,1% in 2015, and from 30,8% to 39,6%, respectively, could have been interpreted as a civilizational transition to the phase of post-industrial development, if we did not take into account the cause-effect relationships of those changes.

Thus, in contrast to the European countries where such shifts take place within a single economic system, in Ukraine and Moldova structural changes have occurred mainly against the background of the destruction of the old economic system. The existing sectoral differences deepened and aggravated the contradictions inherited from the previous system (being one of them the disparity of the sector structure of the economy)and a new restructuring took place as a result of the formation of the new system (changes in the value system, formation of new sectors, and changed demand structure on the domestic and foreign markets). The sectoral structure of employment in Moldova indicates a high degree of employment insecurity, as the share of agrarian employed remains very high. In 2015, the share of employed in agriculture was 28,4% and, unlike neighboring countries, tended to increase. Compared to 2010, the share of employed in Moldova's agriculture increased by 0,9 percentage points. This was a direct consequence of the privatization of land and the dominance of small-scale production in the agricultural sector, which is characterized by low added value and productivity. The lowest rates of employment in agriculture are observed in Poland (11,3%) and Ukraine (15,3%), where the rural residents' work in the agro-holdings has become a common phenomenon (Table 2).

Sectoral changes in the employment structure of developed countries were due to the flow of labor from secondary to tertiary sector as a result of the outstripping growth in labor productivity in industry and a higher income elasticity of demand for services than for goods. For Ukraine, however, the change in the ratio between sectors is not only due to purely economic factors, but as a result of the processes of integration and disintegration. Disintegration processes were the cause of the de-industrialization. This process, in Ukraine, began as far back as in the late 80s of the last century with the increase in the level of depreciation of industrial fixed assets, which in 1990 amounted to almost 48,7% compared to 37,4% in 1980. De-industrialization led to the redistribution of national income in favor of agriculture, and further structural changes caused de-agrarization.

Table 2 Employment distribution in Moldova, Ukraine and neighboring countries, %

Conclusions

The conducted research has shown that in the sphere of employment, the most acute problems in the Republic of Moldova and Ukraine are the widespread informal employment, the shortcomings in the wage system and unemployment.

1. Based on international experience, we propose the following measures to reduce informal employment in Moldova and Ukraine:

- preventive measures to simplify procedures, as well as reduce costs and restrictions that impede the creation and development of business;

- sanctions aimed at strengthening the oversight on and applying appropriate sanctions against those who benefit from hidden/shadow work;

- raising public awareness of the negative effects of informal employment.

2. In the area of labor remuneration, the following measures should be taken:

а)for the Republic of Moldova:

- to ensure the establishment of a minimum wage at the subsistence level of an able-bodied person;

- to develop measures for transition to the definition of a minimum wage in accordance with the principles of the European Social Charter (minimum wage cannot be less than 60% of average);

б)for the Republic of Moldova and Ukraine:

- to provide for the increase in the amount of the 1st category of labor remuneration for workers in the budget funded sector to the level of the subsistence minimum of an able-bodied person;

- to use as a reference point the tariff-wage proportion of no less than 50% as the optimal for the current state of the economy;

- in order to ensure the timely payment of wages, it is necessary to additionally envisage indexing of the amount of delayed wages by the employer in the amount of inflation that has occurred since the moment of the emergence of the wage debt;

- to develop and implement measures to bring closer the levels of remuneration for women and men (measures to promote women's carrier advancement, to upgrade their skills, to eliminate unjustified reduction of women's pay rate in comparison with men in equivalent jobs).

3. In order to reduce unemployment, it is necessary:

- to encourage the companies' activities on creating new jobs, first of all, in terms of tax privileges to the companies saving and creating economically expedient jobs;

to improve the mechanism of organizing paid public works in terms of increasing their social status, taking into account the region's needs in the development of socialBlyzniuk V.V.

infrastructure, implementation of national projects and financial support for unemployed citizens;

- promote youth employment through: professional advice and psychological support; vocational training; employment on permanent job; promoting business activities.

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Received on 15.11.17 and updated on 11.12.17

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