In our second newsletter, we offer insights on what human capital is in present Ukraine and how Russia's invasion impacts the Ukrainian human capital.
🕑 3 min By Kevin Issah
1. Introduction
Human Capital is essential for the production factor of any country of economic life. Thanks to education and training, workers can acquire skills, working ability and experience. Therefore, an economy with highly skillful workers tends to be more productive than non-skilled workers. In the case of Ukraine, workers with physical capital play a significant role in the agriculture sector, given that it accounts for 12 % of the global wheat exports, 16% for corn, 18% for barley and 19% for rapeseed. The current ongoing war in Ukraine has very negatively impacted the labor force in Ukraine and has been raising questions on how Ukraine can recover the supply side of its economy. But what was the situation before?
2. History
Before the Euromaidan and Revolution of Dignity between 2013 and 2014, Russia was the main trading partner of Ukraine, and played a significant role in the industrialization of the Donbas Region and the tourist industry in Crimea. The devastation of the Donbas and the accession of Crimea by the Russian Federation, which caused the overthrown of pro-Russian Viktor Yanukovych, raised the unemployment rate in the economy back to the post-Soviet Union.
The unemployment rate has fluctuated since then, but has never recovered to the pre-war level. It also means that workers have been losing their human capital stock that was enabling them to be eligible in the labor market. Hence, the Ukraine government intervened in the economy using fiscal stimulus to boost economic activity. The General government debt-to-GDP increased by 34.63% from 2013 to 2015 to stimulate the economy. Inflation also raised by 48.46%, and unemployment went up by 1.9% within the same timeframe. It illustrated that the increase in deficit did not contribute to fighting unemployment. Despite running GDP debt to stimulate the economy, Ukraine needed to cut public spending to repay its debt. Meanwhile, the government expenditure on education to GDP diminished by 1.7%. All in all, the lack of government investment in human capital distressed productivity and economic expansion in general.
Employers in the technology industry found it challenging to find qualified workers for specific jobs. At the same time, the conflict with Russia drove mass outmigration from Ukraine to neighboring countries such as Poland, the Czech Republic, Hungary, Slovakia, and Russia benefited from the migration of qualified workers.
The loss of labor and intellectual capital caused economic stress in Ukraine, making it difficult to return to the pre-war economic environment. On the other hand, for example, Poland benefited from intellectual gains from the Ukrainian workers, which in turn expanded their economy. Ukrainian students also planned permanently to study and live outside the country because of the conflict.
3. Current Situation
The recent Russian invasion of Ukraine in 2022 has led more than 12 million Ukrainians to flee their homes, with the top destinations being Poland, Romania, and Russia once again. This war caused economic and psychological stress to civilians, due to the fact that there was supply and demand shocks, many homes destroyed, and interrupted education. Vulnerable people, such as children who are victims of war, tend to have less education than their peers in non-war countries and are less productive later in their adult age.
An interesting question would be whether students would be able to have the same education standards as online education. Besides that, EU countries welcomed war civilians and provided harmonized rights such as the access to employment without a visa, housing, medical assistance and access to education. Most EU countries are back on-campus education after Covid. Hence, there would be expectations that the Ukrainians who relocated to Europe may have a better education than their counterparts who remained. However, because of uncertainty, we cannot determine whether they would return to their country, thus making Ukraine's labor market competitive, or stay in their host countries. It is eventually dependent on the rigidity of the EU countries' migration policies. For Ukraine, one of the many post-war issues it will have to face is: Will it be able to retrieve a stable labor market?
Written by Kevin Issah
June 2022
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