Labor shortage tops business challenges for the first time in Sept – IER

For the first time, labor shortages due to mobilization or employees leaving the country ranked as the top obstacle for businesses in September, according to a monthly survey conducted by the Institute for Economic Research and Policy Consulting (IER).

According to IER data, 61% of surveyed enterprises reported this issue, though the figure was slightly higher in August at 63%. Nevertheless, it has now become the leading concern for businesses.

"For the first time since we started conducting these surveys in May 2022, labor shortages have become the number one issue limiting business operations in Ukraine," said Oksana Kuziakiv, Executive Director of the IER, during the presentation of the report.

At the same time, finding qualified workers is becoming increasingly difficult – 55.1% of entrepreneurs reported this in September (up from 52.6% the previous month), marking a new record. While finding unskilled workers is somewhat easier, it still posed challenges for 39.2% of respondents.

Business expectations for labor resources have also worsened. The share of companies planning to increase employment in the next three to four months dropped from 14.6% in August to 12.1% in September, while 9.8% planned to lay off staff, compared to 8% the previous month.

Meanwhile, the percentage of businesses planning to place more employees on forced leave significantly increased – from 3.8% to 13.9%.

The second biggest challenge for businesses was "unsafe working conditions," with 56% of companies citing it as a concern in September, up 10 percentage points from August.

"Interruptions in power, water, and heat supplies have become less of a problem since there were almost no outages in September," said IER expert Yevhen Angel.

According to IER, this issue dropped from first to third place in the list of business obstacles, affecting 45% of respondents in September compared to 65% in August.

The fourth biggest concern was rising prices for raw materials and goods, which affected 45% of businesses (down from 46% in August).

Angel also reported that corruption and pressure from law enforcement remain less significant issues compared to other more "everyday" challenges, with only a few percent of respondents citing them (6% and 2%, respectively).

However, the share of businesses that view the state as an "enemy" grew to 5% in September, up from 3% in the previous quarter, while 23% described the state as an "obstacle" (up from 20%).

The relative majority of businesses maintain a neutral view of the state's role, with 40% considering it a "regulator." None of the respondents called the state a "friend," and only 10% viewed it as a "partner." Nearly one in five business owners struggled to assess the state's role.

The IER also highlighted that the Business Activity Recovery Index (BARI) improved from 0.08 to 0.12 in September, with the indicator rising for all types of businesses – from micro to large enterprises.

Optimistic expectations for the next three and six months, as well as plans for the next two years, improved somewhat, driven by a significant increase in product demand.

The order book expanded compared to August, reaching its highest average value of 7.9 months (up from 7.1 months in August).

Additionally, the share of businesses reporting improved activity compared to last year increased from 28.3% to 30%, while the proportion of companies experiencing a decline in activity fell from 20.6% to 18%.

The September New Monthly Enterprises Survey (NRES) conducted by IER included 473 Ukrainian industrial enterprises located in 21 of Ukraine's 27 regions. The field phase of the 29th wave of the survey took place from September 16 to 30, 2024.