Real wages in Ukraine to exceed pre-war level by late 2024 – NBU

Real wages in 2024 will increase by 14% and will exceed pre-war level already at the end of this year, the National Bank of Ukraine (NBU) predicts in the October Inflation Report published recently.

"It is expected that [wages] will increase in the future due to significant competition between employers for labor. This, together with soft fiscal policy, will contribute to further growth in consumer demand," the NBU noted.

According to the document, the National Bank improved its forecast for real wage growth this year from 9.7% to 14%, and next year from 5.8% to 6.5%. In 2022, real wages decreased by 11.4%, after which they increased by 3.7% in 2023.

"The labor shortage continues to fuel the growth of wages. In particular, in the second quarter of 2024, on average, real wages increased by 17.6% year-on-year, and nominal ones – by 22.1% year-on-year. According to available indirect data, high growth rates of nominal wages continued in the third quarter," the NBU said.

At the same time, it noted that increased inflationary pressure led to a certain slowdown in the growth rate of real wages, although they still remained quite high and continued to support private consumption.

It is specified that after increasing by 17.4% last year, nominal wages will increase by another 21% this year, and by 16% next year.

According to the National Bank, the unemployment rate in the economy, which increased from 9.8% to 21.1% in 2022 and decreased to 18.2% in 2023, will continue to gradually decrease under the influence of growing demand for labor, but will remain above the level in the period before a full-scale invasion.

"It will be determined by the long-term preservation of imbalances in the labor market, primarily due to the limited supply of skilled labor, which will be affected by the consequences of the war, including difficulties in returning demobilized workers to work," the NBU noted.

The Central Bank added that unemployment will also be limited by migration processes and the subsequent adaptation of migrants to life abroad, which reduces the likelihood of their mass and rapid return to Ukraine. "Due to migration and changes in the economy structure, the impact of imbalances in the labor market will be uneven across regions and industries," the NBU believes.

In its updated forecast, the National Bank raised its estimate of the unemployment rate at the end of this year from 13.9% to 14.2%, and at the end of next year from 11.4% to 11.6%.

According to the Advanter survey cited in the report, in August 2024, enterprises were 71% staffed, including almost a quarter (23%) of enterprises with less than 50% of their staff.

According to the survey of enterprises conducted by the NBU in Q3 2024, the balance of responses on changes in the number of employees in the next 12 months remained negative: less by 10.9%, in particular, the share of those expecting growth was 12.3%, and a decrease was 23.2%. Enterprises of all types of activities expect a reduction in the number of employees, the largest number in construction (20% less), and the smallest one in trade (5.2% less).