V.Yurchyshyn EU-Ukraine relations: the role of the civil society… EU-Ukraine relations: the role of the civil society Session 3: The social impact of the economic crisis. V.Yurchyshyn, Razumkov Centre in cooperation with LMDU (Sida)

1 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Real average wage Index, beg. 2006р. = 100

2 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Summary Macroeconomic Data yoy % (e)2010 (f) GDPCPIGDPCPIGDPCPI Euro area0,73,3-4,20,3 0,8 Switzerland1,82,4-2,0-0,40,5 Bulgaria6,012,0-6,52,7-2,51,6 Latvia-4,615,3-18,03,1-4,0-3,5 Poland4,94,21,03,42,22,6 China13,05,99,0-0,18,50,6 Ukraine2,125,2-14,016,32,710,3 IMF World Economic Outlook, Oct.2009

3 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Structure of average monthly total resources per household

4 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Losses and imbalances of wage policy: increasing social tension in the society due to the fact that the percentage of the population with subsistence income makes one third of the total number; with existing low-cost labor the interest of owners and employers in introduction of new techniques and technologies is undermined; decline in employees’ motivation for highly-productive labor, skills improving and updating; aggregate demand remains weak;

5 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Losses and imbalances of wage policy (cont.): low salaries have a negative impact on the increased economy capitalization, housing market development the depletion of intelligence and “brain drain” take place - qualified professionals leave education, science, and health care spheres, thus, sharply limiting the development of human capital; as a rule, such results are “favourable” factors for extension of corruption, contraband of inexpensive and poor-quality goods etc.

6 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Average wage and min cost of living

7 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Credits and deposits of households, UAH m

8 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… … to make social and wage policy successful and effecient: higher level of national economic development – more the economy is interested in the highest average level of labour income of population, diversity of needs and preferences of domestic consumers. And vice versa, the lower the economic efficiency is, the less goods and services are produced, the poorer their range and quality is, the more essential is the direct “need” of the economy in steady low consumer incomes of the population. Moreover, in this case economy is interested in unsophisticated needs of customers, underdeveloped consumer interests;

9 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… … to make the salary policy successful (cont.): amid the weakness of state institutions and technologically backward economy, the more intelligent and potentially more productive the labour is, as a rule, the lower it is paid (primarily, concerning research field). Moreover, low-paid labour of leading employees occupied in intellectual spheres and sectors - researchers, designers, engineers - disincentivises labour efficiency in the economy; artificially-low remuneration is an important factor in the degradation of labour. Under these conditions it (low remuneration) more serves the purpose of social support and can not be a factor of welfare and quality of life.

10 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… GDP – hope of recovery in the short term ? - Final consumption expenditure of households in the near future will not grow rapidly. Retail trade turnover continued to decline, indicating a further cooling of domestic demand and consumption. -Investments – current economic situation does not create incentives and preconditions for increasing capital investment/ - Net exports remain volatile and depends on the pace of recovery in the world economy, in particular the demand for key Ukrainian export. Rising energy prices (natural gas) can grow faster than prices of metal products. Imports stimulation in the case of aggregate demand growth in Ukraine.

11 V.Yurchyshyn EU-Ukraine relations: the role of the civil society… Risks of the post-crisis period for Ukraine -decline of domestic demand: significant decrease in household incomes, access to credits for businesses is hindered; for the export-oriented business – decline of foreign demand; - deinstitulisation of the economy. State measures to support economy inevitably mean substantial growth of the state’s role in business. This may result in politicisation and monopolisation of markets, curtailment of private initiatives.