The Impact of Labour Migration on the Ukrainian Economy

This paper reviews evidence on the main economic impacts of the post-2014 wave of labour emigration on the economy of Ukraine, based on an overview of international and Ukrainian studies and surveys. Emigration reduces labour supply and pushes up wage growth for workers who stay in the country; one of the issues of concern is a skills waste – most of Ukrainians abroad work outside their qualifications or in very simple jobs. The main benefit for the Ukrainian economy is linked to an inflow of remittances equivalent to 8% of GDP. Remittances significantly improve the welfare of migrants’ families and stimulate domestic demand, pushing up the GDP in the country and playing a counter-cyclical role. A stable and substantial inflow of remittances contributes to a more sustainable balance of payments, counterbalancing permanent trade and investment income deficits. The impact of emigration and remittances on Ukraine’s public finance is mixed: remittance inflows lead to increased VAT, excise and customs revenues, while reduced labour supply diminishes revenues from labour taxes and social security contributions in Ukraine. The policy recommendations for the Ukrainian authorities include encouraging migrants, especially the skilled ones, to invest in, and return to, their home country; creating a more attractive business environment for this purpose (and beyond); a better use of the workforce remaining in the country through stimulating employability; improving social aspects of the Ukrainian migration, especially encouraging higher social security coverage of migrants.