Conscription and migration reduced the labor force by more than a quarter

Lack of staff is becoming a major problem for Ukrainian businesses. Conscription and migration have reduced the workforce by more than a quarter, according to a Bloomberg article.

The mobilization law, which came into effect in May, aims to add hundreds of thousands of soldiers to the Ukrainian army. However, the lack of able-bodied men and women is becoming a burden for large and small businesses, which are the backbone of the wartime economy.

It is becoming a conundrum for the government to find a balance between replenishing the Armed Forces and ensuring that the shortage of people does not harm the country’s economy.

The problem is only going to get worse, Bloomberg notes, as the Russian invasion is now in its third year. Ukraine will be forced to fill the gap left by millions of people who have fled the country, joined the army, or died in combat. As the Ukrainian military struggles to hold the front lines against a new Russian offensive, Ukraine’s economy, which has lost a quarter of its output since the invasion began, risks further weakening due to layoffs.

According to NBU deputy governor Serhiy Nikolaychuk, the drop in economic output against 2021 due to staff cuts will be about 27% of pre-war levels. In addition to the more than 6 million people who fled the war, the situation is complicated by men who have disappeared into the shadow economy and are evading mobilization.

This is a political challenge that cannot be overcome with the help of allies. People are a limited category that favors Russia with its vast resources.

Metinvest Group, which employs nearly 60,000 people and is seeking to fill 4,000 vacancies, has faced the problem of finding workers for the open-hearth production of Zaporizhstal.

Tatiana Petruk, the company’s director of sustainable development and human resources, said that the search for 89 employees took three months of intensive work. In peacetime, it would have taken a month. Before starting to restore production facilities damaged during the war, the company must first recruit staff.

“Not raw materials, not equipment, not machinery — the priority issue is who will work and whether we can find these people,” Petruk said.

The process is also complicated by the fact that men are reluctant to work for large companies that are targeted by the Territorial center for recruitment and social support. According to Petruk, once military registration and enlistment offices “handed out summonses at the checkpoints – even to our job candidates.” She noted that about 15% of Metinvest’s employees have been mobilized.

According to a survey conducted by the Kyiv-based Institute for Economic Research and Policy Consulting in early 2024, the problem of staff shortages ranks second after rising costs for Ukrainian companies. About half of the respondents said they were experiencing staff shortages.

The shortage of staff results in a sharp increase in wartime salaries. Employers are raising payments to retain their employees. Despite inflation falling to 3%, down from 27% at its post-invasion peak, the NBU noted this phenomenon in its report, predicting that price-adjusted wages will exceed pre-war levels next year.

The law on mobilization gives businesses critical to the economy the opportunity to keep their teams together by allowing them to reserve up to 50% of their employees from being drafted. But Ukrainians are already experiencing problems.

Yulia Kuzenkova, project manager at Kyiv-based recruitment agency Resorcer, noted that companies are increasingly hiring men as contractors or suppliers. Many are also hiring women for positions that were previously held primarily by men.

Tetyana Petruk noted that the deficit could have a domino effect: the tax base will decrease, which will ultimately harm the military objectives. Businesses will be forced to cut production.

As GMK Center reported earlier, according to an April study by the European Business Association in partnership with Tetyana Pashkina, a labor market analyst, almost three quarters (74%) of employers in the country are experiencing a shortage of staff.