Experience versus labor shortage: can older workers save Ukraine’s economy?
2 March 14:59
Back in 2019, experts from the International Monetary Fund (IMF) in their report Demographic Headwinds in Central and Eastern Europe assessed how population aging would affect the economies of 20 countries in Central, Eastern, and Southeastern Europe by 2050. Among them is Ukraine.
The key conclusion: the rapid aging of the labor force could significantly slow down total factor productivity (TFP) growth, an indicator that determines the efficiency of labor and capital use.
This was pointed out by Alexander Kostyuk, head of the Virtus International Research Center, according to "Komersant Ukrainian".
Ukraine: from a “young” workforce to the middle of the list
According to the report, in 2015, the share of workers aged 55 and older in Ukraine was 11.8%. By 2050, this figure could almost double to 21.4%.
In 2015, Ukraine had one of the youngest labor force structures among the 20 countries surveyed, second only to Turkey (9.4% of workers aged 55 and older). By the middle of the century, Ukraine is expected to move closer to the middle of the ranking in terms of aging.
Experts note that a full-scale war after 2022 could further exacerbate the demographic imbalance due to migration and population loss.
What is TFP and why is it important?
Total factor productivity (TFP) is an indicator that reflects how effectively a country converts labor and capital into output. According to estimates from the early 2000s, on average, 60% of production growth per worker is driven by TFP growth.
According to IMF calculations, the aging of the workforce could slow TFP growth in the region:
- in Central, Eastern, and Southeastern Europe — by 0.38 percentage points annually in 2020–2050;
- in Western Europe — by 0.34 percentage points.
Ukraine has one of the worst forecasts in the sample: the expected annual slowdown in TFP growth is 0.58 percentage points by 2050. Greater losses are forecast only in a few countries, notably Moldova (0.8 percentage points).
For comparison:
Slovakia — 0.8 percentage points,
Romania — 0.45 percentage points,
Poland — 0.33 percentage points,
Hungary — 0.3 percentage points
Does experience compensate for the loss of young workers?
One of the key findings of the study is that the growth in the proportion of older workers does not compensate for the labor shortage. Experience is important, but it alone cannot stop the slowdown in productivity.
According to experts, the solution is to invest in human capital:
- education at all levels,
- lifelong learning,
- the development of science,
- creating incentives for young people to stay and work in the country.
War as an additional risk factor
The IMF forecast was made before Russia’s full-scale invasion of Ukraine. War can accelerate the aging process through emigration, population loss, and structural changes in the labor market.
This means that the challenges for the economy may turn out to be even greater than anticipated in 2019.
