NBU: unemployment growth pace could accelerate after increase of minimum wage

The National Bank of Ukraine (NBU) has said that the unemployment growth pace in the country could accelerate after increasing minimum wage since early 2017 from UAH 1,600 to UAH 3,200 a month.

"According to the NBU, growth of expenses on remuneration of labor, especially for small and medium businesses would result in a larger reduction of employment than it was predicted earlier," the central bank said in its inflation report.

According to the NBU, the reduction of official employment will be disproportionate: the decline will be mainly seen due to small and medium-sized enterprises (SME) and individual businessmen along with the almost double increase in tax pressure on enterprises that pay single tax. The general number of employees of the formal economic sector in 2017 could narrow by 9% compared to 2016.

The NBU said that the expected reduction of employment could be compensated by the increase in informal employment.

In general, employment in Ukraine in 2017 would fall by 5 percentage notches compared to 2016, which will be equal to 10% level of unemployment using the International Labour Organization (ILO) methods.

The central bank said that unemployment expectations in the country contributed to the decrease of business expectations index from 109.2% in Q3 2016 to 108.7% in Q4 2016.

The press service of the NBU reported, referring to NBU Governor Valeriya Gontareva, that the increase of minimum wage would have several positive effects. It would stimulate growth of internal demand and economic activity. Demand on workforce would increase and it would entail the increase in employment rate in the future.

She said that the positive effect from growth of minimum wage on GDP in 2017 would plus 0.5%.