Labor Market in Wartime: Demographic Challenges for Ukraine

Labor demand and supply

With the mass departure of citizens abroad, internal displacement, and mobilization, the workforce shortage is increasing  in Ukraine. According to UN estimates, the number of Ukrainian migrants worldwide is 6.7 million people, primarily women and children. Of these, approximately 1.7 million were employed in Ukraine before leaving, representing 10.6% of the economically active population before the full-scale invasion. According to NBU surveys, 44% of enterprises in 2023 faced staffing difficulties due to the mass reduction of employees related to mobilization and 24% due to migration.

Data from a survey by the European Business Association also indicates a growing workforce shortage: as of April 2024, 74% of surveyed employers experienced this issue (+19 percentage points compared to fall 2023), while only 7% of businesses reported no shortage (-5 percentage points). According to the survey by the State Employment Service of Ukraine (SESU), 26.7% of enterprises faced a workforce shortage in 2023, while NBU survey data puts this figure at 36%. 

The reduction of the labor force in 2023 by approximately 40% compared to 2021 (according to NBU estimates) is attributed to factors such as demographic losses, people transitioning to economically inactive status, difficulties for IDPs in finding work, the occupation of part of the territories, the need to care for other family members, and the lack of skills required in the labor market.

Unemployment and qualifications

According to NBU estimates, the unemployment rate remains high, although it has decreased from 21% in 2022 to a projected 14% in 2024 (Figure 1). It is important to note that before 2022, the State Statistics Service of Ukraine provided official unemployment data based on regular household surveys. However, these surveys were discontinued due to the war, making accurate assessments more difficult. Therefore, current figures are based on selective surveys and labor market modeling.

Unemployed individuals are seeking jobs, but their skills and qualifications do not always match employers’ requirements. Surveys show that 16% to 18% of employers face the issue of insufficient qualifications among applicants for open positions. 

The unemployment rate among IDPs is higher than the general population. According to the Ministry of Social Policy of Ukraine, there are 4.7 million registered IDPs in Ukraine, 42.3% of whom are of working age. As of September 2023, only about 800,000 working-age IDPs, or 38%, were employed. The survey by the IOM conducted in April 2024 showed an increase in employment among working-age IDPs: 45% were employed, and an additional 7% were self-employed at the time. IDPs themselves cite the lack of job opportunities in their new locations and a mismatch between their qualifications and labor market demand as reasons for unemployment. Furthermore, when IDPs move to areas where schools operate online, or there is a shortage of kindergartens, women typically cannot work. 

Overall, the war has increased the role of women in the labor market. Firstly, 67,000 women are currently serving in the Armed Forces of Ukraine (AFU), which is 40% more than in 2021, and the number of women officers has increased sixfold. Secondly, the share of women among job seekers and entrepreneurs has also risen. In the first quarter of 2024, 58.8% of registered individual entrepreneurs were women, which is 7.8 percentage points higher than in the corresponding period of 2021 (Figure 2). Among job seekers on the private service Work.ua, women make up 59%.

The regional and qualification imbalance in the labor market requires strategic approaches to ensure alignment between employers’ expectations and job seekers’ capabilities. At the Ukraine Recovery Conference, the government, along with international partners, announced the launch of a three-year program called “Skills Alliance for Ukraine.” This initiative is aimed at retraining and upskilling Ukrainians, particularly in sectors such as construction, transportation, IT, engineering, and healthcare. The first projects are already underway. Over the next three years, EUR 700 million is planned to be allocated for these purposes. The funding for this program will come from around 50 countries, international partners, donors, and business community members. This amount is significantly more than the state can allocate for its own employment programs. Nevertheless, the number of state programs remains quite substantial.

The work of the State Employment Service of Ukraine (SESU)

Due to the full-scale war, many people have lost their jobs. However, the number of registered unemployed in the SESU has significantly decreased: in January 2023, there were 166,000 registered unemployed, which is half of what it was in January 2022. By the beginning of 2024, the number of registered unemployed had further decreased by nearly 40% to 101,400 (Figure 3). This decline is related to significant migration, as well as the fact that some men do not register as unemployed with the SESU due to outdated military conscription data or fear of mobilization, which prevents them from seeking official employment. Another reason for the reduction in registered unemployment is the shortening of the unemployment benefit period during martial law from 360 to 90 days. For internally displaced persons (IDPs) who have lost documents needed to obtain unemployment status and for young people who have just completed their education or service, the benefit period was reduced from 180 to 90 days. The benefit period was reduced from 720 to 360 days for people of pre-retirement age.

In 2024, there has been an increase in the share of IDPs among registered unemployed (17.3% in 2024 compared to 8.9% in 2023). This is due to new regulations for IDPs receiving subsistence allowances, which require non-disabled individuals without employment to register with the SESU. According to a survey by the SESU, 75.8% of employers see no barriers to employing IDPs, 73% stated that their company does not require support, and 13.8% consider wage subsidies a priority for stimulating IDP employment.

SESU data shows a growing interest among employers in hiring veterans and people with disabilities, as these are often individuals with work experience and a lower risk of mobilization. In 2021, Ukraine had 2.7 million people with disabilities, and since the full-scale invasion, their number has increased by approximately 10%. However, the number of employed individuals with disabilities grew by only 297 people in 2023, reaching 403,500. Given that at the beginning of 2023, 86.7% of people with disabilities belonged to the second and third disability groups, the issue of employment for this population is critically important. Employment will contribute to the economic independence of these individuals, their social integration, and the utilization of their professional potential, which is especially valuable amid the current labor shortage. 

In 2024, the share of people with disabilities among those who received employment and training services from the SESU was 5.6%, only 0.3 percentage points higher compared to 2023. According to an SESU survey, 60.3% of employers see no obstacles to employing people with disabilities. However, 18.3% of employers noted that individuals from this category do not apply for jobs at their companies. Additionally, 7.8% of employers identified unprepared workplaces as a key barrier to employing people with disabilities, while 4.9% pointed to a lack of quality services and infrastructure. Meanwhile, data from the OLX platform, which features various listings, indicates that only 9% of employers are willing to hire individuals with disabilities.

Currently, there are about 1.2 million veterans in Ukraine, 800,000 of whom are combat veterans, while the rest are war-disabled individuals and other war participants. The share of combat veterans among SESU service recipients is 2.5% (10,100 people), which is 1.6 percentage points higher than in 2023. However, a study conducted by the Ukrainian Veterans Foundation, the Ministry of Veterans Affairs of Ukraine, and Work.ua in July 2023 showed that 57.1% of veterans and service members did not seek help from the SESU in finding a job. 

According to an SESU survey, 65.9% of employers do not see obstacles to employing veterans. However, 18.8% noted that veterans do not apply for jobs. A survey by Work.ua revealed different results: 62% of employers have no experience in hiring, interviewing, or considering veterans for jobs. This is mainly because most veterans are still engaged in combat or remain in rear positions. Many veterans who are no longer on active duty are either of non-working age or have disabilities. After the war, veterans will represent a significant portion of Ukraine’s population and potential workforce. Additionally, most veterans plan to engage in entrepreneurship: 62.9% of military personnel intend to start their own business after demobilization, 11% already own a business, and 50.1% of demobilized veterans who are not currently serving aspire to develop their own ventures.

The government introduced several programs to support the unemployed and employers in stabilizing the labor market during the war. These initiatives promote the creation of new jobs and that support employment for IDPs, veterans, and people with disabilities. The programs include business grants, employer incentives, the involvement of unemployed individuals in socially beneficial work, and financial support for adapting workplaces for people with disabilities. An essential component of this support is the retraining and skills development programs designed to maintain the competitiveness of certain population groups.

Employment support programs administered by the SESU and funded by the State Fund for Compulsory State Social Insurance of Ukraine against Unemployment (State Unemployment Insurance Fund)

• The eRobota project offers grants for starting a business, developing entrepreneurship, and training, including microgrants for creating personal ventures, funding for processing enterprises, horticulture, and greenhouse farming, as well as funds for launching startups, including in the IT sector and IT training programs. The project is implemented by the Ministry of Economy and aims to stimulate entrepreneurial activity and create jobs.

As of September 2024, in the two years since the launch of the eRobota project, nearly 19,600 entrepreneurs have received grants totaling UAH 9.3 billion, enabling the creation of 55,000 jobs. Of this, UAH 4.2 billion (17,800 microgrants) were issued under the Vlasna Sprava (Own Business) grant program, UAH 3.7 billion (743 grants) to processing enterprises, UAH 1 billion (231 grants) for horticulture and greenhouse farming, and UAH 366 million (806 grants) for veterans.

The Vlasna Sprava program is one of the key components of the eRobota project. Its target audience includes entrepreneurs, veterans, war-disabled individuals, and veterans’ spouses. Under the Vlasna Sprava program, microgrants ranging from UAH 50,000 to UAH 250,000 are provided for the following commercial and production purposes: purchasing furniture, equipment, and vehicles; acquiring licensed software, raw materials, goods, and services (up to 50% of the microgrant); marketing and advertising (up to 10%); renting premises and land (up to 25%); renting equipment (up to 10%); and leasing equipment (up to 50%). Grant recipients receiving up to UAH 75,000 are not required to create jobs. However, if a grant is between UAH 75,000 and UAH 150,000, one job must be created, and for grants between UAH 150,000 and UAH 250,000, at least two jobs must be created. For entrepreneurs registered and planning to operate in the Kharkiv region, the grant amount can be increased by up to 100%, with a maximum grant size of UAH 500,000.

The veteran component of the Vlasna Sprava program provides grants ranging from UAH 250,000 to UAH 1 million for veterans or individuals with war-related disabilities and from UAH 250,000 to UAH 500,000 for their spouses. The amount of financial support depends on the number of jobs created (ranging from 1 to 4). For grants between UAH 500,000 and UAH 1 million, veterans must have been registered as individual entrepreneurs for at least three years and fund 30% of the project themselves. This ensures the state selects grant recipients with entrepreneurial experience willing to venture their own funds.

In 2024, the most popular business sectors in the Vlasna Sprava program included wholesale and retail trade and vehicle repair (35%), temporary accommodation and food services (16%), and processing (13%). Among veterans and their family members, the most popular business areas were trade and repair (27%), manufacturing (16%), cafes and bakeries (15%), and services (8%). 

Sixty percent of participants of the Vlasna Sprava program are women. The majority of businesses operate as individual entrepreneurs, which account for 76% (Figure 3). The prevalence of individual entrepreneurs is attributed to simplified registration, favorable taxation, low business operating costs, and management flexibility.

• Vouchers for training and retraining are available to certain categories of citizens to help maintain their competitiveness in the labor market. The program allows individuals to acquire new professions or enhance their qualifications in various fields, such as medicine, education, culinary arts, driving, and more. Eligible recipients include individuals over 45 years old (before reaching retirement age), veterans, IDPs, people with disabilities, and those affected by military aggression or who have been through captivity. Voucher recipients must already hold a vocational or higher education and not be registered as unemployed with the SESU. They must not have received training funded by the State Unemployment Insurance Fund in the last three years. The voucher amount does not exceed UAH 30,280. As of the end of August this year, 15,600 individuals received training vouchers totaling UAH 114 million. In 2023, 18,100 people participated in the program, with a total of UAH 252 million allocated.
• The wage subsidy program for employers hiring IDPs, introduced in April 2022, aims to increase employment and support the adaptation of displaced people. Employers receive compensation for employing IDPs for three months or six months if the IDP has a disability. The payments are funded by the Social Security Fund for Unemployment. The compensation amount equals the minimum wage, which has been UAH 8,000 since April 2024. In the first quarter of 2024, the government paid employers UAH 78 million in compensation for hiring 7,000 IDPs.
• The compensation program for employers to equip workplaces for people with disabilities in groups 1 and 2 was introduced by the Ministry of Economy in 2023. The program aims to promote the employment of individuals with disabilities by removing workplace barriers. Under the program’s conditions, employers can receive compensation for adapting workplaces: 15 times the minimum wage for people with group 1 disabilities (up to UAH 106,500 in 2024) and 10 times the minimum wage for group 2 disabilities (up to UAH 71,000 in 2024). Over nearly a year since the program’s launch, 854 employers have equipped 949 workplaces for employees with disabilities and received almost UAH 63.1 million in compensation from the state.

What are the long-term plans?

The issues in the labor market caused by the war and the demographic crisis require a comprehensive approach. The government recognizes these challenges; all measures are part of a systematic, long-term strategy. Employment challenges are thoroughly addressed in the draft Demographic Development Strategy of Ukraine for the period until 2040. Among other initiatives, the government proposes creating a supportive environment for families with children, enhancing their economic independence, reducing premature mortality by improving public health and healthcare quality, attracting talented migrants, bringing back those who have left Ukraine, developing regions, promoting longevity, supporting older people, ensuring a safe and eco-friendly environment, improving infrastructure, and increasing social cohesion within Ukrainian society.

To address the structural unemployment problem, the Ministry of Economy, with the support of international organizations and businesses, is implementing retraining and upskilling programs, adapting educational programs to labor market demands, and promoting vocational training. Plans include the modernization of the SESU, which will shift to a service-oriented model and establish partnerships with training companies, recruitment agencies, and social organizations. The SESU will evolve into an analytical center for labor market forecasting and the development of support programs while continuing to handle personnel recruitment, unemployment training, and the implementation of government programs. Additionally, SESU vocational training centers will be reformed into modern learning spaces to prepare skilled workers. 

Conclusions

Ukraine is facing several complex challenges in the labor market, including labor shortages caused by migration and mobilization. At the same time, unemployment remains high, with many internally displaced persons struggling to find work in their new locations due to a lack of job opportunities and infrastructure. A significant factor contributing to the labor shortage is the slow return of migrants, influenced by security risks, adaptation abroad, and the resumption of labor migration. In 2024, there has been an increase in job vacancies and a reduction in unemployment. However, the mismatch between candidates’ qualifications and labor market requirements continues to complicate the situation.

Participation by specific social groups in the labor market is also shifting, with women playing an increasingly important and active role. Interest in involving veterans and people with disabilities in the labor market is gradually growing, but this process requires additional measures.

For effective post-war recovery, Ukraine must bridge the gap between the population’s existing and necessary skills while addressing both high unemployment and the shortage of qualified workers. According to the Ministry of Economy, the labor shortage over the next decade is estimated at around 4.5 million people. Retraining and upskilling programs for Ukrainians, such as the Skills Alliance for Ukraine, will be crucial in reducing unemployment and filling the shortage of skilled workers.

Key factors in shaping the labor market will include the return of people to their previous places of residence (if safe), the reintegration of veterans, the expanded participation of people with disabilities, and the increased involvement of women. Achieving these goals will require joint efforts from businesses and the government, focusing on creating an inclusive environment, improving job accessibility, providing training for new skills, and supporting women’s professional development, especially in traditionally male-dominated sectors. Expanding childcare infrastructure will also be critical. The government has already initiated relevant projects, but these initiatives need to be scaled up to achieve significant results.