Juggling the numbers. Why the average salary in Ukraine is growing, while life is getting worse
by Alexey Kushch, January 11, 2022
The original article: https://focus.ua/opinions/502806-zhonglery-ciframi-pochemu-srednyaya-zarplata-v-ukraine-rastet-a-zhit-vse-huzhe
I chose to translate this article because the author does a great job at clearly explaining the socio-economic realities of Ukraine today. I also like his comparison of Ukraine with Albania, where similar processes of social stratification as a result of labor migration to EU nations are taking place. Finally, his conclusions regarding the small social basis of the post-2014 political regime are important. It brings to mind how, according to polls, only 22% of Ukrainians support a non-diplomatic (military) resolution of the conflict.
The current indicator of the average salary in Ukraine is a reflection of the income of only 40% of those employed in the economy. All the rest, mainly in the service sector and in small business, were left out of statistical data.
Against the background of a rise in real prices for 2021, the situation with the average salary in Ukraine looks more than sad.
What could possibly be in common between the "rightist" chairman of the Council of People's Commissars of the USSR in the 1920s, Alexei Rykov, and the current Ukrainian government?
As it turns out, a passion for comparing current performance with ‘13. Only in the USSR it was compared with 1913, and in present-day Ukraine - with 2013. But in any case, it turned into a kind of fetish or a way of healing societal psychotraumas - if we can return to the level of ‘13, then all the victims weren’t in vain. On the other hand, any lag behind the "13th" is perceived as a kind of mute reproach.
Recently, the Ministry of Economy announced that Ukraine reached the 2013 figures in terms of export volumes. True, without taking into account the global inflation of the dollar, which for the indicated period amounted to more than 20%, and for some groups of our export goods, even more than 30%. In addition, in 2013, the entire Donbass and Crimea were part of Ukraine’s export potential (approximately 20% of export indicators).
In any case, the inflationary factor here clearly outweighs the effect of the loss of a part of industrial assets, especially given that export growth over the past seven years has been recorded in the purely raw material segment of grain, sunflower oil and iron ore, and here the industrial potential of Donbass no longer plays a critical role.
Another example of comparison with ‘13 is the size of the average salary, which in 2021 reached $500 per month and surpassed the indicators of the times of Yanukovych. Let's note right away - we are talking about gross salary, that is, before tax.
If we compare our indicator with similar data in other neighboring countries, then we must remember that our taxation of labor (excluding USC[1], which is charged on the general wages fund at the enterprise) is 19.5%: 18% income tax and 1.5 % military tax. In neighboring Russia, for example, income tax is 13%, and there is no military tax at all.
But let's look a little deeper. The State Statistics Service calculates the average salary for companies with more than 10 employees. The calculation base is 7 million employees out of an economically active population of 17 million. That is, this is the salary of a minority that does not take into account the small and medium-sized business sector and a significant part of the service sector.
The lower the number of employed in the country as a whole, the higher the proportion of "juicy" sectors: finance, IT, natural resource extraction, the public administration sector.
That is, the current indicator of the average salary in Ukraine measures the income of only 40% of those employed in the economy. All the rest, mainly in the service sector and in small business, were left out of the statistics.
This is a classic erosion of the middle: the fewer low-paid workers (whose salaries are minimized by the employer by means of unofficial payments in envelopes) in official statistics, the higher the influence of "juicy sectors" on the average will be.
With such dynamics, when in Ukraine only Naftogaz[2] remains of the operating enterprises, the average salary in our country will even come out on top in world rankings, overtaking Switzerland.
A similar situation, by the way, has arisen in another European country that is competing with us for the status of the continent's poorest economy - Albania. In 2020, the gross salary there was $540 per month. But only for those who got into the official statistics….
In addition, the State Statistics Service in the numerator of the calculation formula takes the general wage fund, including part-time workers, and divides it by the number of permanent workers, which also distorts the overall picture even within the above-mentioned minority of workers.
That is why the median salary is not considered in Ukraine, which, as a rule, is one and a half times less than the average. The indicator of the average salary in Ukraine is largely formed by the data of state-owned companies, the public sector, foreign companies and financial and industrial groups.
This is confirmed by industry analysis. In agriculture, the wage level is only 76.5% of the average. In trade - 90%. In the hotel and restaurant business - 48.2%. In construction - 81.6%. In education - 82%.
But in the field of information and telecommunications - 159.4%, in finance - 161.1%, in the public administration system - 159.7%. If we take industry, then in the processing industries (which are the basis of industrial production, acting as a kind of intersectoral "lift"), here wages sit at 90% of the average. In the food industry - 82.4%, in the textile industry (theoretically, a sector with one of the highest levels of added value) - 59.7%. But in the pharmaceutical industry - as much as 177.4%, in the energy sector - 162.1%.
In fact, the further the destruction of the industrial core of the economy proceeds, the more "prominent" is the influence of several flagship industries that are still afloat: pharmacy, IT, finance, energy, extraction of natural resources.
If in the past, the share of these highly profitable industries was diluted by the large “portions” of basic industries (processing, food, textile), now, as they die off, the "common pot" becomes shallower, exposing the "pieces of meat" remaining at the bottom.
To this we can add a "bloated" budgetary sector with "bonuses" and a banking system that earns mega-profits "on the crisis", that is, on government debts and certificates of deposit from the National Bank of Ukraine. Plus the mining industry, since the price of iron ore on world markets broke all records in 2021.
In addition, nominal incomes need to be compared with nominal expenditures, with the level of utility tariffs, and with other household expenditures. After all, if in chess one’s weakness is revealed by the checkmate, then in business and personal income - in profit. In simple words, a combination of income and expenses. What is the use of high income, if the costs are even greater and at the finish line you find yourself in deficit.
In this regard, it is interesting to analyze the data of the State Statistics Service on changes in the real disposable income of Ukrainians. After a sharp drop in 2014-2015 (-11.5% and -20.4%), this indicator showed a "rollercoaster to zero": if in 2016 it grew by 2%, and in 2017-2019 it increased by 9-10 %, then in 2020 it again dropped to the level of 2016 – falling by 2.6%, having decreased by more than three times compared to 2019. In 2019-2020, growth in the population's savings became negative: -0.4%.
That is, an ordinary Ukrainian is left with a "donut hole" in his or her income: utility bills and food eats everything else up.
And this is confirmed by the dynamics of household savings in banks, which at the end of 2021 amounted to only UAH 630 billion, or 13% of GDP, although in developing countries this figure exceeds 30%.
In the Russian Federation, household funds in the hryvnia equivalent amounted to 11.5 trillion hryvnia or 29% of GDP. Funds deposited in the banks of the Russian Federation are almost 17 times higher than the same indicator of the population's investments in Ukrainian banks.
If we analyze the structure of the population in Ukraine by the level of average per capita equivalent total income, then we will see that only 3.2% of Ukrainians receive more than 12 thousand UAH ($432) a month. And 84.7% of the population must remain content with a per capita income of UAH 8,000 ($291) per month or less.
By the way, UAH 8-9 thousand. according to expert estimates, is the real median gross salary in Ukraine, that is, 50% are paid below this value and 50% - above.
Now - political conclusions from the dry statistical data.
The indicator of the minimum wage demonstrates the model of the "new social segregation" that is being introduced in Ukraine. Approximately 10% of Ukrainians receive more than 90% of residents in neighboring countries.
And this is precisely our problem - after all, these 10% are the social support and basis of the current political regime, that of the past, Poroshenko's, that of the present, under Zelensky.
These are exactly the 10% who applaud the increase in tariffs and the phrases about children "of the wrong quality."[3] These are exactly the 10% who stigmatize everyone else as "paternalistic and sovoks[4]". These are the 10% who are ready to step on human freedom if it is not backed up by personal "monetization". It is from this camp that ideas are heard to limit the voting rights for those who do not pay taxes or to abolish pensions.
We have a semantic abyss between the 90%, and the super-rich 10% who make money on the rest of the population.
The strategic goal of the current political regime is to shield the above-mentioned 10% from democratic procedures by turning the elections into a fiction or a media farce (elections without a choice).
This is what happened in Ukraine in 2019 , when the politicians changed (and even then partially), but the POLITICS did not change. This is also the basis of a new social segregation, which cuts off the majority from governing the country with the help of mechanisms for suppressing social activity, instilling collective apathy and frustration.
A model of hidden "political apartheid", in which the minority rules the majority, skillfully speculating on their fears and expectations. Social capital in Ukraine is split like a shattered mirror. And the official indicator of "average salary" is the best confirmation of this.
[1] Unified Social Contribution
[2] The state gas and oil company
[3] Earlier in 2021 there was a scandal when a deputy from the ‘Servant of the People’ party in charge of social politics, Galina Tretyakova, said that ‘low-quality children’ should be avoided by following the lead of Singapore in sterilizing women without a higher education.
[4] ‘Sovok’, which means literally ‘dustpan’, is a common derogatory term for ‘homo sovieticus’, who are stigmatized as lazy, waiting for handouts for the government, and unenthusiastic for market reforms, as well as often ‘pro-Russian’ (read: not ethnonationalist enough).