Labor Market Challenges Of An Aging And Shrinking Population In Ukraine

Ukraine is in the process of a serious demographic transition – a dramatic decline of the population along with its rapid aging. After a brief overview of demographic trends and recent labor market trends in Ukraine, this paper analyzes the implications of demographic changes for the labor market, in particular on labor supply and productivity. The labor force projections are estimated by combining population projections in 2010-2060 calculated by the UN with the labor force participation rate projections for 2010-2020 developed by the ILO and by applying several scenarios on the development of labor force participation rates over the 2021-2060 period. The projections suggest that, even under very optimistic scenario assuming an increase in labor force participation rates to over 90 percent in all 5-year age groups from 25 to 64 years by 2060, Ukraine is not likely to prevent significant decline of the labor force. The simulations of labor productivity demonstrate that it is possible to cushion the negative impact of these demographic changes on the living standards of population but significant productivity and technological improvements are needed. The Government of Ukraine can play a significant role in mitigating some of the negative effects of population aging through a three-layered policy approach: the fundamentals that support productivity and employment growth, adequate labor policies, and specific policies that induce higher labor force participation of older workers (active aging).