Ukraine Population and Fertility

This is the latest in a series of posts here at Demography Matters about population dynamics in Eastern Europe and the CIS countries. At the present time we are paying particular attention to these countries since their short term demographic situation seems so complex and it is important to get a much more general idea of the magnitude of the problem.

Today I am going to take a look at Ukraine. Now Ukraine may be considered to be an important strategic unit in the whole Eastern demographic puzzle, since many imagine that as labour supply runs out across the whole region, then countries as diverse as the Baltics, Poland, and Russia may be able to leverage Ukraine's population reserve to help them out of their difficulties, and hence that outward flows from Ukraine may serve to plug a lot of otherwise increasingly evident holes. People making this kind of assumption tend to forget three things.

1) The corrosive effect of long term lowest-low fertility on the numbers of people who become available in the labour market.

2) The fact that large migrant outflows produce labour shortages at home, shortages which when combined with a growing demand for new housing - which results from i) globally available non-local-currency denominated cheap credit and ii) a steady and growing return flow of remittances from those abroad - serve to push up wages rather dramatically

3) That these sending countries, and in particular as a result of the processes detailed in (1) and (2), do themselves start to experience fairly high rates of economic growth.

If we then look at how all of this is working out in the case of Ukraine, we find that:

1) The Ukraine economy has itself been growing quite rapidly in recent years (despite a slowdown in 2005), and indeed grew at an annual rate of near 7% last year, and at an annual rate of nearly 8% in the first six months of 2007.

2) As a result of the more rapid growth, employment is growing fairly rapidly, and official unemployment is now somewhere around 2.5%, while annual wage inflation is now in the 20 something percent range.

What we can deduce from the above is not that people will stop leaving the Ukraine for the west - this is unlikely to happen, since the wage differential is just too large - but rather that the Ukraine economy will itself need to import labour if it wishes to continue to grow at the present rate. And this problem is real, and exists in the here and now, and not set to arrive in 2025 of some other more or less exotic date in the future. I am putting things this way as I imagine much of the above will come as some sort of surprise to many people.

So Ukraine is not a bottomless pit, and the question is why?

Well to help us I found (using Google) a rather interesting paper which was presented at a recent Conference of the European Population Society. The title and authors of the paper are:

Demographic development of Russia and Ukraine: fifteen years of independence
by Sergei Pirozhkov and Gaiane Safarova

Now even though this paper is a comparison between Russia and Ukraine, it presents some very useful charts and graphs which will enable us to see almost at a glance the extent of the problem. What can be seen very rapidly from the first chart is that the total population of Ukraine is declining much more rapidly than that of Russia. In fact between 1989 and 2004 while the population of Russia decreased by about 2 per cent, for Ukraine the decrease over the same period was about 7.5 per cent. In absolute numbers terms Ukraine's population went from 51.7 million in 1989 to just over 46 million in 2006. In case this number means anything to you, Ukraine's population is currently declining at a rate of 0.675% a year, which is fast, very fast.



Now there are a number of reasons for this dramatic decline in Ukranian population, and one of these is fertility, which is currently in the 1.1 to 1.2 Tfr range, and as we can see, Ukraine's fertility actually dropped below that of Russia after 1997.




Now if we come to life expectancy we will find that a slighly different picture emerges, in that life expectancy (for both males and females) despite being very low (especially in the case of males) is actually slightly higher for Ukraine:



In fact, while Ukraine has one of the lowest fertility levels in Europe, it also has one of the highest death rates. In 2000, for example, the death rate reached 15.3 per 1,000 as compared with a 10.6 per 1,000 average rate for the countries of the European Union. Between 1991-2000 an increase in the death rate was recorded in practically all age groups (with the exception of the 1-14 age group), but this increase was especially pronounced among working age males. The death rate for the working-age group grew by a factor of eight in the years between 1991 and 2000, and the portion of the overall death rate which came from the working age group reached almost twenty-five percen.

In all but the oldest-old age groups the death rate for men significantly exceeds the death rate for women (and in some cases by a multiple of two or three), but the difference is especially noticeable in the 30-45 groups - ie in ages which still fall within the boundaries of the reproductive age.

High on the list of reasons for the high death rate among the working-age population are those factors which fall within the category known as "unnatural causes", by which we mean accidents, homicides and suicides. The main unnatural cause reflected in the death rate is suicide, and the rate of suicide has been growing constantly.

Other factors behind this high mortality are HIV/Aids and Tuberculosis. The incidence of tuberculosis more than doubled in the 1990s, and the death rate from TB more than doubled. About nine thousand people die from tuberculosis annually, more than 80 percent of these of working age (15 to 59).

At the same time according to opinions at UN AIDS and the WHO, Ukraine has the "most dramatic" epidemic of HIV/AIDS among all the countries of the former USSR. (Some background information on HIV aids in the Ukraine can be found on this WHO page).

The third factor influencing population dynamics is obviously migration, and again the comparison between Russia and Ukraine is revealing here:



Unsurprisingly what we can see is that while Russia has been a net migration receiver, in the case of Ukraine it has been nearly all a question of loss. Even more revealing is the net flow balance of migrants between Russia and Ukraine:



As can be seen, the balance has steadily trended towards zero. This does NOT mean that no migrants move from Ukraine to Russia, but simply that Russia can no longer count on receiving migrants from Ukraine as a net source of labour, since for every one person that enters another one comes out.

Obviously such diversity at the level of key demographic indicators leads directly to divergence in terms of the comparative population age structures. Ukraine therefore has a lower proportions of children than Russia (in 2003 the proportion of those in the 0-14 age group for Russia was 20.9%, while for Ukraine it was only 15.8%) and a higher proportion of elderly people(the over 65s in Russia constituted only 18.6% of the total population in 2003, while for Ukraine they constituted 21.3%).

If we return to fertility for a moment it is clear that the worst is far from over in Ukraine, and it is far from over in part for the reasons explained in this paper whose abstract I reproduce below:

The path to lowest-low fertility in Ukraine
Author: Brienna Perelli-Harris

Abstract
The phenomenon of lowest-low fertility, defined as total fertility below 1.3, is now emerging throughout Europe and is attributed by many to postponement of the initiation of childbearing. Here an investigation of the case of Ukraine, where total fertility - 1.1 in 2001 - is one of the world's lowest, shows that there is more than one pathway to lowest-low fertility. Although Ukraine has undergone immense political and economic transformations in the past decade, it has maintained a young age at first birth and nearly universal childbearing. Analyses of official national statistics and the Ukrainian Reproductive Health Survey show that fertility declined to very low levels without a transition to a later pattern of childbearing. Findings from focus-group interviews are used to suggest explanations of the early fertility pattern. These include the persistence of traditional norms for childbearing and the roles of men and women, concerns about medical complications and infertility at a later age, and the link between early fertility and early marriage.

That is to say - and for those of you who are familiar with the birth postponement process and the importance of the tempo-quantum distinction - the Ukraine still has a very low mean age at first birth by European standards (around 23) and thus very probably has many more years of postponement (and few recorder live births) in front of her. In other words Ukraine still has a long way to go in the current demographic transition, and as a result a real improvement in the birth rate may not be expected till average firth birth ages have settled at a new, and much higher, level.

So the future for Ukraine certainly looks none too promising, and fraught with difficulty, from a demographic point of view. As such I don't think anyone should be counting any too strongly on Ukraine as a major source for their labour force needs in the years to come.

Finally I would just draw attention to a number of articles - both online and from the English language Ukraine press - which have been drawing attention to the demographic threat which is posed by the migration phenomenon. Back in 2003 Global Voices blogger Veronica Khokhlova wrote general review article on the background situation and her feelings as a Ukrainian about this. The Ukraine Observer also ran a piece - by editor-in-chief Glen Willard - under the evocative title Ukraine is Dying, while in the same publication Volodymyr Senchenko has another useful piece on the newer patterns of labour migrationwhich have been emerging in Ukraine (as did Business Week here). As Senchenko points out, we don't really have too much detailed and reliable information about the true number of zarobitchany (or out-migrants):

There are no accurate statistical data about labor migration in Ukraine, the number of our workers abroad, their incomes and how much money they send to their families. Lots of studies have been carried out in this field over the past several years but they are often contradictory.

However:

Dr. A. Haidutsky of the National Bank of Ukraine has recently published results of his complex analysis of both official information and unofficial facts about the issue in an article in Dzerkalo Tyzhdnya (The Mirror of the Week), one of Ukraine's most reputable weeklies. As an economist, I can confirm that his study presents a very objective picture of labor migration and can be used by the government and international community.

According to Haidutsky, there are 4.93 million Ukrainian migrants abroad - not three million or seven million, as some experts suggest. This figure almost coincides with that published by the Organization for Economic Cooperation and Development in its recent report (4.8 mln).

Poland is Europe's second largest source of labor migrants after Ukraine. One million Poles have benefited from the membership of their country in the European Union, traveling all over the continent to find a better and well-paid job.

Ukrainians are coming to Poland to replace them. Hundreds of thousands of Ukrainian migrants live and work in Italy (500,000), Greece (350,000) and Portugal (260,000). They say they are treated with kindness and enjoy relatively good working conditions in those countries, particularly in Portugal. We knew very little about this faraway state until recently. Today thousands of Ukrainians learn Portuguese and master professions that are in popular demand in Europe's westernmost country.


Update

Following a point made by Aslak in Comments about the slightly improving birth level in Ukraine, I went over to Statistics Ukraine and knocked out a couple of Excel charts to give us an idea what is happening. The first of these makes comparisons over the January to May 5 month period, since this is the data for 2007 so far and it enables direct year on year comparison. As we can see there is a slight increase in the number of live births, and there are slight changes in the number of deaths, but the really striking thing is how the population is systematically declining even before we get round to the effect of migration.



Below I present a rough and ready chart showing the evolution of births and deaths since 1989. As can be seen the lines cross at the start of the 1990s, and since that time the rate of annual decrease has been substantial.



The bar chart below also indicates the rate of decline. This has leveled out slightly in recent years, but this breathing space is unlikely to be maintained for long, since as noted Ukraine's economy is growing, and so poor as they are they are getting better off. As a result of this they are surely spending more money on health, and life expectancy is surely increasing. This has two consequences. In the short run there are fewer deaths, and the dependency ratio rises.

On the other hand, and for reasons I have been explaining, the actual number of live births is unlikely to rise substantially, since after 2010 the momentum effect of having had fewer live births after the late 1990s will start to lock in (since there will be considerably fewer potential mothers, and the postponement effect will undoubtedly operate to bring Ukraine into line with Western European norms). So, simply put I am not optimistic on the birth front, and this situation will more than likely only worsen, at least over the next couple of decades.



Here (below) are a couple more "rough 'n ready" charts, this time on employment and unemployment. The first shows the quarterly evolution of the numbers of employed and unemployed in Ukraine since Q1 2005. There is nothing especially spectacular to note here, except that the total numbers of employed persons does not rise enormously, going from 20,270,000 in Q1 2005 to 20,537,000 in Q1 2007. Thus despite the fact that the Ukrainian economy is growing steadily, employment is not rising to anything like the same extent. In part this should (hopefully) reflect some sectoral shifts, and some increase in productivity (those people coming out of, and entering Russia, perhaps. It would really be nice to have a comparative skills balance sheet on this). But in part this reflects labour market tightening inside Ukraine itself. Wage levels - at least from the official data - seem to be rather volatile, but the trend is undeniably up, and seems to be running at an annual rate of increase of around 20% this year. Menatime the number of those who are unemployed heads steadily down.



The second chart shows the change in the numbers of unemployed by month for 2007. I have used the numbers registering with the employment agency as unemployed for this chart as there are, as in the case of most Eastern European countries, difficulties in getting through to the true meaning of the unemployment statistics. Still, it is a measure, and does give some indication of the tightening. Total numbers of registered unemployed have fallen from 790,000 to 640,000 in six months.



Now I want to close this post by stressing some points. Basically there is a danger here of interpreting what Claus and I are saying about the whole labour market situation across Eastern Europe in a very crude fashion, and we are trying not to do this. The rate of labour market tightening (and hence inflation) across all of Europe's economies depends in part on available labour. This affects both those in the EU (like Ireland, the Uk, and Spain) as well as those who are outside (like Russia, Croatia, Ukraine etc). The extent to which this tightening (and hence the wage inflation and the exhaustion of reserve pools) occurs will depend on two things. The rate of economic growth, and the rate of sectoral transition to higher value activities. Both of these are semi-independent variables which cannot be predicted from simply looking at population numbers and fertility. But they are only semi-independent, since lower population levels and ongoing low fertility (ie over 20 years or more) have an impact on the relative price of labour. This impact both slows growth, and encourages a transition to more capital intesive activity (as labour becomes more expensive). It should miss no-one's attention that just this sort of discussion is already taking place inside China, as people begin to worry that the cheap labour intensive product era may be coming to an end as labour market tightening begins to have an effect even there (and here).

So what Claus and I can hope to do in these posts is only very rough and ready back of the envelope stuff. But the problem is, even in these simple terms, evident. We are also paying particular attention to this issue, since we think it is an accessible one for most non-economists. ie for those of you who have difficulty reaching a decision about whether or not economies like Germany and Japan are becoming export dependent for reasons which are associated with population ageing. Or whether prolonged low fertility puts Italy's public finances at risk. I don't think you even need to have studied Econ 101 to get to grips with the fact that economies need labour to run on. Indeed I suspect that it is precisely because this problem is so comparatively simple that many of the more sophisticated economists out there have simply overlooked it. I mean nothing could be THAT obvious, now could it?

So what we have tried to do in these posts about Uzbekistan and Ukraine is navigate back up the river, to the "fish-stock" sources, to see if we can learn anything about what is happening, and to see if the suppositions of those who imagine labour supply will be abundant and plentiful over the next 5 to 10 years is a realistic one. Unfortunately, what we have found doesn't convince us of this at all. Of course, people will continue to leave Ukraine in search of higher paid work elsewhere.And Ukraine itself will not collapse or implode (at least over the time horizon we are thinking about it won't). Those people who leave will send money home, and those back home will spend that money (building houses perhaps), and the Ukrainian economy will grow pushing up wages and prices in the process, and ultimately, all of this will feed through to the UK, Ireland, Portugal, and elsewhere.

Why it's not a good idea to scare away the creative class

In a recent report, Wirtualna Polska emphasized how the large population of Polish emigrants is not only relatively young and well-educated, but not very likely to return to Poland despite retaining strong ties with Polish culture.

Polish emigration to the UK and the Republic of Ireland since the May 2004 entry into the European Union has reached 500,000 to 2 mln people, research firm ARC said in a report out Thursday.

The firm's base-line estimate is of 750,000 Poles in the UK and a third of that in the Republic of Ireland.

"Only half of the emigrants have realistic plans to return to the country, that is they plan to return within four years," ARC Rynek i Opinia Vice-President Adam Czarnecki said.

The average Polish migrant to the UK is relatively young and well-educated. Three-quarters of the emigrants are in permanent employment with half of those performing skilled manual work.

A fifth of the total work in construction, while the hospitality industry is the second-biggest employer. Over-qualification is a common phenomenon, with as many as 22% of Poles in manual jobs in the UK holding university degrees.

"What seems worrying is that mostly educated young people around 30 years of age are leaving Poland," ARC's Czarnecki said. "That could in future have a negative impact on the Polish economy and the country's development."

While Poland has been an exporter of people for centuries, the latest emigration wave stands in marked contrast with the earlier generations of Poles abroad. The young and educated emigrants take advantage of information technology to maintain what ARC calls "an illusion of closeness to family and friends."

Poles in the UK are also able to purchase familiar brands in the UK, with fully six in ten saying they "buy Polish" while abroad.

A similar proportion go online to keep up with news from the old country, while many also watch Polish television and listen to Polish radio. Of the Polish internet surfers in the UK and the Republic, nine-tenths use communicators to talk to their close ones back home.

Economic disparities--Poland's poverty, and western Europe's wealth--clearly are the biggest motivating factor. There's no question that if it's easier to earn funds for a better standard of material living in one areas of the world than in another, then barring state sanction migrants are going to go from the less favoured area to the more favoured area. Another, often overlooked reason for migration, however, might be found in the public cultures of the receiving and sending areas.

Last July, young Polish author Dorota Masłowska complained in the Guardian Weekly about the prospects for Poland's baby boom generation. Chances for good jobs and a decent standard of living mattered, but what Masłowska argued was the deciding factor for many potential emigrants was the new populist conservatism of the Kaczynski government.

In October 2005, Lech Kaczynski, the candidate for the rightwing party with the Orwellian name "Law and Justice", gained 54% of the popular vote in the presidential elections. I remember how my friends and I mourned that evening, how we sent each other texts: "It can't be true! This can't be happening!"

Polls showed that Kaczynski had mostly been elected by country people with poor educations. But what about the other half of society, what about the young people, who don't want to take an A-level in religious studies or take part in lessons on "natural methods of birth control"?

For me, what is happening in the political arena is simply obscene. And the weeks and months ahead look likely to bring new waves of unheard of political pornography. Underground clubs are being closed down. Programmes where someone intends to discuss fascism are taken off the air. Others are censored. One well-known feminist was practically lynched after she made a joke on a talk show about our so-called "rosary circles". In the name of national values, our president recently had a major row with the Germans because in some satirical paper they called him a "potato". We all blushed with shame as we watched him slugging it out day after day on TV.

At the same time he aims to introduce so-called "patriotism lessons" into schools. And since the leader of the "League of Polish Families" and "All-Poland Youth" became Minister for Education, measuring his success in stones thrown at demonstrators during "Equality Marches" (please note the hallucinatory quality of these titles), demonstrations by young people, students and teachers have become an everyday occurrence.

They estimate that 1 to 2 million people have recently left Poland. They are not the deranged pensioner brigade, the so-called "mohairs" in their fluffy hats. Those people feel very at ease in a Poland where every second person crossing the road is a policeman, and fewer and fewer drivers are jumping red lights, and hardly anyone puts their feet up on public benches any more or drinks beer in the park. At last.

The reason for the peace and quiet is that young Poles have packed their suitcases instead. And not just because of their lack of prospects, but because of all the extra law and justice.

Masłowska's view has some merit. Ireland, in the generation after independence, experienced both heavy emigration and a sustained decline in income relative to its European peers, to the point of partly depopulating during the 1950s. Conventional wisdom has it that the cause might be found at least partly in the decidedly conservative policies of the Irish state, preoccupied by the nationalist reaction to the independence and partition of Ireland and giving control over social policy and education to the Church and conservative nationalists in such a way as to hinder Ireland's shift from an idealized conservative rural society into a culture more typical of modern Europe.

Might Poland be following the pattern of mid-century Ireland? That the emigration began despite strong economic growth, and that the emigrants are still connected to Poland, suggests it could be. Since Masłowska wrote her article, between foreign-policy conflicts with Germany and Russia the Kaczynski government has gone on to attract criticism for its homophobic policies, including the illegal creation of a police database on Polish gays and the gay community and the dedication of units of the Health Ministry to helping people look out for gays, who will hopefully be cured--if they don't leave for Britain, that is. At the same time that the Polish government and its health ministry is trying to police the moral health of the Polish nation, and despite hoping to encourage a higher birth rate among Polish women in part to compensate for Poland's emigration, maternity wards in Polish hospitals are facing very serious problems, overstretched by the sheer number of women born in the baby boom of the 1980s--Masłowska's generation--who are starting to become mothers themselves.

To help the already stretched healthcare system, hospitals offer some services for additional fees and the government turns a blind eye on this practice.

In maternity hospitals it has become normal to charge women about 700 zlotys ($240) for painkillers during childbirth and some 900 zlotys for nursing care -- more than the equivalent of the minimum monthly wage.

But the difficulties have not discouraged the government from pushing its campaign for more births.

One traditionalist party in the ruling coalition wants to encourage more women to stay at home to have children and is also lobbying for a total ban on abortion in Poland, which already has some of the toughest regulations in Europe.

"The politicians think that forcing women to give birth to all children -- healthy, sick, wanted and unplanned -- will increase the natural growth," said Monika Rejer, a midwife in a maternity hospital.

"On the contrary, what they are doing is really discouraging women from having babies at all and, certainly given these conditions, in hospitals."

The examples of mid-century Ireland and modern Poland bring to mind the lessons of economist and urban theorist Richard Florida and his extensive writings on "creative class", defined by him as a population of workers devoted to the manipulation and the creation of what Bourdieu called cultural capital: lawyers, software programmers, scientists, writers, and others. According to Florida, the ability of cities to support the sort of cultural diversity that attracts these free-minded, comfort-seeking people plays a critical role in sustaining the overall economic growth of cities, especially in the context of increasing international competition for these workers and the industries associated with them. In the case of Poland, an overly close association of the country with a whole set of public policies considered reactionary by European standards--state-sponsored homophobia, crude pro-natalist policies driven by a latent hostility towards women's autonomy and comfort, a nationalism that can be perceived as xenophobic--not only would do little to attract immigrants, but it would do much to drive away Poland's native population. This appearance, in the context of a increasing intra-European and global competition for skilled workers, is almost certainly a major problem for Poland, for how long can it continue its strong post-Communist growth without workers (new workers, and skilled workers) to produce and consume?

More on Poland ...

We are not quite done with Poland and Eastern Europe yet and I don't suspect we will be soon. As such, this is very much an ongoing (fast) process both in terms of what actually goes on the ground in CEE economies but also when it comes to our investigation of the matter. In the post below, I noted briefly how Poland is now taking concrete steps to address the issue of labour shortage. This piece from Ukrayinska Pravda further elaborates ...

Polish government facilitates entry in the country for immigrant workers from Ukraine, Russia and Belarus. It was announced by the deputy Minister of labor and social policy Kazimezh Kubersky, reports Interfax-Ukraine. According to his words, on July 20 a respective decree comes into force allowing the residents of these three countries work “in all sectors” of the national economy. When making a speech at the press conference Mr. Kubersky explained this decision by growing demand for workforce caused by economic growth. According to the estimates of the Ministry of Labor, Poland needs 500 thousand foreign workers annually, predominantly in agriculture and construction fields, and qualified engineers and health care workers are also in big demand.

According to the new rules, Polish enterprises get a right to employ immigrants from Ukraine, Russia and Belarus twice a year for the term of up to three months.

One thing which stands out I think is this number flung out by the Ministry of Labor which indicates that Poland needs about half a million workers annually. Now, as Edward points out to me in a mail it is difficult to say exactly what this means. Are we talking about a cumulative number here or what? But given the fact that human capital is a regionwide scare resource, and given the fact that many a ministry of labor might do some pocket calculations of their own across the region, it will at some point, I think, be difficult to see where the labor is to come from. Remember also here that while we could narrate this as a shortage of labor it is perhaps more a shortage of labor with the necessary skills we should be talking about. In this way there is a fundamental mismatch on the labour market (skill mismatch) as well as labor force participation rates across gender and cohorts could be better. The simple point we are making is however that in order to solve these issues you need time and time is exactly what these economies don't have. It is then here that the effects of strong outward migration to the West as well as a region wide population pyramid inversion as a result of a fertility collapse in the 1990s come in all this could end up being a sinister vicious circle if it is not already.

Moving back on track with Poland there is also the issue of the rather large unemployment rate coupled with mounting evidence that labour shortages are pretty acute. In short; something don't quite add up. However, the following snippet might help shed some light on this.

Warsaw, About Poland 29 January, 2007 Poland’s Minister of Labor says 30% of the unemployed do not want to work and that their files should be moved to a separate administrative unit. The Ministry would not spend time trying to help them to find work. They would simply continue to get benefits and the Ministry could spend more time helping those who want help.

Currently the unemployment offices spend a lot of time doing paperwork. Getting those who don’t want to work out of the system could reduce the paperwork load. The goal of the Minister of Labor, Anna Kalata is to allow the unemployment offices concentrate on helping those people who actually want work. Under the proposed change, those who refuse retraining or refuse job offers 2 or 3 times would be considered as not wanting to work. Their files would be essentially ignored. Under the Polish law, after two years people are considered as permanently unemployed and they stop receiving unemployment benefits. But they continue to get free health insurance.

The system is very convenient for those who run their own unregistered businesses. And the new change will make it much easier for them.

Even from this rather crude evidence it seems clear that the official unemployment statistics from Poland are much more opaque than we could perhaps have expected. Finally, there is this small piece from the Guardian which notes how Poland is looking for labor from other places than her peers in the CEE. As such, both construction workers from India as well as convicts are being considered ...

And so Poland has started to look elsewhere for the bricklayers, roofers, fitters, crane operators and bulldozer drivers who can throw up three stadiums, hotels, airports and hundreds of miles of motorway in quick time. It has found the answer: India.

"There are severe discrepancies in our labour market," said Poland's labour minister, Anna Kalata, who recently travelled to New Delhi to sign a memorandum of understanding with India to entice workers to come to the former eastern bloc country to fill the gaping hole. "The need for labour is particularly acute in the construction sector in the run-up to Euro 2012, and we need you," she told Indians. "The fact that the Polish economy is growing at a rate of over 7% is making the problem even more acute."

(...)

The shortage is so dire that the authorities are even reportedly considering using up to 20,000 convicts, under armed guard, to kick-start the construction. The problems are manifest in Warsaw, where construction projects dot the landscape but work proceeds at a ponderous pace.

And please also note this last paragraph ...

Some still hold out hope that at least some of the emigrants will return, enticed by the ever-increasing wages, so that the country can avoid turning - for the first time in its history - into a land of immigration. "But these hopes won't be fulfilled as long as the west remains more attractive," said Emil Szwezda, an analyst.

Now, we have already opened up the discussion on this issue in the post below. In general it is clearly difficult to say but given the outlook for the continuation of catch-up growth as well as the current wage wedge between east and west you cannot but think that the expecations of a reversal of the migration flows remain a fool's hope at best. An important qualifier to note here is of course the flow of remittances which in themselves represent a sort of proxy for how emigrating labor still contribute to their home countries' economies. However, could we not perhaps dig up some microevidence regarding the determinants of whether migration is permanent or not? Well, as it turns out we might be able to use this one ... (hat tip; IPEZone);

In this paper we analyze the demographic factors that influence the migration dynamics of recent immigrants to The Netherlands. We show how we can allow for both permanent and temporary migrants. Based on data from Statistics Netherlands we analyze both the departure and the return from abroad for recent non-Dutch immigrants to The Netherlands. Results disclose differences among migrants by migration motive and by country of origin and lend support to our analytical framework. Combining both models, for departure and returning, provides the probability that a specific migrant ends-up in The Netherlands. It also yields a framework for predicting the migration dynamics over the life-cycle. We can conclude that for a complete view of the migration dynamics it is important to allow for both permanent (stayers) migrants and temporary (movers) migrants and that return from abroad should not be neglected.

I will have more to say about this paper later.

Update

Just taking the liberty of updating Claus's post here. If anyone is skeptical, and thinks that Claus and I are exaggerating the significance of all of this, just check out this link from News Bulgaria (which reproduces an article which previously appeared in the WSJ), it may help put your doubts to rest. And please note that while many articles now refer to ageing workforces here, few have yet drawn the link back downstream to the longer term fertility issue which now underpins it.

Edward

Pragmatism in Poland?

Well, it certainly seems as if something has dawned on somebody in Poland.

Poland is loosening its visa restrictions on workers from Ukraine, Belarus and Russia in order to ease a labor shortage in the farming and construction sectors, the Labor Ministry said Wednesday.

New rules go into effect this Friday, slashing the cost of work visas for citizens from the three former Soviet republics from 900 zlotys (US$330; €240) to 100 zlotys (US$37; €27), and easing bureaucratic restrictions, the deputy minister of labor, Kazimierz Kuberski, told the news agency PAP.

Under the new rules, workers would be granted three-month work visas upon presentation of a letter from a Polish employer.

"Because of the needs of Polish economy, we decided to open our job market in all sectors," Kuberski said.

Despite a jobless rate of about 13 percent, the European Union's highest, Poland is suffering a labor shortage that comes amid a booming economy desperate for construction workers.

The labor shortage has been exacerbated by the departure of hundreds of thousands of Poles to wealthier European Union countries for higher wages since the country joined the EU in 2004.

For a more comprehensive account of the situation in Poland I did a review and preview not too long ago over at my own blog. The main point is I think that while Poland's unemployment rate is still set in double digit territory the labour market is already suffering in key areas such as contruction. Furthermore, I would also guess that other sectors are lacking too. But where are all those Polish people going then? Well, it is of course difficult to give a comprehensive account but I can say that we are getting an awful lot of them in Denmark which is welcome news for our construction industry which indeed also is suffering from labour shortages but not, as it were, for the construction industry in Poland. The chart below gives a solid indication of the rise of the Poles in Denmark ...

Whether this surge signifies permanent placement is clearly an important question to answer but it is important to remember that if the economic situation in the home country deteriorates there could be a strong lock-in factor for the people who are living abroad to stay.

Understanding Migration in Russia

Searching for more information on migration and the CIS I found this useful paper, which I thought I would draw to people's attention:

Understanding Migration in Russia
A policy note
by Yuri Andrienko and Sergei Guriev
Center for Economic and Financial Research at New Economic School

Abstract

This note summarizes the policy debate and the existing academic research on internal and external migration in Russia. We argue that enhancing both international and internal migration can bring sizeable benefits to Russia. In particular, international immigration seems to be the only solution to Russia’s impending demographic crisis: if current trends continue, Russia’s population will shrink by 20% to 112-119 million people in 2050; moreover, the share of working age population will decline substantially. Internal immigration can help overcome huge interregional imbalances and reallocate millions of workers from regions with low wages and high unemployment to the regions with zero unemployment. The present migration policy is counterproductive as it both restricts much-needed migration and creates illegal immigrants.

The experience of other receiving countries suggests that Russia will soon have to reconsider its policy and will have to undertake an immigration amnesty in the near future. We suggest coupling the amnesty with an introduction of a point system for admitting new legal migrants We also provide a survey of the existing data and empirical literature on migration on Russia. We conclude that any reasonable analysis of migration would require new efforts in data collections and thus propose a plan of such efforts.

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and please note the following, which makes clear that the demographic issue is already biting in a very significant way. Basically, all of this is simply not sustainable given the generalised nature of the population shortage across the whole of Eastern Europe.


While the population in Russia has been gradually falling since 1992, the decline in working agepopulation will be especially severe after 2007, especially in central regions, as a long-term consequence of birth rate behavior in 1980s (Mkrtchyan and Zubarevich, 2005). In order to fully compensate for this drop, there should be an annual inflow of about 1 million working age migrants, a number which is three times the average net inflow in the years between the Censuses of 1989 and 2002. According to a demographic forecast for 2050, the share of population of working age (from 16 and 55 for females and 16 to 60 for males) will be close to 50 percent, which is considerably lower than the 61 percent reported in the 2002 Census, but similar to the the share in the 1939 Census, with a difference of a higher proportion of elderly in the population: 34 percent in 2050 vs. 9 percent in 1939 (Andreev and Vishnevsky, 2004).

Uzbekistan Fertility and Migration

As should be evident from the last post, Claus and I have really been pretty shocked by the rapidity with which labour market tightening has been emerging in Eastern Europe recently. As Claus noted, this recognition lead me to take the Economist quite sharply to task on Afoe, and at least I managed to sting a response from their Central European correspondent Edward Lucas, who, as Claus would tell us, is far from being a worst case example of benign neglect here, in fact, in general terms, au contraire.

Ultimately this labour shortage situation is rooted in the longer term consequences of an ongoing combination of low fertility and outward migration towards Western Europe and beyond. The arrival of the "running on empty" situation is proving to be very rapid due to the extremely high rates of economic "catch-up" growth which these countries economies are now experiencing. And the problem is really starting to hit them now precisely because the annual number of children born in many of the countries concerned halved in or around 1990, and thus it is very hard to see how they are collectively going to have an adequate number of labour market entrants in the younger age groups in the coming years. And this, as we are already seeing in the Latvian case, is surely going to present a major inflation problem, if nothing worse.

When I say shocked, I really mean it. It is evident that both Claus and I consider demography to be far more important to economic processes than most economists accept, and we have been thinking hard and long about the implications of changing demography, so if all of this is taking even us by surprise you can imagine where that may leave everyone else.

Now in order to try and pin things down a bit more clearly, we are digging around trying to get some sort of measure of what is actually happening in each of the countries concerned. As Claus pointed out in this post on the World Bank remittances report last year, Russia is now totally dependent on inward migration from the CIS states, to the tune of possibly over a million people a year. This is needed simply to sustain ongoing growth there, given their own out-migration and the rate of economic growth that is being driven by the surge in oil prices. So we need to check and look at just how long Russia can expect to be receiving migrants at this sort of rate.

One of the obvious source countries is Uzbekistan (current population approximately 28 million). Now in 2006, according to Moscow News, a total of 500,000 Uzbek migrants went to work in Russia. And according to the same article, Uzebekistan only came in at third place as a migrant supplier:

Konstantin Romodanovsky the head of Russia's migration service said Uzbekistan is the third-largest source of migrant labor to Russia (sharing third place with Tajikistan), after Ukraine and Kazakhstan, with a total of 500,000 Uzbek workers coming to Russia in 2006.

So Uzbekistan is losing workers rapidly, too rapidly for a country of only 28 million.

And what about the replacement labour supply, ie fertility. Well this is now declining fast, and, according to this useful ppt, rapidly reaching the critical replacement level, below which it will doubtless then inevitably plunge. The data presented by David Clifford in the presentation go as follows:

Total Fertility Rate:

5.7 mid-1970s (Karimov et al. 1997)
4.07 in 1990 (UNICEF TransMONEE)
3.3 in 1994-1996 (Kuzibaeva 2001)
2.9 in 2000-2002 (Kamilov et al. 2004)
2.36 in 2003 (UNICEF TransMONEE)

It should be pointed out that this is "grouped" data, coming from a variety of different sources. So it is not a precise indicator, but it does show the clear trend.

It is also important to note that this fall is all occuring as part of the first stage of the demographic transition - ie before the progression from ‘stopping sooner’ to ‘starting later’ as the mechanism of decline - since this fall infertility in Uzbekistan has been achieved without any significant upward movement in first birth ages. Thus postponement is still to come. Bottom line, fertility in Uzbekistan is about to fall into the lowest-low category, and is likely to stay there for many years to come. Which means that 10 years from now Uzbekistan is going to have problems supplying its own labour market needs, let alone supplying extensive and ongoing immigration to anyone.

Update

Well the Uzbek economy was growing at a 9% annual rate in Q1 2007, according to this link. The IMF is apparently happy with them. Remittances are now running at a rate of about bout $500 million annually, which will speed up internal development no end. Now none of this means that emigration will dry up tomorrow, but it does put an outer limit to the process, and that outer limit will evidently be hit a lot sooner than the World Banks and others imagine.

Also I found this link from the Institute for War and Peace which gives some indication of the extent of the problems which are arising. You can already find statements like "“The country has villages where there is no one left to carry the coffin when someone dies. Old men and women have to do it because there are no young men there – they’ve all left.”, which is very reminiscent of the sorts of comments we have seen coming from rural Latvia in recent years. How big is the outflow problem in Uzebekistan? As I say above, this is very hard to get to grips with since so many migrants are either "illegals" or "seasonal workers". Huge discrepencies exist in the numbers, but looking at what we have seen in the East-west European flows we might well conclude that though the numbers are well below the most exagerrated figures being bandied about, they are nonetheless large and significant:

The authorities in Uzbekistan are trying to gather more information about the hundreds of thousands of people who work as migrant labour abroad. Officially, a new registration system is intended to make it easier to help migrants if they get into trouble, but many believe the government is concerned about the exodus of its adult workforce and wants to stem the flow. Other reasons for keeping tabs on Uzbek citizens abroad are to exert the same kind of political control as they are subject to at home, and also to recover some of the taxes they would have paid if they stayed in Uzbekistan. A government order dated May 15 has two stated aims – to streamline the registration procedures that would-be migrant workers must go through, and to ensure they are protected once they are out of the country.

Under the new rules, Uzbek nationals planning to leave the country have to fill in a form stating details of their future job and whereabouts. This is a revised version of a document already in existence, although IWPR understands that most people who went through the procedure before the change were travelling to countries outside the former Soviet Union......Low salaries and scant job opportunities force many in Uzbekistan to leave the country in search of work. Information from various official sources indicate that around 800,000 people work outside the country – a massive 10 per cent of the total working population. Other estimates put the figure at three million, while some regime insiders say it could be up to five or six million. The discrepancy is partly attributable to the difficulty of counting migrants, not least because many are “illegals”, and because of seasonal variations in the numbers. Another factor is that for a government which claims economic successes year after year, it is somewhat embarrassing if a major part of the workforce is voting with its feet.To get a better idea of the figures involved, the government’s statistical agency and the customs committee have been instructed to produce quarterly reports on the number of people moving abroad and their reasons for leaving. Uzbek consulates abroad are also to monitor people’s movements.

On another front, as has emerged in the comments section the Russophone stock in countries like Uzbekistan is being rapidly depleted, with the consequence that the ethnic composition of the flows is changing. This is predictably provoking a sharp change in reactions back home in "Mother Russia". One illustration would be the recent demands coming from the Moscow municipal authorities to restrict inward migration, or another would be this piece in the St Petersburg Times about the demographic future and "ethnic composition" of the city.


References

Stopping sooner or starting late? Fertility decline in Uzbekistan
Presentation by David Clifford
Social Statistics, University of Southampton

Kuzibaeva, G. (2001) Fertility transition in Uzbekistan: demographic trends and reproductive health policy, Central Asia Monitor 2001(2).

Karimov, S I, Akhror B Yarkulov and Asadov D A (1997) Fertility, in Institute of Obstetrics and Gynaecology [Uzbekistan] and Macro International Inc. Uzbekistan Demographic and Health Survey, 1996. Calverton, Maryland: Institute of Obstetrics and Gynaecology and Macro International Inc, pp.35-45.

Kamilov A I, Sullivan J and Mutalova Z D (2004) Fertility, Chapter 4 in Uzbekistan Health Examination Survey 2002. Calverton, Maryland, USA: Analytical and Information Center, State Department of Statistics, and ORC Macro.

UNICEF (2005) TransMONEE Database, UNICEF IRC, Florence.

Demographics in Eastern Europe are Keeping Us Busy

Regular readers of DM should of course know by now that the posting trend here at DM tend to exhibit considerable volatility. As such, we have not posted for a while but in this post I will do a re-cap of what we have been doing since it after all has a lot to do with demographics. In many ways we are going to pick up the thread from Edward's post below which features an extensive review and preview of the Latvian population and macroeconomy. As such, there has been a lot of flurry recently about the economies in Eastern and Central Europe (CEE) and whether these economies are experiencing economic overheating with a subsequent risk of a crash and hard landing. I will not dig much into the specifics here but rather point to the fact that we, here on DM, on several occasions have flagged the potential for problems in the CEE economies as a result of their assymmetric demographic and economic profiles. A relevant note relative to the topic at hand here is my recent post on the nature of catch-up growth in the CEE economies.

So what is this all about then?

Well, in essence it began with Edward's note linked above on the situation in Latvia and how the very fast erosion of capacity (i.e. labour) was spurring brisk economic growth but also most notably thundering wage growth and inflation. This spurred me to do some investigation on Lithuania where I found that the cyclical and structural run on the labour supply through high growth (i.e. as an emerging economy) and as a result of the country's demographic profile with net outward migration and shrinking workforce is moving very fast indeed. In fact, in Lithuania, with an unemployment rate at 2.7%, we are looking at a window of something like 10 months before the economy 'runs out' of labour at current growth rates and since this is clearly impossible it is hard to see how a correction is not soon coming one way or the other. I also did a similar exercise on Poland where I noted in general how current growth rates in the CEE economies simply are not sustainable given the underlying demographic profile. In short; these economies are trying to catch up with the West but with an enormous chain ball around their ankles in the form of structurally damaged demographic profiles. Furthermore and while I do not think productivity and institutions at all are unimportant in terms of economic growth the process is currently moving so fast that some of these economies essentially end up tumbling into a whole with slippery walls from where it will difficult to climb back.

Our emphasis on demographics as an important explanatory variable as regards to the siutuation of the CEE economies is not a new one and as such there is not much news here. However, both Edward and I have indeed been struck with the absence of demographics in the mainstream discourse on the CEE economies. This is a particular fallacy in the light of the recent focus from the FT and the Economist on the topic at hand and whether indeed some of these countries might end up with a hard landing on their hand. As such, neither the Economist nor the FT seem to regard the demographic component of economic growth as important here in the short term which I, quite frankly, find remarkable given the underlying strong evidence to the contrary. Of course, we should not stomp too much on the Economist and the FT on the basis of just two notes and for the record I am a happy subscriber on the Economist for a fourth consecutive year and the FT's RSS feeds takes up the lion's share of the 'finance and econ news' section in my RSS reader. Yet, as Edward demonstrates in this fine piece over AFOE in which he levies a general critique towards the Economist the issue is more profound than you would perhaps be led to imagine. In this way the issue indeed revolves around just how much importance should be ascribed to economic growth along side institutional improvement and of course accumulation of physical capital. Now, with the reply from the Economist's European weblog (Certain Ideas of Europe) I feel that the discussion is now more open than it was before and just perhaps we can begin to move the 'demography.matters' discourse a nudge closer towards the more hefty opinion makers. This is a fool's hope perhaps but, and I do not say this lightly, even when I put myself in the most objective and unbiased corner as a macroeconomist I feel that it is urgent that demographics are ascribed the attention it deserves.