Work in Ukraine’s Shadow Economy

The Ministry of Labour and Social Policy reports that between one and a half and two million Ukrainians work without the necessary legal documents. Illegal labour is mainly common where services are provided, in trade, in construction and in the transport industry. At the same time around 300 thousand Ukrainians work in conditions which do not comply with health and safety requirements.

Work on my conditions or not at all


Yana from Kyiv worked in one of the fast food networks without any contract. At the end of the month when they received their pay, it was hard to get an answer from her employer why that month she got that particular amount. “For the number of working days the amount should have been greater, but I always got less. I tried where why it was such a small amount, why so much had been deducted from my pay. I got two choices: “either you don’t work at all, or you work and have to agree to such conditions”.


The largest number of illegal workers at present work at markets and vending outlets. They earn money in the hand, do not have the proper contracts and lack any social guarantees, Volodymyr Yerasov from the Ministry of Social Policy explains. 

What is more, around half of all wages is eaten up by deductions into social funds: the Pension Fund; the Social Security Fund for those temporarily unable to work, the Unemployment Fund and the Fund in case of Industrial Accidents. As a result some employers and the workers themselves prefer to receive their pay “in envelopes”. According to Oleksy Miroshnichenko from Ukraine’s Confederation of Employers, another factor lies in the failings of Ukrainian legislation. “We need to make our labour legislation flexible. On the one hand it must take into account economic trends, globalization, the crisis, but on the other – it must protect employees”.


Move into the official sector


According to Vasyl Yurchyshyn, a potential employee often has no alternative. This is not something, he stresses, that is likely to be changed through enforcement measures. He believes that very many, if given the option of earning more, but in the shadow economy, or perhaps a bit less, however officially with al possible payments and social protection, would move into the official sector.


According to Anatoly Akimochkin from the Confederation of Free Trade Unions, it is the task of trade unions to force employers to legalize social payments and organize contracts.


However at businesses with pay in hand such trade unions exist either for appearances, or not at all. “There are many bodies which should deal with this issue. There is an organization called the Labour Inspectorate. At one stage trade unions also had considerable powers, however when amendments were made to legislation, they lost these and their functions were handed over to the Inspectorate. It should identify problem issues and officially resolve them. There is also another controlling body, the State Tax Inspectorate.”


Officials promise that in a couple of months there will be new laws which will encourage employers to organize contracts with their employees. According to Volodymyr Yerasov from the Ministry of Social Policy, there will be amendments to the Law on Employment. He says that they are studying international experience and looking at the measures applied in the European Community. “You don’t have to scare people, simply penalize financially.”

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