Ukraine’s Wage Reset: Can a Higher Minimum Wage Support Workers Without Hurting Businesses?

Ukraine’s proposed minimum wage reform could raise low-paid workers’ earnings by about 3% by 2030, while estimated formal job losses remain relatively limited at 0.51–1.03%. For policymakers and development partners, gradual implementation, backed by skills, productivity, business support and labor-market monitoring will be critical to balancing worker protection, employment and economic recovery.

The World Bank's Social Policy Global Department, working with the Government of Ukraine and using administrative data from the Pension Fund of Ukraine, has examined how a proposed minimum wage reform could affect workers, businesses and public finances in an economy under severe wartime pressure. Authored by Gordon Betcherman of the University of Ottawa and Maddalena Honorati and Martin Moessinger of the World Bank, the study finds that gradually increasing the minimum wage could significantly improve earnings for low-paid workers while keeping formal job losses relatively limited. For policymakers, development partners and businesses, the findings underline the importance of combining higher wages with productivity improvements, skills development and continuous labor-market monitoring.

Can Ukraine raise wages without triggering major job losses?

Ukraine's proposed system would initially set the minimum wage at 40 percent of the average gross wage for the first six months of the previous year. The ratio would then rise by two percentage points annually until reaching 50 percent.

The reform comes at an extraordinary time. Ukraine's potential labor force has fallen by roughly one-quarter because of outmigration, military mobilization and casualties. Labor-force inactivity is around 50 percent, while about three-quarters of employers report worker shortages. Skills mismatches are another problem: fewer than one-third of unemployed people have the professional skills needed for available vacancies.

These shortages could reduce the risk of large-scale layoffs following a minimum wage increase because many employers already struggle to recruit enough workers. But policymakers must avoid viewing wage regulation separately from skills, employment and reconstruction policies.

In 2023, Ukraine's monthly minimum wage was UAH 6,700, about 40 percent of the estimated average monthly wage of UAH 16,666. The administrative data show that 23.9 percent of jobs reported earnings below UAH 6,700, 2 percent were exactly at that level, while another 13.4 percent earned between UAH 6,700 and UAH 8,000. The study cautions that some earnings below the minimum may represent part-time or part-month employment.

Women and low-wage industries could feel the biggest impact

The distribution of low-paid employment shows who is most likely to be affected. Women represented 48.2 percent of all jobs but accounted for roughly 53-56 percent of jobs below, at or immediately above the minimum wage. Most low-paid workers are also not young labor-market entrants. People aged 25-54 form the majority of workers around the wage floor.

Wholesale and retail trade is particularly exposed. The sector accounted for 36.8 percent of jobs exactly at the minimum wage, compared with only 16.3 percent of all jobs in the sample. Manufacturing, education, healthcare and public administration also contain significant numbers of lower-paid workers.

For businesses, higher wages present both opportunities and risks. Better-paid workers could support household consumption and improve employee retention. However, companies operating on narrow margins may face pressure to reduce recruitment, reorganize jobs, increase prices or move some activities toward informal or contractual arrangements.

The transition period therefore allows businesses to invest in worker training, technology and more efficient production rather than relying primarily on employment cuts.

Higher wage bill could strengthen incomes and public revenues

The simulations suggest that the proposed reform could produce meaningful wage gains without a dramatic decline in formal employment.

Under the reform scenario, the monthly minimum wage reaches UAH 18,013 by 2030, compared with UAH 12,452 under the no-reform scenario. This means the reform wage floor would be about 44.7 percent higher.

Despite this substantial increase, estimated formal job losses in 2030 range from 0.51 percent to 1.03 percent, equivalent to approximately 43,479 to 86,959 jobs. At the same time, after accounting for employment losses and wage increases spilling over to workers earning slightly above the minimum, the total wage bill is projected to rise by 3.05-3.24 percent.

A separate simulation based on 2023 conditions delivers a similar message. Setting the minimum wage at 50 percent of the previous reference wage would have produced a monthly floor of UAH 8,089, around 20.7 percent above the actual UAH 6,700. Employment losses are estimated at 0.35-0.70 percent, while the total wage bill would still increase by just over 2 percent.

Higher formal earnings could also benefit public finances because personal income taxes and social-security contributions are linked to wages. This could strengthen government revenues during reconstruction, although employment losses would offset part of those gains.

Gradual reform and stronger monitoring will be critical

For international development partners, the findings highlight an opportunity to support more than wage reform itself. Assistance can strengthen labor-market information systems, administrative data, vocational training, employment services and productivity programs that help workers and businesses adjust.

The study also offers lessons for governments in other fragile and conflict-affected economies. Ukraine demonstrates how pension and payroll records can be used to assess major labor reforms when traditional household and labor-force surveys are disrupted.

There are important uncertainties. Ukraine does not have country-specific estimates showing precisely how employers respond to higher labor costs. The administrative data also cannot fully capture informal employment, working hours, household incomes or poverty impacts.

Ukraine should therefore treat the 40-to-50 percent transition as a managed reform rather than an automatic exercise. Employment, vacancies, business costs, informality and wage growth should be assessed after each increase. For policymakers and development partners, the priority should be clear: raise low-paid workers' incomes gradually while simultaneously investing in skills, productivity, formal employment and stronger data systems. That approach offers the best chance of turning minimum wage reform into a tool for inclusive recovery rather than an additional burden on Ukraine's wartime economy.