EVALUATION OF THE DYNAMICS OF THE LABOR INCOME OF THE POPULATION OF UKRAINE

Ivakhnenko Olha
PhD, associate professor
Simon Kuznets Kharkiv National University of Economics (Ukraine)

The main source of livelihood for most Ukrainians is their labor income. To assess the dynamics of changes in labor income in Ukraine, the average labor wage is used.

The labor market responds flexibly to the slightest political, financial and economic outrage. It may be manifested in changes in the price assessment of labor resources and the ratio of supply and demand in the market. However, the last change will also be reflected in the change in wages. Thus, the level of wages in the labor market can act as an indicator of further changes in the economy.

It is important to monitor the dynamics of changes in the average wage indicator and predict future values of the indicator to understand the level of citizens’ well-being, assess their purchasing power, and therefore the prospects for the development of consumer goods and services markets, and the prospects for the development of the country’s economy as a whole.

The purpose of this work is to select the best quality forecast model for the average labor wage in Ukraine.

A preliminary analysis allowed us to assume there was an easily traceable polynomial time trend in the dynamics of changes of the average wage indicator.

Traditionally, the labor market of Ukraine, as well as the entire economy of the country, reacts sharply to political risks and financial crises. The most significant challenges for the observed period (2000–2019) for Ukraine can be considered the complex of events of 2013–2014 and the consequences of the global financial crisis of 2008. These events were most clearly reflected in exchange rates, triggering a fall in the hryvnia against the dollar.

Regulatory actions of the state in the labor market are expressed in changes in the minimum wage. The growth of the minimum wage affects the tail of the distribution of wages and the partial indexation of wages in the public sector.

Based on the above assumptions, the following variants of forecast models for the average labor wage indicator were formed and evaluated:

\[\begin{equation} f_{1} = a_{0} + a_{1}*t + a_{2}*t^{2} \tag{11} \end{equation}\]

\[\begin{equation} f_{2} = f_{1} + a_{3}*\text{rate} \tag{12} \end{equation}\]

\[\begin{equation} f_{3} = f_{1} + a_{4}*MinW \tag{13} \end{equation}\]

\[\begin{equation} f_{4} = f_{1} + a_{3}*D_{1} + a_{4}*D_{1}*t + a_{5}*D_{2} + a_{6}*D_{2}*t \tag{14} \end{equation}\]

\[\begin{equation} f_{5} = f_{4} + a_{7}*MinW \tag{15} \end{equation}\]

where \(t\) – time;

\(\text{rate}\) – $ exchange rate;

\(\text{MinW }\)– minimum wage;

\(D_{i} = \left\{ \begin{matrix} 0,\ t < T_{i} \\ 1,t \geq T_{i} \\ \end{matrix}\right.\ \ \text{dummy variables}\), \(i = \overline{1,2}\) ;

\(T_{1}\) – december 2008;

\(T_{2}\) – april 2014.

Models (12) and (13) reflect the idea of influencing the average wage of the exchange rate (rate) with and without the influence of the minimum wage (MinW).

In models (14) and (15) we replace the quantitative rate regressor with two dummy variables Di (\(i = \overline{1,2}\)), reflecting two periods of a sharp jump in exchange rates. It is done assuming that small fluctuations in rates do not have a significant effect on wages.

The fitting of the models showed that the influence of the minimum wage on the average wage is significant, but its explanatory power is small. We see that dramatically changes in exchange rates, encoded in dummy variables, have a significantly greater explanatory power (Table 1) .

Таблиця 1

Evaluation of the quality and statistical significance of the models and models parameters estimates

Criterion Models
(1) (2) (3) (4) (5)
Adjusted \(R^2\) (significance for \(F-statistic\) 1) 0.9495 (*) 0.9499 (*) 0.9833 (*) 0.9906 (*) 0.9925 (*)
Standard error 554.09 551.90 319.13 239.24 214.02
Parameter estimates for variables (significance for \(t-statistic\) 1):
Interception 888.23 *** 1078.60 *** 213.11 *** 438.75 *** 343.23 ***
t -15.96 *** -19.07 *** -0.36 -4.86 -3.30
\(t^2\) 0.26 *** 0.29 *** 0.09 *** 0.29 *** 0.24 ***
rate -25.64 15.19
MinW 1.21 *** 0.45 ***
\(D_1\) 2686.41 *** 2258.88 ***
\(D_1*t\) -33.55 *** -28.76 ***
\(D_2\) -9433.58 *** -6521.41 ***
\(D_2*t\) 56.61 *** 39.33 ***

The best quality of estimation was shown by the model (15) (Adjusted \(R^2\) = 0.9925). Model (14) practically does not lag behind it (Adjusted \(R^ 2\) = 0.9906).

Thus, it is possible to estimate the dynamics of changes in the average labor wage in the country with high accuracy, taking into account the time trend, changes in the minimum wage and sharp jumps in exchange rates corresponding to the crisis phenomena in the country’s economy.

1 Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’.