An Economy Under Fire: How the Ukrainian Labor Market Has Withstood an Unprecedented Shock

On February 24, 2022, Russia launched a large-scale invasion of Ukraine. It was not just a military aggression: it was a simultaneous shock to the population, businesses, infrastructure, and labor supply and demand. Entire cities were bombed, millions of people fled, and hundreds of thousands of men were enlisted.

Almost four years later, the conflict is not over and the front line continues to cut across the country. Yet, outside the occupied territories, the civilian economy has not disappeared. The labor market—albeit with deep fractures—has continued to function.

This is the central conclusion of the paper A Wartime Labor Market: The Case of Ukraine by Giacomo M. Anastasia (Columbia University), Tito Boeri (Bocconi University), and Oleksandr Zholud (National Bank of Ukraine). The study, based on administrative data, sample surveys, and real-time information from one of the leading online platforms for matching supply and demand, offers the first systematic analysis of a large labor market during a war fought on its own territory.

“The war has generated one of the biggest labor supply shocks in recent history,” notes Tito Boeri, professor of economics at Bocconi University. “But labor markets can keep functioning even under extreme stress if wages and work organization adapt quickly.”

A quarter of the workforce has vanished

The numbers are brutal. Before the large-scale invasion, Ukraine had about 17 million people in the workforce in areas under government control. According to estimates reported in the study, between refugees abroad, military mobilization, and casualties, the civilian workforce has contracted by between 18% and 28% compared to pre-war levels. In the middle scenario, the loss is approximately 3.5 million workers, or 22% of the workforce.

Approximately 5.9 million Ukrainians are registered as refugees abroad, the majority of whom are women of working age. Added to this is the increase in armed forces personnel—over one million people—and the tragic toll of tens of thousands of deaths and hundreds of thousands of injuries.

It is a shock whose magnitude is reminiscent of only a few historical traumas of the 20th century. And it was not a temporary episode: at the end of 2025, refugee returns were scarce, while mobilization continued.

Local collapses, massive relocations

While the supply of jobs contracted, demand also suffered a severe blow. In the first weeks of the war, over 10% of companies suspended operations completely and another quarter drastically reduced production. New online vacancies halved in the first year.

But geography matters. In the disputed territories—Donetsk, Luhansk, Kherson—the labor markets have effectively collapsed: almost no new offers, almost no applications. In the western regions, on the other hand, employment has returned to near pre-invasion levels, and the flow of new vacancies has exceeded that of 2021.

The conflict has accelerated reallocation between sectors. Defense-related activities – the production of weapons, military vehicles, and communications equipment – have grown rapidly. In contrast, tourism, transportation, recreation, and parts of heavy industry have suffered severe reductions.

“It is a forced reallocation: from a consumer economy to a survival economy,” Boeri summarizes. “Fewer civilian goods and more military-use goods are being produced. It is a reversal of the direction of development.”

Unemployment up, then down

A lasting rise in unemployment might have been expected. Instead, after peaking at over 20% in 2022, the rate gradually fell to around 11-13% in 2025, only a little higher than the pre-war level (around 9%).

Behind this apparent normality lie deep inequalities: unemployment is much higher among internally displaced persons and people with disabilities. But the aggregate data points to an unsuspected capacity for absorption.

The heart of the system: matching supply and demand

How was this possible? The most surprising finding of the study concerns the efficiency of matching, i.e., the market's ability to transform job applications and vacancies into actual employment.

Using monthly data by region and occupation category, the authors estimate a matching function before and after the invasion. The result: efficiency decreased by about 13-15% after February 2022. This is not insignificant, but it is not the collapse that some might have feared.

“Considering the scale of the shock—millions of people fleeing, bombings, power outages—a 15% reduction is surprisingly modest,” Boeri comments. “It means that businesses and workers continued to find each other, even under extreme conditions.”

The decline was much stronger in the regions most exposed to bombings – up to 20-24% – and more moderate in the western regions (4-8%). Each additional day with air raid alerts significantly reduced the efficiency of matching supply and demand.

Adapting to survive

Three factors made the difference.

First: greater inclusion. Thirty-two percent of companies surveyed in 2025 say they are willing to hire women in traditionally male roles. The proportion of workers over 60 and people with disabilities has also increased. The war has opened up previously unthinkable opportunities.

Second: remote working. Remote working, already widespread after Covid, has become a crucial lever. A significant proportion of refugees continue to work remotely for Ukrainian companies, maintaining a link with the country. “Remote working can reduce the permanent loss of human capital and facilitate return,” notes Boeri.

Third: wage flexibility. After the invasion, nominal wages also fell—a rare occurrence in Ukraine's recent history. The minimum wage remained frozen in 2022-23, becoming less binding in real terms due to inflation. This allowed for downward adjustments, avoiding mass layoffs.

The gap between wages demanded by workers and wages offered by businesses quickly narrowed after an initial widening, hinting at a convergence between expectations and market conditions.

Lasting damage

Resilience does not mean no damage. Quite the opposite. The loss of human capital is perhaps the deepest wound: years of interrupted education, displacement, psychological trauma. The risk of a new wave of migration, especially among skilled workers, is real: in 2025, average wages in Ukraine are about a quarter of those in Poland and a tenth of those in Germany.

“In a war, you survive by adapting,” Boeri warns. “But reconstruction will require targeted policies: reintegration of veterans, massive investment in education, incentives for refugees to return, inclusion of women and people with disabilities.”

The paper insists on six priorities for the post-war phase: reintegration of veterans, recovery of educational losses, support for female participation, active mobility policies, smart migration strategies, and pension system reform.

Surviving is not enough

The study shows that a labor market can continue to function even under bombs. But surviving is not the same as thriving. Ukraine has held up thanks to flexibility, adaptation, and a surprising ability to coordinate businesses and workers. Now the challenge is to turn this resilience into growth potential. Because, as Anastasia, Boeri, and Zholud remind us, wars are also won in factories. But peace is built in labor markets