On the Role of Wages in the Ukrainian Transition Process: An empirical Investigation

International audienceThere are two intriguing questions about the transition process undertaken by the Ukraine since its declaration of sovereignty in December 1991. (i) Why had one of the more prosperous republics of the former USSR in terms of economic development and population welfare been suffering of both a persistent and high inflation during the four first years of its young existence ? (ii) How - in the early months of 1996 - could the Ukrainian efficiently put an end to the skyrocketing of prices ? The aim of this paper is to understand how such an outstanding reversal of situation could occur. Firstly, in support of a cointegration test, we assert that between January 1992 and November 1995, the Ukraine was faced with a complex monetary regime in which wage was the economic variable through which most of the inflationary pressures passed, directly or indirectly. Secondly, we explain that since the beginning of 1996, the existent monetary regime has been replaced by a new one in which inflation is contained but wages and pensions arrears increase quickly. Such a situation is not sustainable in the short and we outline possible remedies