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Designing a System Dynamics Model of Shadow Wage Formation in Ukraine
Novik A. Y.

Novik, Alina Yu. (2020) “Designing a System Dynamics Model of Shadow Wage Formation in Ukraine.” Business Inform 1:122–128.
https://doi.org/10.32983/2222-4459-2020-1-122-128

Section: Economic and Mathematical Modeling

UDC 331.5

Abstract:
The formation of the shadow wage in Ukraine is a major problem and a threat to economic growth. According to different valuation methods, the shadow economy in Ukraine ranges from 35% to 54% of GDP, and the shadow wage is estimated at 18% of GDP. The general scheme for tax evasion by businesses is to informally pay cash to workers in “envelopes”, which results in a large amount of cash in the economy and, as a consequence, further opportunities for tax evasion. Despite the urgency of the current issue for Ukraine and a large number of works by Ukrainian and foreign scientists dedicated to finding positive and negative features of the existence of shadow wages, there is still a lack of research that determines the formation of shadow wages through the use of economic and mathematical tools. Based on that, a model of shadow wage formation using the system dynamics method was constructed, which takes into account such factors as the amount of cash in the economy and the size of the minimum wage. Based on the modeling results it was found that raising the minimum wage would reduce the share of the shadow component in GDP. Taking that into consideration, conclusions were drawn regarding the first objectives of government policy, which should aim at creating opportunities for economic growth and reducing the amount of cash in the economy in order to lower the size of the shadow sector in Ukrainian economy as a whole.

Keywords: shadow wage, system dynamics, imitation modeling, shadow economy drivers, shadow flows, feedback loops.

Fig.: 4. Tabl.: 3. Bibl.: 11.

Novik Alina Yu. – Candidate of Sciences (Economics), Senior Lecturer, Department of Finance, National University of Kyiv-Mohyla Academy (2 Skovorody Str., Kyiv, 04655, Ukraine)
Email: [email protected]

List of references in article

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Nosova, Ye. A. “Tinyova zarobitna plata v Ukraini: prychyny isnuvannia ta shliakhy podolannia“ [Shadow wages in Ukraine: Reasons for Existence and Ways to Overcome It]. Sotsialno-trudovi vidnosyny: teoriia ta praktyka, no. 2 (2013): 110-115.
Reva, A. “Tinyova ekonomika ta zarplaty v konvertakh porodzhuiut bidnist i pozbavliaiut ukraintsiv prava na sotsialnyi zakhyst“ [The Shadow Economy and Envelope Wages Create Poverty and Deprive Ukrainians of the Right to Social Protection]. Uriadovyi portal. 18.04.2018. https://www.kmu.gov.ua/news/andrij-reva-tinova-ekonomika-ta-zarplati-v-konvertah-porodzhuyut-bidnist-i-pozbavlyayut-ukrayinciv-prava-na-socialnij-zahist
Kharazishvili, Yu. M. “Svitlo i tin ekonomiky Ukrainy: rezervy zrostannia ta modernizatsii“ [Light and Shadow of the Economy of Ukraine: Reserves for Growth and Modernization]. Ekonomika Ukrainy, no. 4 (2017): 22-45.
“Monetary and Financial Statistics“. National Bank of Ukraine. 2019. https://old.bank.gov.ua/doccatalog/document?id=94653097
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Novik, A. Yu. “Modeliuvannia protsesiv vnutrishnyoi mihratsii za dopomohoiu metodu systemnoi dynamiky“ [Modeling of Internal Migration Processes Using the System Dynamics Method]. Naukovi zapysky NaUKMA. Seriia «Ekonomichni nauky», vol. 2, no. 1 (2017): 103-109. DOI: https://doi.org/10.18523/2519-4739212017119815.
Lukianenko, I., and Novik, A. “The Ukrainian Labor Market Investigation with the Use of System Dynamics Methods“. Naukovi zapysky NaUKMA. Seriia «Ekonomichni nauky», vol. 1, no. 1 (2016): 106-117. DOI: https://doi.org/10.18523/2519-4739112016124804.

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