The Impact Of Active Labor Market Policies On The Outflows From Unemployment To Regular Jobs In Ukraine

The Ukrainian labor market is characterized by increasing open unemployment, spreading long-term unemployment and by the stagnancy of the unemployment pool. The system of active labor market policies directed towards the registered unemployed job-seekers in Ukraine consists of public employment services, training/retraining, public works, job quota for vulnerable groups, early retirement, and interest-free loans to start-up business. Although theoretically labor market policies can crowd out regular employment because of distortive effects, we advocate usage of these policies as a means of combating unemployment and easing social tensions in Ukraine. Using a large panel of quarterly data from regional employment centers (including outflows from registered unemployment, number of registered unemployed, number of available vacancies, active labor market policies expenditures and inflows), we estimate the effects of active labor market policies on the job-matching process with Cobb-Douglas specification in Ukraine. Estimates of an augmented matching function have confirmed our hypothesis that active labor market policies such as training and public works (measured as total regional spending and as inflows of participants) have a significant positive impact on outflows from unemployment to regular jobs in Ukraine. We address potential endogeneity problem in the case of ALMP inflows, employing the set of instruments. Regression results of an augmented matching function with separate parameters for training and public works expenditures show that training has greater effect on number of new matches than public works. Therefore, implemented ALMP schemes seem to improve the efficiency of the Ukrainian labor market. In that case we would recommend to dedicate more resources to these programs and to expand a range of unemployed placed on them, paying particular attention to vulnerable groups.