Unemployment in Ukraine

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Economics Education and Research Consortium Working Paper Series ISSN 1561-2422

No 05/01

Determinants of unemployment duration in Ukraine
Olga Kupets

This project (No. 02-237) was supported by the Economics Education and Research Consortium All opinions expressed here are those of the author and not those of the Economics Education and Research Consortium Research dissemination by the EERC may include views on policy, but the EERC itself takes no institutional policy positions Research area: Labor Markets and Social Policy

JEL Classification: J64, J68, P23

KUPETS O.V. Determinants of unemployment duration in Ukraine. — Moscow: EERC, 2005.

This paper presents first evidence on the determinants of unemployment duration in Ukraine between 1997 and 2003, using individual-level data from the first wave of the Ukrainian Longitudinal Monitoring Survey (ULMS-2003). It investigates the conditional probability of an individual leaving unemployment to employment or economic inactivity in any particular month of his spell out of work by estimating it in a discrete time independent competing risks framework with flexible baseline hazard rates and gamma-distributed unobserved heterogeneity. The results in all specifications indicate no significant effect of receiving unemployment benefits but significant negative effect of having income from casual activities, subsidiary farming, household income or pension on the hazard of re-employment. Multivariate analysis also suggests that policies to reduce long-term unemployment should focus on older workers, less educated individuals, residents of small towns and rural area in the regions with relatively high unemployment rates.

Keywords. Ukraine, long-term unemployment, unemployment insurance, semiparametric duration analysis, flexible baseline hazard.

Acknowledgements. The author is grateful for the constructive criticism and helpful comments from Rostislav Kapelyushnikov, Hartmut Lehmann, Irina Denisova, Michael Beenstock, Reuben Gronau, Klara Sabirianova, John Earle, Christian Belzil, Atanas Christev, Anna Lukyanova, Inna Maltseva, and participants of the IER (Kiev) Conference on Labor Market Reforms and Economic Growth in Ukraine: Linkages and Policies in Kiev (March, 2004). Financial assistance from the EERC (Russia) on grant R02-237, from INTAS (Belgium) on grant YS 2002-249/F7, and from the Economics Research and Outreach Center (EERC, Ukraine) is gratefully acknowledged. Special thanks to the Institute for the Study of Labor (IZA, Bonn) as the INTAS host institution for support and hospitality. Data for this study are taken from the first wave of the Ukrainian Longitudinal Monitoring Survey (ULMS) which has been carried out by the Kiev International Institute of Sociology on behalf of the international consortium of sponsors led by the Institute for the Study of Labor (IZA, Bonn, Germany).

Olga Kupets Economics Research and Outreach Center Economics Education and Research Consortium National University “Kiev-Mohyla Academy” Office 214, bld. 10, Voloshskaya str., 04070 Kiev, Ukraine Tel.: (38 044) 239 24 94 Fax: (38 044) 239 24 90 E-mail: kupets@eerc.kiev.ua

 O.V. Kupets 2005

CONTENTS

NON-TECHNICAL SUMMARY 1. INTRODUCTION 2. UNEMPLOYMENT DURATION IN TRANSITION COUNTRIES: LITERATURE REVIEW 3. THE CHALLENGE FOR THE UNEMPLOYED IN UKRAINE: UNEMPLOYMENT INSURANCE OR ALTERNATIVE SOURCES OF SUBSISTENCE? 4. METHODOLOGY AND DATA 4.1. 4.2. 4.3. 4.4. Theoretical model Econometric framework Data and definition of variables Methodological issues

4 6

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15 21 21 23 27 36 40 40 44 60 64 64 67 73 74

5. ESTIMATION RESULTS 5.1. Univariate non-parametric duration analysis 5.2. Multivariate semiparametric duration analysis 6. CONCLUSIONS APPENDICES A1. Unemployment insurance system in Ukraine: regulatory framework A2. Example of retrospective questions from the Individual questionnaire of the ULMS-2003 A3. Construction of the main variables for the...
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