The Labor Market Impact of the War in Donbass

Abstract

In the Spring of 2014, war between Ukrainian government forces and proxies of the Russian government -- assisted by Russian soldiers -- broke out in the eastern Ukrainian Oblasts (equivalent of a US state) of Donetsk and Luhansk. The resulting war, which continues today, created over 1.3 million internally displaced persons (IDPs), including hundreds of thousands who moved into Oblasts which did not directly experience conflict. Since then, there have been few studies looking at the Ukrainian labor market and none looking at the wars economic impact on it. This paper uses panel data from 2010 to 2018 to measure the economic impact of the labor supply shock caused by the 2014 War in Donbass in oblast level labor markets that did not directly experience conflict. We measure that impact with changes in average wages and changes in unemployment in the studied Oblast labor markets. Using econometric analysis, we thereby study the ability of Ukrainian labor markets to adjust to shocks in their current post-Soviet environment. We find a negative and statistically significant impact on wages and a statistically insignificant impact on unemployment. The results of this paper can help provide an accurate picture of the current Ukrainian labor market by highlighting rigidities in the labor market.