Evaluation of subsidized employment programs for long-term unemployed in Bulgaria

Bulgaria's transition to a market economy has been remarkably slow and painful. Difficulties that can affect the labor markets of transition economies have all occurred in Bulgaria. Sharp declines in employment, high unemployment, low turnover among the unemployed and increasing long-term unemployment are characterizing for the Bulgarian labor market after 1989. In order to reduce adverse effects of unemployment, the Bulgarian government introduced a broad array of active labor market programs (ALMPs) in the early 1990s. Despite limited resources, ALMPs have been used on a large scale in Bulgaria, including most programs that are in place in developed countries. This paper makes a modest attempt to evaluate the effectiveness of one particular active labor market program - employment subsidies for long-term unemployed. Using a relatively rich (for an Eastern European country) administrative and survey dataset, this paper assesses the effects of the program on the employment chances of the participants. A matching estimator, based on propensity scores is used to estimate treatment effects by comparing employment outcomes of participants and non-participants. After adjusting for observable differences between participants and non-participants, a positive and highly significant treatment effect of the program is estimated. The employment rate of the participants is about 33 percentage points higher than that of the matched control group. Additional analysis reveals that the program is effective also for various subgroups in the sample. The estimated result is not sensitive to different definitions of the outcome variable and different matching estimators.