This report lays out a strategy for Ukraine to make the transition to a market economy in the social sectors, taking into account the widespread system of benefits and the high spending on education and health inherited from the former Soviet Union. A central part of this strategy is the need to protect vulnerable groups during the transition, but within a financially sustainable framework. After a description of social conditions and social protection, the report considers the shift of the labor force from a command to a market economy. It then examines the advantages of converting the current system of social protection to a poverty-focused, sustainable safety net approach, including support for labor-force resassignment. It explores opportunities for enhancing the efficiency and quality of social service, education, and health programs. Key elements of these programs must be maintained through the transition as part of a safety net and as a cornerstone of policies encouraging economic growth investments in human capital.