Informing Human Development: An ESW Fair The Jobs Crisis Household and Government Responses to the Great Recession in Eastern Europe and Central Asia M. Ihsan Ajwad The World Bank Informing Human Development: An ESW Fair January 12, 2011

Tools to monitor the social impacts of the crisis Crisis Response Surveys Armenia (HBS, Government) Bulgaria (OSI) Latvia (LFS, Government) Montenegro Romania Turkey (panel survey) Government administrative data Social policy monitoring

Outline of the presentation Transmission channels of the crisis Labor market impacts Household coping Government responses Concluding remarks

Crises affect households through four channels

Labor market impacts of the crisis

When output demand falls, firms use several strategies to control labor costs

Unemployment increased sharply in most European and Central Asian countries

Unemployment: disaggregated Male representation among the unemployed increased Youth unemployment at record highs Long-term unemployment increased sharply Stronger competition for jobs: Number of registered job seekers per vacancy increased by 67 percent for 24 Eastern Europe and Central Asia countries Even greater increases in Latvia, Slovakia, and Estonia

There was considerable variation in the employment elasticity of GDP Notes: ALB: Albania; ARM: Armenia; AZE: Azerbaijan; BGR: Bulgaria; BLR: Belarus; CZE: Czech Republic; EST: Estonia; HRV: Croatia; HUN: Hungary; KAZ: Kazakhstan; KGZ: Kyrgyz Republic; LTU: Lithuania; LVA: Latvia; MDA: Moldova; MNE: Montenegro; POL: Poland; ROM: Romania; RUS: Russia; SRB: Serbia; SVK: Slovak Republic; SVN: Slovenia; TJK: Tajikistan; TUR: Turkey; UKR: Ukraine.

Job losses were accompanied more broadly by smaller paychecks Part-time employment Temporary employment (Latvia, Hungary, and Czech Republic) Real wages fell sharply in the Latvia, Lithuania, Slovenia, and Slovakia, but rose in Bulgaria, Czech Republic, and Romania Wage arrears and administrative leave used in some countries in the CIS (e.g. Russia)

Household coping strategies

Households Coping Strategies Source of shock to households Labor markets Financial markets Product markets Government services Household responses Increase disposable income Labor supply Dissaving/borrowing Informal safety nets Formal safety nets Reduce household expenditures Durable goods Food Education/health Insurance Other Household welfare impacts Impact on poverty Impact on long-term human capital accumulation Impact on savings and assets

Coping Strategy: Households tried to increase disposable income

Coping Strategy: Increase Disposable income Poor households were not as successful as increasing labor supply

Coping Strategy: Reduce Expenditures Food expenditures – fell along with expenditures on non-essential items Education consumption – generally protected Health spending – fell Health utilization decreased Expenditures on medicines decreased Some evidence of health insurance disenrollment

Coping Strategy: Reduce Expenditures Households adopted risky coping strategies

Government Responses

First response: Unemployment benefits Year over year growth in total registered unemployment and unemployment beneficiaries, 2008-2009 (%) Unemployment insurance beneficiaries Registered unemployed Unemployment insurance – first benefits to reach crisis-affected households

Social Policy Response: Last Resort Social Assistance Number of beneficiaries of last-resort social assistance (LSRA) programs and total registered unemployed Number of registered unemployed, thousands (left) Number of beneficiaries of LRSAs, thousands (right) Mixed response of Last Resort Social Assistance Programs (coverage low) Some countries altered programs to improve the crisis response Improving performance of existing programs (Armenia, Georgia) Relaxing eligibility criteria (Bulgaria, Georgia, Latvia, Romania) Introducing new programs or safeguards to protect vulnerable groups

Social Policy Response Minimum Pensions Scaled up or introduced to protect the poor: Armenia, Russia, Romania, Turkey High pension coverage in Eastern Europe and Central Asia: potential for immediate poverty relief Active Labor Market Programs scaled up Education budget protection: most countries Health budget protection: half of the countries

Concluding Remarks

Pillars of an effective crisis response Unemployment insurance benefits Last-resort social assistance Automatic stabilizers Unemployment insurance parameters Social assistance parameters Binding minimum wage levels Adjusters Public works Other programs (youth apprenticeships, second -chance education programs, etc.) Starters

A good crisis response requires fiscal discipline, planning and data Build up savings for hard times Factor in efficiency costs Collect reliable and timely monitoring indicators