1. M. Ihsan Ajwad The World Bank
The Jobs Crisis Household and Government Responses to the Great Recession in Europe and Central Asia
M. Ihsan Ajwad
The World Bank

2. Crisis monitoring Crisis Response Surveys
Assess primary transmission channels
Determine household responses and welfare impacts (health/education expenditures and food security)
Armenia (HBS, Government), Bulgaria (OSI), Latvia (LFS, Government), Montenegro, Romania, Turkey (panel survey)
Government administrative data
Social policy monitoring

3. Outline of the presentation
Anatomy of the crisis
Labor market impacts
Household coping
Government responses
Concluding remarks

4. The GDP contraction was harsh in some countries but not others
The GDP contraction depended on government and private debt, remittances, and exports
Source: Staff calculations based on IMF, World Economic Outlook Database, October 2010

5. Crises affect households through four channels

6. Labor market impacts of the crisis

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

8. Unemployment increased sharply in most European and Central Asian countries

9. Unemployment: Some groups affected more than others
Male representation among the unemployed increased
Youth unemployment twice the adult rate
Long-term unemployment increased
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

10. Decreases in earnings were more common than job losses in many countries studied

11. The dynamics behind earnings reductions varied across the region
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) Remittance flows fell sharply

12. 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.
Sources: Staff calculations based on IMF, World Economic Outlook Database, October 2010 and ILO, LABORSTA database;

13. Household coping strategies

14. 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
Impct on savings and assets

15. Coping Strategy: Increase Disposable income
Households tried to increase labor supply

16. Coping Strategy: Increase Disposable income
Households tried to increase labor supply
But many, especially poor, were not successful
(evidence from Bulgaria)

17. 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

18. Coping Strategy: Reduce Expenditures
Households adopted risky coping strategies

19. Government Responses

20. First response: Unemployment insurance
Year over year growth in number of registered unemployed and unemployment insurance beneficiaries between 2008 and Unemployment insurance beneficiaries Registered unemployed
Unemployment insurance – first benefits to reach crisis-affected households

21. Active labor market programs were scaled up in several countries
From Kuddo (2009/2010)
Counting training both as income support AND as employability
Depicts frequency of policy measures only
A lot of countries did many things at the same time
Including many measures for new hires
Question: given the increase in expenditures as a response to the crisis, will some of this measures which were meant as a crisis response—be kept as permanent measures? Eg, wage subsidies for the currently employed would be converted to industry subsidies

22. Social Policy Response: Last Resort Social Assistance
Number of beneficiaries of last-resort social assistance programs and number of 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

23. 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
Education budget protection: most countries
Health budget protection: half of the countries
Source: Ministry of Finance of relevant countries and IMF, World Economic Outlook Database, October 2010.

24. Concluding Remarks

25. Improve crisis responses with proactive measures
Unemployment insurance
Social Assistance
Make automatic stabilizers more responsive
Unemployment insurance parameters
Social assistance parameters and activation conditions
Binding minimum wages
Adjust program parameters to reflect crisis conditions
Public works
Other programs
Activate new programs to fill coverage gaps

26. A good crisis response requires fiscal discipline, planning and data
Build up savings for hard times with prudent fiscal policies during good times
Factor in Efficiency costs
Collect reliable and timely monitoring indicators