Coping with crises : why and how to protect employment and earnings

Events of the past two years are a reminder that crises are a recurring phenomenon with deep and often protracted impacts on labor markets. This paper examines the challenges inherent in crafting policy responses, with particular attention to developing countries. It focuses on the potential tradeoffs between offsetting adverse short-term impacts and preserving incentives for economic recovery and future growth, and between protecting the most vulnerable and compensating those most immediately impacted. It also highlights how policymakers’ room for maneuver is constrained in crisis times by deteriorating fiscal space, limited institutional capacity, and mounting political pressures. Based on empirical evidence from previous crises, the paper asserts that taking a myopic and reactive approach may be costly and counterproductive. Instead, it advocates a more comprehensive approach, designed to build institutions - such as automatic stabilizers and safety nets - that can deliver a coordinated and coherent policy package. This approach will make crises catalysts for institutional changes and long-run growth.Labor Markets,Labor Policies,Safety Nets and Transfers,Banks&Banking Reform,Population Policies

Fewer Jobs or Smaller Paychecks? Labor Market Impacts of the Recent Crisis in Middle-Income Countries

This note presents early evidence on the labor market impacts of the recent economic crisis in 41 middle-income countries.A broader geographic coverage is prevented by the lack of high-frequency labor market data in other middle-income countries and in the low-income countries. Whereas the economic downturn has threatened recent progress in enhancing employment opportunities, the impact has fallen disproportionately on the quality of employment rather than on the number of jobs. Slower growth in earnings accounts for nearly three quarters of the total adjustment for the average country. The bulk of the earnings adjustment was driven by a reduction in working hours, as well as a shift away from the better-paid industrial sector. Evidence of the adjustment’s nature and magnitude suggests a policy package that combines (1) income maintenance programs—that is, cash transfers to low-paid poor workers; (2) interventions that facilitate flexible-hours arrangements; and (3) innovative policies that provide workers access to income maintenance mechanisms to compensate for temporary reductions in standard working hours—for example, by granting partial compensation from the unemployment benefit system or by providing paid training opportunities.jobs, wages, labor market, financial crisis, middle-income countries, employment, growth, earnings, unemployment, cash transfers

Fewer jobs or smaller paychecks ? aggregate crisis impacts in selected middle-income countries

This paper reviews evidence from 44 middle-income countries on how the recent financial crisis affected jobs and workers'incomes. In addition to providing a rare assessment of the magnitude of the impact across several middle-income countries, the paper describes how labor markets adjusted and how the adjustments varied for different types of countries. The main finding is that the crisis affected the quality of employment more than the number of jobs. Overall, the slow-down in earning growth was considerably higher than that in employment, and the decline in gross domestic product was associated with a sharp decline in output per worker, particularly in the industrial sector. In several counties, hours per worker declined and hourly wages changed little. But both the magnitude and nature of the adjustments varied considerably across countries. For a given drop in gross domestic product, earnings declined more in countries with larger manufacturing sectors, smaller export sectors, and more stringent labor market regulations. In addition, overall employment became more sensitive to growth in gross domestic product. These findings have implications that go beyond the recent financial crisis as they highlight (i) the limitations of focusing policy responses on maintaining jobs and providing alterative employment or replacement income for the unemployed, and (ii) the critical role of fast-track data systems that are capable of monitoring ongoing labor market adjustment during economic downturns, in supporting the design of effective policy responses.Labor Markets,Labor Policies,Banks&Banking Reform,Markets and Market Access,Labor Management and Relations

The hidden costs of ethnic conflict - decomposing trends in educational outcomes of young Kosovars

The authors examine the impact of ethnic segmentation in education on educational outcomes. Between 1991 and the late 1990s, the Albanian Kosovar population received education services in an informal system parallel to the official one. Using the 2000 Kosovo LSMS Survey data, the authors exploit cohort differences in exposure to the parallel system to estimate its effects among Albanian youth. The first (untreated) cohort includes individuals who entered secondary education before 1991 when the"parallel"education system was initiated. The second (treated) cohort includes individuals who entered secondary school in the last ten years under the ethnically segmented education system. To disentangle the effects of the changing system and economic environment, and the changes in the characteristics of the population, a Oaxaca-type decomposition is used. The results suggest that the past decade of ethnic tension has claimed a substantial toll on the educational outcomes of young male Albanian Kosovars. In addition to declines in enrollment rates in secondary education, those who are enrolled are expected to complete one less year of education. However, secondary school enrollment for girls increased during the parallel system, but with a sharp decline in the expected number of years completed.Primary Education,Public Health Promotion,Teaching and Learning,Curriculum&Instruction,Health Monitoring&Evaluation,Primary Education,Curriculum&Instruction,Gender and Education,Teaching and Learning,Health Monitoring&Evaluation

Causes of inequality in health : who are you? where do you live? or who your parents were?

Data from the British National Child Development Study show that, among 33-year-olds, ill health (as measured by cardinalized responses to a question on self-assessed health) is concentrated among the worse off. The authors seek to decompose the inequalities in health status into their socioeconomic causes. In this decomposition, inequalities in health status depend on inequalities in each of the underlying determinants of health and on the elasticities of health status with respect to each of these determinants. The authors estimate these elasticities using regression models that allow for unobserved heterogeneity at the community level. They find that inequalities in unobserved community-level influences account for only 6 percent of health inequality, and inequalities in parental education and social class for only 4 percent. Inequalities in income and housing tenure account for most health inequality, though inequalities in educational attainment and in math scores at age seven also play a part.Health Systems Development&Reform,Public Health Promotion,Health Monitoring&Evaluation,Early Child and Children's Health,Disease Control&Prevention,Health Monitoring&Evaluation,Agricultural Knowledge and Information Systems,Housing&Human Habitats,Gender and Health,Regional Rural Development

Economic growth, income distribution, and poverty in Poland during transition

The authors attempt to analyze the linkages between macroeconomic policies and economic growth variables, their movement over time, and their impact on poverty in the case of Poland. Poland, a middle-income country, is of particular interest because its data sources allow for a relatively detailed analysis of such developments, and the macroeconomic environment and the economic growth variables show a relatively sizable degree of variance. In addition, Poland has struggled in the past few years to reduce poverty while still experiencing positive economic growth. The authors show that in Poland, poverty-reducing growth depends heavily on the ability of the economy to generate jobs. During the early years of transition, net job growth was positive, while after the Russian crisis of 1998, productivity gains were accomplished mostly through labor shedding, henceforth, increasing poverty in Poland. In addition, the authors identify how fiscal and social protection policies affect income distribution and poverty in Poland.Economic Theory&Research,Environmental Economics&Policies,Services&Transfers to Poor,Poverty Impact Evaluation,Economic Conditions and Volatility,Inequality,Governance Indicators,Environmental Economics&Policies,Achieving Shared Growth,Economic Theory&Research

Understanding the impact of economic shocks on labor market outcomes in developing countries : an application to Indonesia and Mexico

In this paper the authors use a search and matching model of multi-sector labor markets, to understand the channels through which economic shocks affect labor market outcomes in developing countries. In the model workers can be employed in agriculture, formal or informal urban jobs, or unemployed. Economic shocks are manifested as either increased turbulence in the formal/informal sectors or a decrease in overall sectoral productivity. By calibrating the model to Indonesia and Mexico, the authors are able to understand how the 1998 Indonesian crisis and the 2001 Mexican recession translated into labor market outcomes. They then venture to simulate how the current financial crisis might affect the allocation of labor and earnings across sectors, in these countries. The results suggest that in both countries past crises have increased the degree of turbulence of the formal sector, increasing job destruction. However, while in Indonesia the crisis affected the overall formal sector productivity, this was not the case in Mexico. This explains the larger blow to formal wages -- relative to the size of the shock- witnessed by Indonesian workers. The response of the informal sector was also different: In both countries the informal sector was able to act as a buffer, as relative earnings increased. However, while in Mexico it became much harder to find informal sector opportunities and easier to keep the job once found; in Indonesia turbulence in the informal sector increased substantially increasing the job destruction rate of informal jobs andlimiting the cushioning role that the informal sector might have played. The agricultural sector was spared from the shock in both countries. In Indonesia, it actually benefited from an unusual exogenous increase in the price of rise. The simulations show that if either the informal or agricultural sectors are spared from the shocks, large reallocations of labor might occur, and the overall effect of the shock is smaller. Instead, if these sectors can’t buffer the shock, the reallocation of labor is much smaller, but earnings in the formal sector drop substantially. The authors also explore the impact of alternative policies. They find that in relatively flexible markets where informality can be seen more as a choice rather than as queuing, unemployment benefits and informal employment subsidies may have paradoxical effects, by discouraging formal search. Instead, policies targeted at creating informal employment and boosting formal TFP growth have the desired effects.Labor Markets,Labor Policies,Markets and Market Access,Banks&Banking Reform,Economic Theory&Research

Avoiding the Eye of the Storm: How to Deal Effectively with Job Crises

Although economic crises are difficult to predict, their recurrence is a salient feature of emerging market economies. Nevertheless, many developing countries continue to lack an effective policy infrastructure that can mitigate the impacts of economic downturns on employment opportunities without affecting long-term growth prospects. This was painfully highlighted by the hasty reactions implemented by many countries in response to the global downturn of 2008–9, and by the ad hoc and reactive nature of many of the policies implemented. The weak ability of governments to systematically foresee, monitor, and offset adverse labor market impacts of economic downturns is of particular concern in developing countries where poverty incidence is high and labor is typically the only asset for the majority of the population (Lustig 2000). The main objectives of this note1 are (i) to highlight the need for policies that limit earnings volatility and (ii) to guide policy makers through the challenges inherent in crafting effective and comprehensive policy packages.financial crisis, jobs, developing countries, growth, employment, unemployment, labor, poverty, labor market, recovery

Does employment generation really matter for poverty reduction ?

This paper analyzes how the employment/productivity profile of growth and its sectoral pattern are correlated with poverty reduction. The authors use a sample of 104 short-run growth spells in developing countries, between 1980 and 2001. They also identify some conditions of the labor market and the economic environment that are associated with employment-intensive growth or specific sectoral growth. The results show that, inthe short run, although the aggregate employment-rate intensity of growth does not matter for poverty reduction any more than the aggregate productivity intensity of growth, the sectoral pattern of employment growth and productivity growth is important. Employment-intensive growth in the secondary sector is associated with decreases in poverty, while employment-intensive growth in agriculture is correlated with poverty increases. Similarly, productivity-intensive growth in agriculture is associated with decreases in poverty. Although the study does not address causality, coincidence of these phenomena in this large sample of heterogeneous countries and periods suggests that, in the short run, the sectoral productivity and employment pattern of growth may have important implications for poverty alleviation. Therefore, policies for reducing poverty should not overlook the sectoral productivity and employment implications of different growth policies.Achieving Shared Growth,Labor Policies,Rural Poverty Reduction,Labor Markets,Population Policies

Does Employment Generation Really Matter for Poverty Reduction?

In this paper we analyze whether the employment/productivity profile of growth as wellas its sectoral pattern matter for poverty reduction. We also identify some conditions of the labor market which are associated with employment intensive growth or specific sectoral growth. We find that, in the short run, while the overall employment intensity of growth does not matter for poverty reduction, the sectoral pattern of employment growth and productivity growth is important. While employment intensive growth in the secondary sector appears to be associated with decreases in poverty, employment intensive growth in agriculture increases poverty. Similarly productivity intensive growth in agriculture is associated with poverty reduction. The results suggest that focusing on the aggregate employment elasticity of growth, alone, as a way to reduce poverty may lead to misleading policy recommendations and more be gained by focusing on secondary sector.http://deepblue.lib.umich.edu/bitstream/2027.42/55769/1/Does Employment Generation Really - Paci.pd