THE JOBS CRISIS

HOUSEHOLD AND GOVERNMENT RESPONSES TO THE GREAT RECESSION IN EUROPE AND CENTRAL ASIA

M. Ihsan Ajwad

The World Bank1

CRISIS MONITORING

2

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

OUTLINE OF THE PRESENTATION

1. Anatomy of the crisis2. Labor market impacts3. Household coping4. Government responses5. Concluding remarks

3

THE GDP CONTRACTION WAS HARSH IN SOME COUNTRIES BUT NOT OTHERS

4

Latvia

Ukrain

e

Lithua

nia

Armen

ia

Estonia

Russia

Sloven

ia

Roman

ia

Mold

ova

Hunga

ry

Croati

a

Mon

teneg

ro

Bulgari

a

Turke

y

Slovak

Rep

ublic

Czech

Rep

ublic

Georg

ia

Bosnia

and H

erzeg

ovina

Serbia

Mac

edon

ia, F

YR

Belaru

s

Kazak

hstan

Poland

Kyrgy

z Rep

ublic

Albania

Tajikis

tan

Kosov

o

Turkm

enist

an

Uzbek

istan

Azerb

aijan

-20

-15

-10

-5

0

5

10Real GDP Growth (%), 2009

Eastern Europe and Central Asia -5.2%

Source: Staff calculations based on IMF, World Economic Outlook Database, October 2010

CRISES AFFECT HOUSEHOLDS THROUGH FOUR CHANNELS

5

LABOR MARKET IMPACTS OF THE CRISIS

6

WHEN OUTPUT DEMAND FALLS, FIRMS USE SEVERAL STRATEGIES TO CONTROL LABOR COSTS

7

UNEMPLOYMENT INCREASED SHARPLY IN MOST EUROPEAN AND CENTRAL ASIAN COUNTRIES

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%Change in the number of survey-based

unemployed, 2008-2009

8

UNEMPLOYMENT: SOME GROUPS AFFECTED MORE THAN OTHERS

Male representation among the unemployed increased

Youth unemployment twice the adult rate Long-term unemployment increased

9

DECREASES IN EARNINGS WERE MORE COMMON THAN JOB LOSSES IN MANY COUNTRIES STUDIED

Bulgaria Montenegro* Romania* Turkey0

5

10

15

20

25

30

35

40

5.12.5

5.3 7.2

15.4

6.7

12.6

18.0

15.0

2.2

2.7

5.2

Working-age individuals reporting working hours, wage rate, and employment reduction

Job Loss Reduced earnings working same or more hours

Reduced earnings working less hours

Per

cen

t of

wor

ker

s

10

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 RomaniaWage arrears and administrative leave used in some countries in the CIS (e.g. Russia)Remittance flows fell sharply

11

THERE WAS CONSIDERABLE VARIATION IN THE EMPLOYMENT ELASTICITY OF GDP

12

-20 -15 -10 -5 0 5

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

ALBBLR

BGR

HRVCZE

EST

HUN

KAZ

LVA

LTU

MKD

MDA

POL

ROM

RUS

SRB

SVK

SVN

TUR

UKR

f(x) = 0.504606113601435 x + 0.247434557107241

GDP growth versus total employment growth, 2008-2009

Real GDP growth, %

Tot

al e

mp

loym

ent

grow

th, %

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

HOUSEHOLD COPING STRATEGIES

13

HOUSEHOLDS COPING STRATEGIES

14

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

COPING STRATEGY: INCREASE DISPOSABLE INCOME

Households tried to increase labor supply

15Armenia Bulgaria Latvia Montenegro Romania0

5

10

15

20

25

30

35

40 Percent of households that increased labor supply in 2009 rel-ative to 2008

Not Affected Affected

COPING STRATEGY: INCREASE DISPOSABLE INCOME

Households tried to increase labor supplyBut many, especially poor, were not successful

(evidence from Bulgaria)

161 (Poorest) 2 3 4 5 (Richest)

0

10

20

30

40

50

60

70

Found a job

Did not find a job

Quintiles based on per capita income

Per

cen

tage

of

hou

seh

old

s

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 decreasedo Some evidence of health insurance

disenrollment

17

COPING STRATEGY: REDUCE EXPENDITURES

18

Q1 (Poorest)

2 3 4 Q5 (Richest)

0

5

10

15

20

25

30

35

40Bulgaria

Stopped buying regular medicinesSkipped preventative health visitsDid not visit the doctor after falling ill

Asset Quintile

Households adopted risky coping strategies

1 2 3 4 50

5

10

15

20

25

30 Montenegro

Cancelled insurance

Reduced preventive care

Asset Quintile

Per

cen

t h

ouse

hol

ds

that

ad

opte

d c

opin

g st

rate

gy

GOVERNMENT RESPONSES

19

FIRST RESPONSE: UNEMPLOYMENT INSURANCE

20

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

0%

10%

20%

30%

40%

50%

60%

70%

Armenia

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec-20%

0%

20%

40%

60%

80%

100%

120%

140% Bulgaria

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

0%

50%

100%

150%

200%

250%

300%

350% Estonia

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ov Dec

0%20%40%60%80%

100%120%140%160%180% Latvia

Year over year growth in number of registered unemployed and unemployment insurance beneficiaries between 2008 and 2009 Unemployment insurance beneficiaries Registered unemployed

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

-20%-10%

0%10%20%30%40%50%60%70%80%

Poland

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

0%

50%

100%

150%

200%

250%

300%Romania

Jan

Feb

Mar

Apr

May Jun Jul

Aug Sep

Oct

Nov Dec

0%10%20%30%40%50%60%70%80%90%

Russia

Jan

Feb Mar

AprM

ay Jun Ju

lAug

Sep OctNov

Dec

0%

40%

80%

120%

160%

Turkey

Jan

Feb

Mar

Apr

May Jun Jul

Aug Sep

Oct

Nov Dec

-50%-40%-30%-20%-10%

0%10%20%30%40%50% Ukraine

ACTIVE LABOR MARKET PROGRAMS WERE SCALED UP IN SEVERAL COUNTRIES

Mon

teneg

ro

Bulga

ria

Slove

nia

Latvia

Lithua

nia

Estoni

a

Croati

a

Bosni

a & H

erzeg

ovin

a

Armen

ia0.00

0.10

0.20

0.30

0.40

0.50

0.60

200820092010 (planned)

Budgets for active labor market programs as a percent-age of GDP

SOCIAL POLICY RESPONSE: LAST RESORT SOCIAL ASSISTANCE

22

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)

Jan

Feb

Mar

Ap

rM

ay Jun

Jul

Au

gS

ep Oct

No

vD

ec Jan

Feb

Mar

Ap

rM

ay Jun

Jul

Au

gS

ep Oct

No

vD

ec

2008 2009

70,000

72,000

74,000

76,000

78,000

80,000

82,000

84,000

86,000

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000 Armenia

Number of registered unemployed (left axis)

Number of beneficiaries (right axis)Ja

nFe

bM

arA

prM

ay Jun

Jul

Aug Se

pO

ctN

ov Dec Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec

2008 2009

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

360,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000 Bulgaria

Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec

2008 2009

26,000

27,000

28,000

29,000

30,000

31,000

32,000

12,000

12,200

12,400

12,600

12,800

13,000

13,200 Montenegro

Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec

2008 2009

200,000

300,000

400,000

500,000

600,000

700,000

800,000

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000 Romania

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ov Dec Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ov Dec

2008 2009

700,000

720,000

740,000

760,000

780,000

800,000

820,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000 Serbia

Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec Jan

Feb

Mar

Apr

May Ju

nJu

lA

ug Sep

Oct

Nov Dec

2008 2009

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000 Ukraine

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

23

Latvia

Ukrain

e

Armen

ia

Russia

Roman

ia

Mold

ova

Mon

teneg

ro

Croati

a

Bulgari

a

Turke

y

-20

-15

-10

-5

0

5

10

15

Real GDP and Education spending growth, 2009

GDP Education spending

Total government expenditure

per

cen

t ch

ange

Latvia

Ukrain

e

Armen

ia

Russia

Roman

ia

Mold

ova

Mon

teneg

ro

Croati

a

Bulgari

a

Turke

y

-20

-15

-10

-5

0

5

10

15

20Real GDP and Health spending growth, 2009

GDP Health spending Total government expenditure

per

cen

t ch

ange

Source: Ministry of Finance of relevant countries and IMF, World Economic Outlook Database, October 2010.

CONCLUDING REMARKS

24

IMPROVE CRISIS RESPONSES WITH PROACTIVE MEASURES

25

• 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

A GOOD CRISIS RESPONSE REQUIRES FISCAL DISCIPLINE, PLANNING AND DATA

26

Build up savings for hard times with prudent fiscal policies during good times

Factor in Efficiency costs Collect reliable and timely monitoring

indicators