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

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

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

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

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: 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

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

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

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;

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 Impct on savings and assets

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

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

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 insurance Year over year growth in number of registered unemployed and unemployment insurance beneficiaries between 2008 and 2009 Unemployment insurance beneficiaries Registered unemployed Unemployment insurance – first benefits to reach crisis-affected households

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

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

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.

Concluding Remarks

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

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