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The Jobs Crisis. Household and Government Responses to the Great Recession in Eastern Europe and Central Asia

Overview

The effects of the 2009 global financial crisis were more acutely felt in the Eastern Europe and Central Asia region than in any other region in the world. In a short period of time, property values plummeted, the value of retirement accounts shrank, household savings evaporated, and general consumer and producer confidence disappeared. Deteriorating macroeconomic conditions led to deteriorating household welfare, as unemployment increased and as workers who kept their jobs took home smaller paychecks. Households were forced to cope, but sometimes those coping strategies put households at a higher long-term risk, e.g. by reducing spending on health care. More positively, most households kept their children in school. Governments reacted to the crisis through social policy reforms and initiatives. Unemployment benefits played a particularly important cushioning role but coverage of the unemployed tended to be limited. Poverty targeted social assistance programs often reacted only with a lag and suffered from low coverage in some countries. Strengthening automatic stabilizers, adjusting program parameters and starting new programs can help Governments improve crisis responses in the future.

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The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia
Interview with M. Ihsan Ajwad: The Jobs Crisis in Eastern Europe and Central Asia
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The Jobs Crisis Report -- Key Findings Click here

 

Chapter 1: Introduction
The financial crisis, which began in the United States and Western Europe swiftly expanded into an economic crisis throughout developing countries. Eastern Europe and Central Asia was the hardest hit region in the world, and the crisis led to unprecedented fiscal pressures. The macroeconomic deterioration led to household pain as labor markets deteriorated and as governments implemented austerity measures.

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Chapter 2: Labor Market Impacts
One of the primary transmission channels of the crisis was through the labor market. Unemployment increased sharply, and unemployment lasted longer. Those workers who kept their jobs took home smaller paychecks, as firms controlled labor costs by reducing the number of hours of work, shifting worker status to temporary contracts, and accumulating wage arrears. Men became more highly represented among the unemployed, and youth struggled to secure their first job.

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Chapter 3: Household Coping Mechanisms
Confronted by an income shock, families tried two strategies. First, families took steps to increase incomes, by inserting non-working members of the family into the labor force, by increasing the number of hours of work, borrowing, and tapping formal and informal safety nets. Second, families took steps to reduce expenditures, but some of those measures (food expenditures, health care utilization) could have an impact on nutrition and health in the long run.

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Chapter 4: Social Policy Responses to Protect Households
Many Eastern European and Central Asian countries took steps to protect human welfare and long-term human capital. Measures to protect affected households included gearing up automatic stabilizers such as unemployment insurance, scaling up active labor market programs, strengthening last-resort social assistance, or maintaining or increasing minimum pensions. In addition, evidence from a few countries shows steps to ensure access to health and education services, especially for the poorest in the population.

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Chapter 5: Improving Responses to Subsequent Crises

Effective crisis responses are those fiscally responsible measures that are timely, targeted, and temporary. There are three pillars to an effective crisis response: (i) automatic stabilizers, (ii) adjusters, and (iii) starters. Governments in the region can improve their crisis responses by making automatic stabilizers more responsive and broad based; adjusting program parameters to the conditions on the ground; and starting new programs to fill coverage gaps that emerge. However, to enable an efficient and flexible crisis response, governments can benefit from fiscal discipline during good times and reliable and timely monitoring systems.

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Report
The Jobs Crisis. Household and Government Responses to the Great Recession in Eastern Europe and Central Asia