Multi-Donor Trust Fund on Labor Markets, Job Creation and Economic Growth: ILO/WB


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Investory of Policy Responses to the Financial and Economic Crisis

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  • Thank you all very much for your presence here today.This is a very special occasion for the ILO and for the World Bank because we have been working together for three years in this project and I am extremely pleased to finally be able to make available to the public the largest database or inventory on crisis response measures that exists in the World today. This inventory is an important public good. We hope many researchers and policy makers at the national, regional and global levels use it to do their own analysis and draw conclusions. I will give you a bit of background for the project and some selected findings and some recommendations contained in the report. The origin of this inventory can be traced back to the G20 Summit in London in April, 2009. In that occasion the leaders requested the ILO to assess the actions taken in terms of crisis response measures and those required in the future. And the leaders expected a report on this in their next summit in Pittsburg in September. In January 2010 the ILO and the WB agreed to partner to expand this inventory exercise, in terms of number of policy measures and number of countries. The database and the joint report on early findings are the result of this two year effort.
  • The information collected in the database covers the period mid 2008 to end of 2010.It covers 55 low- and middle income countries, and 22 high income countries.The questionnaire to collect the information used the framework of the Global Jobs Pact, which means we collected information in four major areas: employment promotion, social protection, social dialogue and ILS.We have put the database in a software which is user friendly, that allows searches by countries, by categories and subcategories of policy measures, and also by target population.
  • The objective of identifying the population targeted by each policy measure is ambitious but very important for policy assessments and to understand how the measures worked. The population targeted can be individuals and households or enterprises.  As regards Individuals and households the inventory tries to distinguish, whenever possible between the following groups: ChildrenElderlyDisabledEmployed workersLow-income households Low-skilled workers Migrant workersNon-regular workers Women and youth, etc As regards Enterprises, the inventory tries to distinguish between: SMEs; multinational enterprises (MNEs); Crisis-affected enterprises; start-ups and export-oriented enterprises.
  • Within each of these seven categories of measures you will find more detailed sub-categories. For instance, in the case of measures to increase labour demand, this is the list of sub-categories used. This gives you an idea that this is a complex and very rich database, and therefore a powerful tool for comparative research.  
  • THE REPORT PRESENTS EARLY RESULTS IN THE FOLLOWING 7 POLICY AREAS:The report presents early results in these 7 policy areas, as I mentioned.  
  • I would like to move now to some of the findings of our preliminary analysis as contained in the Joint Report. We would like to highlight four general conclusions or policy trends we identified in the database:First, Irrespective of the level of income, countries affected by the crisis reacted vigorously, in fact, much more vigorously than in previous crisis. This was probably due to the synchronized nature of the crisis and the strong transmission mechanisms throughout the world. In most cases policy responses led to a recovery in GDP growth, but not to a significant increase in jobs.Second, there was not a single pattern of response. Countries had different policy responses according to their own specificities and circumstances. However, some common patterns of intervention were observed for low and middle income countries on the one hand, and high income countries, on the other. In a minute we will point out some of these patterns.Third, the crisis generated fears that it could lead to downward pressures on labour rights, as enterprises have less demand and cash flow, workers negotiating power is diminished during recessions, and budget constraints make it more difficult for governments to monitor compliance. In fact, the GJP recommended increased vigilance to avoid violations of fundamental principles and rights at work. In this respect, the main finding based on the inventory is that most crisis response measures were in compliance with International Labour Standards. However, some exceptions were observed, which are documented in detail in the reports of the ILO Committee of Experts on the Application of Conventions and recommendations. Fourth, the database captures the fact that there were many consultations where workers, employers and governments discussed policy measures in response to the crisis, and often entire national crisis response policy packages. However, in the 77 countries, only 14 cases of formal national or sectoral agreements were observed.
  • In the fifth year after the outbreak of the global financial crisis, global growth has decelerated and unemployment has started to increase again, leaving an accumulated total of some 197 million people without a job in 2012. Moreover, some 39 million people have dropped out of the labour market as job prospects proved unattainable, opening a 67 million global jobs gap since 2007.
  • Most of the countries surveyed, regardless of level of income, undertook fiscal and monetary stimulus, while only a few adopted austerity measures. Low and middle income countries relied more on expenditure increases than in tax cuts.High income countries relied more on tax cuts than on expenditure increases.
  • Sectoral policies were also critical in crisis response: including the financial sector, housing, exports, agriculture and other sectors. This graph presents the size of sectoral budgets. In the high-income countries sectoral budgets are dominated of course by the financial sector, reflecting the banking bailouts and other measures to repair the sector. In low- and middle-income countries sectoral budgets prioritized several real sectors of the economy, mostly manufacturing, agriculture and infrastructure.
  • Most of the countries surveyed intervened to protect employment or create jobs. This was mainly done through two types of policies: wage subsidies (mainly used in high income countries) and public works and services (mainly used in MICs and LICs). Wage subsidies took the form of reductions in social security contributions rates or direct payments to employers and were either targeted to current employees or new entrants. Out of 77 countries in the inventory, 24 countries decreased their social security contributions during the crisis, including ten on a permanent basis (Bulgaria, Colombia, Czech Republic, Germany, Hungary, Macedonia, Poland, Spain, Sweden, and Turkey), and the rest on a temporary basis (between five months and twenty-four months).[can make reference The Turkish Model of Supporting Employment through reduced Social Security Contributions – to illustrate a case]Public Works: Countries that were able to deploy public works during the crisis already had the systems to do so in place. This was the case, for instance, of Mexico’s Temporary Works Program (TWP). Countries that tried to implement these programmes from scratch were unable to do so in a timely manner. A good example is the Temporary Income Support Program (PATI) in El Salvador.
  • When it comes to interventions to preserve skills and connect people to jobs, the focus in middle and low income countries was on employment services and training. The latter focused both on the employed (often as part of work-sharing arrangements) and the unemployed (through skills training and job matching via public employment services). Some countries, such as Germany and Sweden, expanded existing training programmes by up to 36 per cent of the labour force. In Latvia, the number of participants in training programmes increased from 8,600 in 2008 to 29,200 in 2009, and in the Russian Federation, from 248,000 to 453,000. Pros and Cons: It is debatable whether investing in employment services is helpful at a time when the number of vacancies is much lower than the number of unemployed – probably this type of policy can be more effective during the recovery. Having said that - training programs are a good use of resources. Why? Because it is important to avoid that the unemployed loose their human capital and later have more difficulties in finding a new job. But, the training has to deliver relevant skills and it is unclear that this is the case with many public training programs in LICs and MICs.
  • It is interesting to observe that regardless of income-level the majority of countries surveyed (69 out of 77) expanded insurance and assistance programs. Countries with unemployment benefits schemes (unfortunately very few in LICs and MICs) increased the duration and level of unemployment benefits. Governments in several countries facilitated access to pensions and health services. A potential problem with the expansion of insurance programs is that they are more likely to benefit formal sector workers – in many cases a minority of the labor force and those less affected by the crisis. Countries also expanded safety nets that protect the poor but is likely that informal sector workers with incomes high enough to be excluded, did not have access to any type of income protection program. Among the social assistance transfers, Conditional cash transfers (CCT) were most common. In Brazil, the BolsaFamilia program quickly responded by expanding coverage to 12 million families and increasing the amount of transfers by 10 per cent in 2009.  
  • In some countries, Pacts, that is agreements reached between governments, trade unions and social partners at the highest level of responsibility over integrated policy packages were implemented. Given the severity of the crisis in particular sectors (construction, finances, and exports), major agreements were also reached at the sector level.  Out of 77 countries, 14 adopted tripartite national-level agreements or major agreements at the sector level to prepare their crisis responses. This includes including seven in Europe for example Germany, Poland, Switzerland, Italy, four in Americas (for example, Brazil, Jamaica) two in Asia (Korea and Japan), and one in Africa (South Africa). The strong regional trends reflect the historical development of industrial relations in Europe.Social dialogue is even more important during crisis, because it can speed up the recover, it can help the economy to move to a new equilibrium more quickly, through information sharing, and also because it build trust and consensus to implement policies leading to recovery. The Social Dialogue sector has produced publications on that (for example, Ghellab, or Hayter, or Rychly). But let me allow to quote a WB report on that:“An interesting but often overlooked, feature of collective bargaining is its capacity to provide insurance against shocks arising from international markets.”(Aidt, Toke; Tzanattos, Zafiris (2003) Unions and Collective Bargaining: Economic Effects in a Global Environment, The World Bank, 2003, 184 pages World Bank: Washington.) Turning to explanatory factors of the recourse to social dialogue during the crisis, a paper produced in collaboration with the Social dialogue identified freedom of association, the severity of the crisis, the strength of unions are major determinants. This paper is available at the back of the room. Social dialogue in ThailandNot directly linked to the crisis. Support from government, employers, TU, employers to support activity towards campaining for decent work for domestic workers, and their coverage under minimum wage protection, in-kind benefits, days of leave, and other benefits.
  • The crisis generated fears that it could lead to downward pressures on labour rights, as enterprises have less demand and cash flow, workers negotiating power is diminished during recessions, and budget constraints make it more difficult for governments to monitor compliance. In fact, the GJP recommended increased vigilance to avoid violations of fundamental principles and rights at work. In this respect, the main finding based on the inventory is that most crisis response measures were in compliance with International Labour Standards. However, some exceptions were observed, which are documented in detail in the reports of the ILO Committee of Experts on the Application of Conventions and recommendations.
  • Unlike previous crises, there was considerable government intervention to mitigate the impacts of the economic downturn. Not only did a majority of effected countries used expansionary fiscal and monetary policies to stimulate the economy, they also directly intervened to protect or create employment, preserve skills and facilitate the matching between job-seekers and employers, and protect the incomes of the unemployed and vulnerable groups. In many cases, social dialogue helped guide the policy response. But there are questions about how well prepared countries were to respond to the economic crisis, particularly developing countries. Many countries, for instance, did not have significant social security programs that could be scaled up during the crisis. In addition, across the board, the coverage of social insurance programs was low. Active labor market programs such as employment services, training, and wage subsidies, were also commonly used, but there are concerns in terms of their current design. Finally, many countries (60 percent of LICs) lack surveys or administrative data to track the impacts of the crisis on labor markets and workers.  The report recommends that countries focus on: (i) improving the coordination between macro and sectoral policies; (ii) expanding the coverage of social insurance to all workers; (iii) integrating and strengthening safety nets; iv) rethinking the design of active labor market programs including those used to stimulate labor demand; (v) investing in labor market information systems; and (vi) promoting social dialogue and increasing vigilance to avoid violations of rights at work.
  • Multi-Donor Trust Fund on Labor Markets, Job Creation and Economic Growth: ILO/WB

    1. 1. ILO / WB - Inventory of Policy Responses to theFinancial and Economic CrisisDatabase & Joint Synthesis Report29 April 2013Catherine SagetEmployment Policy Department(EMP/POL), ILO GenevaMDTF Steering CommitteeMeeting, Paris
    2. 2. • Information was collected over a two-year period (mid-2008 to end-2010)• Comprises 55 low-income and middle-income countries and 22 high-incomecountries• User-friendly, allows queries by countries, by categories and sub-categories ofpolicy measures, and also by target population, as shown in the screen-shotsThe Database
    3. 3. • Data includes:– Targeted economic sector of the economy– Target population– Enterprises– Cost– Number of beneficiaries– Expected or estimated impact– Role of social partners• Information is organized around seven policycategories:– macroeconomic policies– measures to increase labour demand– active labour market policy– unemployment benefits– other social protection measures– social dialogue– labour standardsThe Database
    4. 4. • Nested in each of these seven categories are moredetailed and specific sub-categories. Forexample, measures to increase labour demandincludes:– access to public tenders– credit facilities and access to credit guarantees– employment retention measures– other special measures for SMEs, microenterprises, andcooperatives;– payment facilities– public sector job creation– subsidies for job creation that are targeted on newlycreated jobs;– other subsidies of various sorts– supportive regulatory environment for sustainableenterprises,– tax reductions– wagesThe Database
    5. 5.  Target population includes:– Individuals and households:• Children• Elderly• Disabled• Employed workers• Economically active• Low-income households• Low-skilled workers• Migrant workers• Non-regular workers• Senior workers• Public sector employees• Rural workers• Self-employed• Unemployed• Women and youth– Enterprises:• SMEs and multinational enterprises (MNEs)• Crisis-affected enterprises• Start-ups and export-oriented enterprisesThe Database
    6. 6. Report presents early resultsin 7 areas:• Macroeconomic and sector policies• Policies to generate labour demand• Programmes to facilitate job matching andpreserve skills• Building social protection systems and protectingpeople• Minimum wages• Social dialogue• Labour standards
    7. 7. Four general conclusions onpolicy responses• Irrespective of the level of income, countries affected by thecrisis reacted vigorously• Countries had different policy responses according to theirown circumstances; however, different patterns ofintervention were observed for low and middle incomecountries compared to high income countries• Most crisis response measures were observed to have been incompliance with International Labor Standards• There were many consultations where workers, employersand governments discussed policy responses to the crisis. Ofthe 77 countries, 14 resulted in formal national or sectoralagreements.
    8. 8. Significance of exercise & earlyresults Historical significance of policy inventory exercise Crisis continues to have a significant impact on the world economyILO Global Employment Trends, January 2013 showed deterioration oflabour market prospects.Following a short recovery in 2010, global prospects have weakenedGlobal policy, after an initial coordinated stimulus, appears adrift. Early policy findings from first analytical cut of policyinventory, implications for research, directions for follow-up Methodology: (a) Incidence is aspirational; (b) Budgets show doability Emphasise some key findings, implications:1. Sequencing of policy2. Targeting3. Transfers vs. cuts4. Periodicity
    9. 9. HIC’s relied mainly on tax cuts whereas MLIC’srelied mainly on increasing expenditureNumber of Countries Adopting Fiscal Policies (%)Source: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77countries,
    10. 10. HIC’s supported the financial sector, MLIC’ssupported infrastructureBudget allocated to Sectoral PoliciesSource: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77countries,
    11. 11. HIC’s promoted reductions in labour costswhile MLIC’s emphasized direct job creationNumber of Countries Adopting Labour Demand Policies (%)Wage subsidies for jobcreationSubsidies to employersmaintaining existing jobsLowering non-wage labor cost(e.g., SS contributions)Direct job creation(public works andservices)Source: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77countries,
    12. 12. Source: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), 13 Asian countries, Policy Monetary Policy Sectoral Policy Policies to generate Labour DemandVietnam• Stimulus package- Fiscal cost: 8.3% GDP- State development investment, taxreductions and interest rate subsidyscheme• Subsidized interest rates- 4% reduction from market lending rate• Cut of benchmark base rate- Cut from 14% to 7% per annum• Full or partial exemption fromagricultural land rental fee• Reduction in VAT payments- Temporary refund of 90% to exportedgoods and 50% reduction for hotel andrestaurant business• Credit guarantee and tax relief- 30% deduction of CIT for SMEs• Public spending on infrastructure- 3.6% of GDP• Support labour cost : Interest-free loansfor paying salary, social insurancecontribution and severance payIndonesia• Maintaining business resilience- Tax subsidies, non-tax subsidies, andequity injection (18500 billion IDR)• Keep growth in household consumptionat 4.5 to 4.7% in 2009 (25910 billion IDR)- Income tax rate cut from 35% to 30%- Tax and nontax subsidies• Lowering the Bank Indonesia referencerate of interest (BI Rate)- Decrease from 9.5% (Dec. 2008) to 6.50%(Aug. 2009)• Decrease of foreign reserverequirement ratio for commercial banks- From 3% to 1%• Injection of government equityparticipation in the Indonesia ExportInsurance (ASEI)- Total cost: 1000 billion IDR• Credit guarantee schemes for SMEs(1800 billion IDR)• Job creation through labour intensiveinfrastructure program (7775 billion IDR)• Import duty relief (2500 billion IDR)• Cancellation of payroll tax (6500 billionIDR)Philippines• Fiscal stimulus package (330 billion PHP)- Economic Resiliency Plan (ERP)- Combination of governmentexpenditures, tax cuts, and public-privatepartnership projects• Overnight interest rate cut- Policy rates were cut seven times to acumulative total of 200 basis points •• Increased budget for pesorediscounting facility and decrease ofinterest rates (60 billion PHP)• Reduction of the reserve-requirementratio on bank deposits from 10% to 8%• Development of the bamboo market• Increased lending activities toagriculture sector and SMEs- Total cost: 124.7 billion PHP in the 1stquarter 2009• Export support measures in the form ofdevelopment and promotion projects- Total cost: 288.4 million PHP• Emergency employment program- Beneficiaries: 90,555 persons- Total cost: 1374 million PHP• Temporary hiring of displace workersby governmental agencies (67,000 jobs)• Employment of nurses and deploymentinto rural areas- Total cost: 500 million PHPMalaysia• First Stimulus Package (7 billion RM)- Investments in infrastructure• Second Stimulus Package (60 billion RM:9% of GDP)- Increasing employment(RM 2 billion);easing the burden of rakyat(RM 10 billion);private sector assistance (RM 29 billion);building capacity (RM 19 billion)• Reduction of Overnight Policy Rate- By 150 basis points between Nov. 2008and Feb. 2009 to 2%• Reduction of monthly installments onfloating rate loans• Issuing bonds (5 billion RM)• Reduction of statutory reserverequirement by 300 basis points• Investments in agriculture- Total cost: 6 billion RM• Promotion of the services sector• Promotion of creative industry- Total cost: 200 million RM• Promotion of green industries- Total cost: 1.5 billion RM• Investments in increasing productivity- Total cost: 5 billion RM• Credit enhancements (1 billion RM)• Lower contributions for HumanResource Development Fund- Payment rate cut from 1% to 0.5%• Microcredits with fast registration andsoft loans to SMEs (13.4 billion RM)Macro and Labour Demand Policies inAsia
    13. 13. Both HIC’s and MLIC’s relied mainly onpublic employment services and trainingNumber of Countries Adopting Active Labour Market Policies (%)Source: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77 countries,
    14. 14. Regardless of income, many countriesexpanded insurance and assistance programsDistribution of Social Protection Policy Responses by ProgramSource: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77 countries,
    15. 15. One in every fifth country adopted a socialpacts or a major sector level agreement2 1 4 714313 16 131863Middle East Asia Africa America Europe TotalNumber ofcountries withoutsocialpacts/majorsector levelagreementsNumber ofcountries withsocialpacts/majorsector levelagreementsSource: ILO/WB Inventory of policy responses to the financial crisis (2008-2010), full sample of 77countries,
    16. 16. Vigilance should be increased to avoidviolations of ILS• The crisis put pressure on labour rights• Most crisis measures have been in compliance with ILS• There are exceptions• Increased labour market flexibility does not necessarily result in violation of ILS• Most countries reported on long term strategies to eliminate child labour andbonded labour• Gender discrimination (see ILO, Global Employment Trends for Women, 2012)– Importance of child care in HIC with high level of FLF participation, and labour marketpolicies in others– Effect of austerity policies could be harmful to female employment– Some role of social dialogue• Application of ILS can ensure an efficient and stable labour market for workers andemployers
    17. 17. Looking Ahead• Need for better coordination between fiscal, monetary and sectoral policies• Expand the coverage of social insurance programs• Consolidate dispersed social assistance programs and introduceinstitutional arrangements to allow them to expand/contract in response toeconomic cycles• Improve the design and implementation active labor market programs anddevelop monitoring and evaluation systems• Increase vigilance to avoid violations of fundamental principles and rightsat work• Improve the capacity to monitor labor market dynamics by implementingregular labor force surveys