The Great Recession had mostly negative impacts on employment outcomes and wage growth in developing countries. While GDP growth fell significantly between 2007-2009 in most countries, the effects varied based on factors like economic structure, openness, labor policies, and size of fiscal stimulus programs. Countries with larger, more open economies that relied heavily on exports saw bigger drops in employment levels compared to declines in GDP. Macroeconomic policies were more effective than labor market interventions in mitigating the crisis impacts. The document recommends using economic booms to strengthen social safety nets that can expand during downturns to protect the vulnerable.

1. Working through the Crisis
Jobs and Policies in Developing Countries
During the Great Recession
Arup Banerji
David Newhouse
Pierella Paci
David Robalino

2. Most developing countries had worse
employment outcomes due to the crisis
7.0
5.2
4.8 4.7
3.4
4.5
4.7
3.9
3.6
2.4
1.2
0.9
1.8
1.4
1.9
2.2 2.1
2.3
4.2
3.7
4.9
3.3
2.5
4.0
2.9
3.4
4.0
GDP Growth Employment Growth Wage Growth
In the year to February 2011,
GDP growth fell from 7% to 3.4%
Wage growth from 4.2% to 2.5%
Empl. growth from 2.4% to 1.4%

3. Summary: Overall Impact
• Mostly reductions in earnings growth rather than
employment growth.
• But for youth, both increased unemployment and
reduced wages.
• Men seemingly more affected than women.
• In most countries, no major differences between:
– skilled vs. unskilled workers or
– urban vs. rural areas.

4. Employment rates fell, especially for men
in LICs and women in MICs
63
54
65
55
55
56
48
56
56
54
61
51
63
54
54
77
74
79
68
65
73
67
75
67
63
75
69
78
66
61
49
34
50
44
48
38
30
37
47
47
47
32
48
43
47
Low-Income Countries (20)
Lower Middle-Income Countries (35)
Upper Middle Income Countries (27)
High-Income Countries (37)
Total (90)
45 50 55 60 65 60 65 70 75 80 30 35 40 45 50
Total Male Female
2009 2010 2011
Employment ratio
Source:
Gallup World
Poll

5. … but for those employed, more full-time
work, especially for MICs and men
36
21
33
57
63
43
21
40
63
66
45
22
42
60
65
38
25
35
57
68
45
24
43
63
69
48
24
45
61
72
32
17
29
56
55
37
13
31
62
59
38
14
34
59
54
Low-Income Countries (13)
Lower Middle-Income Countries (31)
Upper Middle Income Countries (20)
High-Income Countries (26)
Total (90)
20 30 40 50 60 70 20 40 60 80 10 20 30 40 50 60
Total Male Female
2009 2010 2011
Share of employment in full-time wage work
Source:
Gallup World
Poll

6. But the effects of the crisis was quite
different for different countries
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0
ChangeinEmploymentLevels(2007-2009)
Average change in GDP growth (2007-2009)
Indonesia
Turkey
Russia
China
South AfricaMexico

7. New Policy
Measures
Undertaken
Specific
Trans-
Mission
Channels
The different amplitudes are because
of different channels of transmission
Nature and
size of
outcome
Size of
economy
Openness
Monetary
Policy
Structure of
Production
Product
market
institutions
Factor
market
institutions
Size of
shock

8. Drop in earnings everywhere,
employment in ECA/LAC
Export slowdowns had the biggest
impacts for developing countries
Nature and
size of
outcome
Size of
economy
Openness
Monetary
Policy
Size of
shock

9. Specific
Trans-
Mission
Channels
Labor regulations mattered in some countries (not all)
in deciding whether the impact was through
employment or earnings
Nature and
size of
outcome
Structure of
Production
Product
market
institutions
Factor
market
institutions
Size of
shock

10. New Policy
Measures
Undertaken
Macro policies worked better than
labor/SP interventions
Nature and
size of
outcomeSize of
shock

11. 4 Emerging Lessons
1. Rapid and sizeable fiscal stimulus, and targeted sectoral
stimulus for the most vulnerable sectors, can work
2. Use “good times” to improve the design and coverage of
social protection and labor systems – unemployment
insurance, wage subsidies, etc.
3. To protect the poor, need for scalable safety nets that that
can expand and contract in response to the business cycle
4. Need to invest in more real-time statistical information
systems to quickly diagnose nature of shocks and institute
appropriate/ adequate evidence-based responses