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Fewer jobs or smaller paychecks ? aggregate crisis impacts in selected middle-income countries

  • Khanna, Gaurav
  • Newhouse, David
  • Paci, Pierella

This paper reviews evidence from 44 middle-income countries on how the recent financial crisis affected jobs and workers'incomes. In addition to providing a rare assessment of the magnitude of the impact across several middle-income countries, the paper describes how labor markets adjusted and how the adjustments varied for different types of countries. The main finding is that the crisis affected the quality of employment more than the number of jobs. Overall, the slow-down in earning growth was considerably higher than that in employment, and the decline in gross domestic product was associated with a sharp decline in output per worker, particularly in the industrial sector. In several counties, hours per worker declined and hourly wages changed little. But both the magnitude and nature of the adjustments varied considerably across countries. For a given drop in gross domestic product, earnings declined more in countries with larger manufacturing sectors, smaller export sectors, and more stringent labor market regulations. In addition, overall employment became more sensitive to growth in gross domestic product. These findings have implications that go beyond the recent financial crisis as they highlight (i) the limitations of focusing policy responses on maintaining jobs and providing alterative employment or replacement income for the unemployed, and (ii) the critical role of fast-track data systems that are capable of monitoring ongoing labor market adjustment during economic downturns, in supporting the design of effective policy responses.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5791.

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Date of creation: 01 Sep 2011
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Handle: RePEc:wbk:wbrwps:5791
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  1. Andrei A. Levchenko & Julian di Giovanni, 2008. "Trade Openness and Volatility," IMF Working Papers 08/146, International Monetary Fund.
  2. Dollar, David & Hallward-Driemeier, Mary, 2000. "Crisis, Adjustment, and Reform in Thailand's Industrial Firms," World Bank Research Observer, World Bank Group, vol. 15(1), pages 1-22, February.
  3. Mead, Donald C. & Liedholm, Carl, 1998. "The dynamics of micro and small enterprises in developing countries," World Development, Elsevier, vol. 26(1), pages 61-74, January.
  4. Dionisius Narjoko & Hal Hill, 2007. "Winners and Losers during a Deep Economic Crisis: Firm-level Evidence from Indonesian Manufacturing ," Asian Economic Journal, East Asian Economic Association, vol. 21(4), pages 343-368, December.
  5. Cesar Calderon & Tatiana Didier, 2009. "Severity of the Crisis and its Transmission Channels," World Bank Other Operational Studies 10946, The World Bank.
  6. Hal HILL & Takashi SHIRAISHI, 2007. "Indonesia After the Asian Crisis," Asian Economic Policy Review, Japan Center for Economic Research, vol. 2(1), pages 123-141.
  7. Fabrizio Bresciani & Gershon Feder & Daniel O. Gilligan & Hanan G. Jacoby & Tongroj Onchan & Jaime Quizon, 2002. "Weathering the Storm: The Impact of the East Asian Crisis on Farm Households in Indonesia and Thailand," World Bank Research Observer, World Bank Group, vol. 17(1), pages 1-20.
  8. McKenzie, David J, 2004. "Aggregate Shocks and Urban Labor Market Responses: Evidence from Argentina's Financial Crisis," Economic Development and Cultural Change, University of Chicago Press, vol. 52(4), pages 719-58, July.
  9. Fretwell, David H. & Benus, Jacob & O'Leary, Christopher J., 1999. "Evaluating the impact of active labor programs : results of cross country studies in Europe and Central Asia," Social Protection Discussion Papers 20131, The World Bank.
  10. McKenzie, David J., 2003. "How do Households Cope with Aggregate Shocks? Evidence from the Mexican Peso Crisis," World Development, Elsevier, vol. 31(7), pages 1179-1199, July.
  11. Chris Manning, 2000. "Labour Market Adjustment to Indonesia's Economic Crisis: Context, Trends and Implications," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 105-136.
  12. Gutierrez, Catalina & Orecchia, Carlo & Paci, Pierella & Serneels, Pieter, 2007. "Does employment generation really matter for poverty reduction ?," Policy Research Working Paper Series 4432, The World Bank.
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