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.
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.
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.
Key findings from the report
Unemployment in Europe and Central Asia rose sharply during the global economic crisis:
- Unemployment rates more than doubled between 2008 and 2009 in Estonia, Latvia, and Lithuania.
- More men were unemployed because the male-dominated construction and manufacturing sectors were the hardest hit
- Youth unemployment reached record highs as first time jobs were hard to find
- Long-term unemployment increased as re-entry into the labor market became exceedingly difficult
Workers who kept their jobs took home smaller paychecks:
- Although a lot of people lost their jobs, a much larger group of people suffered an income shock because their paychecks shrank as they worked fewer hours or were paid less
- Firms tried to control their labor costs by:
- Increasing the use of part-time workers and temporary workers (Latvia, Hungary, the Czech Republic)
- Reducing real wages (Latvia, Lithuania) and
- Accumulating wage arrears (Russia)
Families tried to increase incomes and reduce household expenditures:
- Families tried to increase their labor supply by working more hours or by finding jobs for non-working family members, but the strategy was not always successful
Reductions in expenditures on food and healthcare were most significant:
- Families generally reduced the quantity and quality of food purchased
- 20 percent of poor families in Bulgaria reduced their number of doctor visits when there was an illness in the family
- 25 percent of poor families in Montenegro reduced their use of preventive healthcare
Unemployment insurance programs responded well in most countries:
- In Estonia, Poland, and Russia unemployment insurance benefits were among the first benefits available to families affected by the crisis
- To respond to a weak labor market, Romania and Latvia increased the duration for which unemployment benefits were paid out
Social assistance programs played a crucial role in helping families whose incomes fell below the poverty line:
- In Bulgaria, Montenegro and Serbia, poverty targeted social assistance programs responded to increased demand from families affected by the crisis.
- However, there were delays in some crisis responses because of bottlenecks in existing poverty targeted social assistance programs.
Crisis responses can be improved by:
- Making automatic stabilizers, such as unemployment insurance and last-resort social assistance, more responsive and broad-based
- Adjusting program parameters, such as the duration of unemployment benefits, to the conditions on the ground
- Starting new programs, such as public works or youth apprenticeships, to fill any coverage gaps
Efficient and flexible crisis responses require:
- Building up savings for hard times
- Factoring in efficiency costs
- Collecting reliable and timely monitoring indicators