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Job Creation and the Global Financial Crisis

David McKenzie's picture

Each new jobs report in the U.S. reignites the debate about whether the government is succeeding in stemming job losses and doing enough to help stimulate the creation of new jobs.

The U.S. has been far from alone in pursuing active labor market policies during the crisis. In a new note, David Robalino and I take stock of what labor market interventions countries have put in place during the recent crisis and summarize what we know about their effectiveness to date, as well as discuss the emerging issues countries are facing as they adapt these policies to a recovery period.

The main findings are:

  • Almost every high-income country and most middle-income countries have done something additional to intervene in the labor market during the crisis. Data are currently more limited for poorer countries but also show a number of poorer countries intervening in their labor markets.
  • The most common policies have been training programs, job search assistance, SME support and public works. Wage subsidies and work-sharing arrangements have been less common in developing countries. Public works and cash transfer programs have been most common in the poorer countries for which data are available.
  • There is little evidence yet as to the short-term effectiveness of these policies, let alone their dynamic effects. There is a general sense that the policies have helped in reducing the fall in employment, and in some countries large numbers of people have participated in the programs (e.g. the government of Indonesia estimates its stimulus package has lead to the creation of 750,000 jobs). Formal evaluations of some programs are underway, including a wage subsidy program in Mexico and a vocational training program in Turkey.

The big policy challenge now facing countries is how to devise policies that can maximize the impact of the recovery on employment creation and then move to policies that focus on long-term employment creation. Ultimately, long-term sustained job creation requires countries to have sustained growth. A key element of this is fostering a competitive, productive, and innovative private sector.

This is easier said than done! Chris Blattman writes about some of the challenges facing efforts to stimulate industrial development in Ethiopia. We lack rigorous evidence as to what works in overcoming such challenges, and so there is a vital role for rigorous impact evaluations in learning from the attempts governments are starting to make to promote private sector growth.

Further reading:

McKenzie, David and David Robalino (2010) “Labor Market Interventions in the Crisis and Beyond: What has been done and where to from here?"

Comments

@David McKenzie “The big policy challenge now facing countries is how to devise policies that can maximize the impact of the recovery on employment creation and then move to policies that focus on long-term employment creation.” And a very good place to start doing that, is thinking about the possibility of having the capital requirements, for those banks we tax-payers are the ultimate picker-uppers for, to be based on the job creation potential ratings of their borrowers… instead of those silly and purposeless capital requirements based on ex-ante perceived risks and which only artificially increases the return on bank equity for investing in lending to the kind of borrowers where all systemic crisis arise, namely those ex-ante perceived as “not-risky” and that are therefore those capable of providing ex-post the most unpleasant surprises. PS. If you allow me, here´s a video that explains a small part of the craziness of our bank regulations, in an apolitical red and blue! http://bit.ly/mQIHoi

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