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economic crisis

Can wage subsidies boost employment in the wake of an economic crisis?

Miriam Bruhn's picture

Unemployment often rises during an economic crisis and policymakers take a range of actions to try to mitigate this increase. For example, 22 countries around the world used some form of wage subsidy program to promote employment retention during the recent crisis. Many studies have looked at the effect of wage subsidies on employment in non-crisis times, with mixed findings. But, there is not much evidence on whether wage subsidies can raise employment in the wake of a crisis.

Conceptually, wage subsidies during a crisis may make sense since layoffs could slow down the recovery as re-hiring and training workers may be costly for firms. This is particularly true for workers with job-specific skills. For these workers, it may be beneficial for firms to not let them go in the first place. However, as firms face lower demand for their products, they may not have the financial means to keep paying these workers, particularly in the presence of credit constraints, which are often exacerbated during a crisis. This is where wage subsidies come in. But, ultimately, we just don’t know whether these subsidies really cause firms to retain workers they otherwise would not have retained.

Migration and Remittances during the Global Economic Crisis and Beyond: Myths and Realities

The fears that the economic crisis of 2008 would lead to a decline in remittances and the returns of migrants to their sending countries were largely unfounded.  Our volume reveals that while remittances declined following the crisis, they have largely recovered.  Three trends that characterize remittances practices globally are:

  1. More diversified destinations and labor markets lead to more resilient remittances for migrants
  2. Lower barriers to labor mobility in receiving countries lead to remittances that are larger and critical to the economic health of migrant households.
  3. Remittance-dependent countries rely on remittance inflows for external financial needs.


These common sense findings are obscured by the myths that surround remittance practices, including:

Rise of Non-Tariff Protectionism amid Global Uncertainty

A troubling phenomenon is occurring in large, emerging economies: the gates are closing. Governments, skittish about global economic trends, are introducing new policies to limit imports and exports. The aim is to protect domestic industry in tough times, but the tools they are using threaten to make their economic problems worse.

A December World Bank analysis documents a trend of creeping protectionism in countries such as Argentina, Brazil and Indonesia – all countries with burgeoning industry. Instead of tariffs, other, more indirect policies are being used to hinder free commerce between countries. The Bank analysis, based on World Trade Organization (WTO) monitoring reports and data from the Global Trade Alert, a network of think tanks around the globe, found that the number of non-tariff measures (NTMs) –including quotas, import licensing requirements and discriminatory government procurement rules –showed an increasing trend in the first two years post-2008, and rose sharply in 2011. India, China, Indonesia, Argentina, Russia and Brazil together accounted for almost half of all the new NTMs imposed by countries world-wide.

Global Economic Crisis and the Remittance-Unemployment Riddle

Jason Gagnon's picture

As a consequence of the global economic crisis, 2009 marked a hiccup in the trend of increasing remittance flows to developing countries. In most parts of the world, the growth rate of remittances was indeed negative. But what is striking is that there was an inverse relationship between remittances and unemployment. In other words, the greater the drop in remittances, the higher was the increase in the unemployment rate. In Moldova, for instance, remittances decreased by 36% in 2009, while the unemployment rate increased by 61%. By contrast, in Fiji, remittances increased by 24% and unemployment dropped by 7%.

The scatter plot below illustrates the relationship between changes in remittances and changes in unemployment, both measured as the annual growth rate (in percentage) between 2008 and 2009, for 29 developing countries. The x-axis represents changes in remittances and the y-axis the change in unemployment. The figure shows a negative correlation between the two variables.

Are migrants more likely than nationals to be unemployed during economic crisis?

Sudharshan Canagarajah's picture

There has recently been heated debate regarding migrant employment behavior in host countries during and after economic crises. The popular view is that migrants have an incentive to remain unemployed as long as they have access to unemployment benefits, free health care, and education. Thus, many argue, that migrants should not be provided with benefits as they create perverse incentives for migrants to stay unemployed. However, recent data does not support such a simple relationship. In fact recent data shows that sometimes migrants that lose jobs tend to find work quickly during and after crises.

A recent article in the Economist based on OECD Migration Outlook 2011 provided some useful data to show the complex patterns of migrant unemployment compared to nationals. The data shows that the relationship between migrants and unemployment incidence depends on a variety of labor market conditions including unemployment benefits, skill level of migrants, business cycle patterns, the sectors they are employed in, and labor market flexibility.

On global issues, Latin America is now part of the solution

Sergio Jellinek's picture


When it comes to solving global issues, Latin America is now on the side of those regions that are part of the solution and not of the problem.

This time around the region is not at the center –but rather at the receiving end- of the various crises that have visited us recently, including the global financial crisis, climate change, or the current food and fuel crises.

Ladies First? Understanding Whose Job is Vulnerable in a Crisis

Mary Hallward-Driemeier's picture

In an economic crisis, whose job do employers put on the chopping block first? Many gender equality advocates and policymakers are concerned that “women are at risk of being hired last and dismissed first” during crises. This concern is fuelled by evidence showing that employers often discriminate against women even during less volatile times, that women often bear the brunt of coping with economic shocks, and that, in many countries, gender norms prioritize men’s employment over women’s. Despite a lot of rhetoric, existing studies of the labor market consequences of macroeconomic crises have yielded ambiguous conclusions about the differential impact across genders. Might claims about women’s vulnerability be exaggerated?

Most studies that look at the distributional impact of crises rely on household and labor force data. However, these data cannot distinguish between two mechanisms that could account for gender differences in employment adjustment. First, differences in vulnerability could be the result of sorting by gender into firms and occupations that differ in their vulnerability to crises. In this case, the effect of gender is indirect; women may take jobs that are relatively more or less vulnerable. Second, there could be differential treatment of men and women workers within the same firm. Faced with the need to adjust, do employers treat women differently, either by firing them first or cutting their wages more? It is this second mechanism that underpins concerns about discrimination. To distinguish between these mechanisms, we need to compare the employment prospects and wage trajectories of men and women both across and within firms—which means we need firm-level data.

Will the economic recovery increase demand for immigrants in the labor market?

Sonia Plaza's picture

A recent study by PEW Hispanic Center states that immigrants are finding jobs faster during 2010.  According to the report “immigrants in the U.S. have gained 656,000 jobs since the Great Recession ended in June 2009. By comparison, U.S.-born workers lost 1.2 million jobs. The unemployment rate for immigrants fell over the same period to 8.7 percent from 9.3 percent. For American-born workers, the jobless rate rose to 9.7 percent from 9.2 percent.”

Two other labor indicators show a recovery for immigrants workers in the US labor market: 1) an increase in the labor force participation from 68% in the second quarter of 2009 to 68.2% in the second quarter in 2010; 2) an increase in the employment rate from 61.7% to 62.3% during the same period. The study also points out at the greater mobility of immigrants in finding jobs in different states. In a previous podcast we underscored the mobility of hispanic immigrants due to their diaspora connections (see previous post).

Economic Crisis is affecting net migration rates in the European Union

Sonia Plaza's picture

Eurostat just released the latest estimates of the European Union demography numbers . According to the report, “EU gained only 1.4 million residents in 2009. (See article)

However, the population change has decreased from 2’046,029 in 2008 to 1’366,372 in 2009 (-33%). This is explained by a decrease in the natural population change and in the net migration. The decrease in natural population change has been due to a slight decrease in the crude birth rate and a constant crude death rate. Hence the major factor responsible for the slowing population growth is the decrease in net migration.

Due to the global recession, migration to the EU slowed down in 2009, for a net migration of  1,464,059 in 2008 to 857,186 in 2009 (a 40% decline). The reduction in migration flows is due to employment losses in countries of destination (especially Spain, Italy, UK) and to more restrictive immigration policies devised by European countries (e.g. UK points system, Italy prohibition on access to health service for undocumented migrants, Spain’s reduction in the number of positions available for immigrants).


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