53136 Employment-Related Mitigation Measures in ECA Countries Arvo Kuddo Measures to Cushion the Impact of the Crisis Key messages1 There are growing constraints on public finances in many countries due to the actual and projected build-up of public Countries in the Eastern Europe and Central debt, which limits the scope of labor market interventions. Asia (ECA) region have been impacted by Only a few ECA countries (most notably Estonia, the economic downturn to various degrees.2 Kazakhstan and Russia) had set aside resources that can Measured by contraction of Gross Domestic now be used to cushion an externally driven economic Product (GDP), the most affected countries slowdown. are the Baltic States, Armenia, Russia, and Ukraine. Constraints on public finances Currently, the labor market situation in many ECA associated with the crisis limit the scope of countries can be characterized as lack of demand for labor. labor market interventions. Very few ECA Overall, in 27 ECA countries for which data are available countries had set aside resources that can for June 2008 to June 2009, registered unemployment now be used to cushion an externally driven increased from 8.460 million to 11.354 million, or around economic slowdown. 34 percent. The number of registered unemployed increased the most in three Baltic States, Turkey and A few countries (notably Kazakhstan, Russia Moldova (Figure 1). and Turkey) have adopted a comprehensive Nevertheless, most governments in ECA have responded to package of anti-crisis measures, while most the global economic crisis by making additional resources other countries are focusing on particularly available for labor market and social policies, and with vulnerable groups (such as youth) or on discretionary policy measures to cushion the negative priority policy interventions (such as public effects of the crisis on workers and low-income works or training). households. Spending on unemployment benefits has increased automatically as job losses have mounted, and Efforts can be grouped into four main types many governments have moved promptly to scale-up of policy interventions: (a) policies to create resources for active labor market programs. new jobs, (b) policies to protect existing jobs, In the short run, countries in ECA can react in the (c) policies to enhance employability of job following main ways: seekers, and (d) policies to provide additional income support. Adopting a package of specially designed measures, such as the Anti-Crisis Program of the Several countries, most notably Latvia and Government of the Russian Federation for 2009, or Slovenia, have significantly increased the ad hoc policy measures aimed at particular groups funding of `traditional' employment of workers or job seekers. programs provided through Public Enhancing active labor market programs by Employment Services (PES). allocating more funds for particular activities - especially for preventive vocational training3, retraining, and skill improvement; temporary and 1 This Knowledge Brief is part of a larger effort to monitor the social impacts of public works jobs; or granting access to financial the global financial crisis undertaken by ECSHD. It is based on: Kuddo, A. "Employment-related Mitigation Measures in ECA Countries Adopted in 2009 in aid to entrepreneurs and self-employed. Response to the Current Economic Downturn." November 2009. World Bank, Washington DC. 2 See Kuddo, A. "Labor Market Monitoring in Europe and Central Asia 3 ,,Preventive vocational training is training of workers still on the payroll but Countries: Recent Trends (Round Two)." November 2009. World Bank, under the threat of being laid-off. Training would prevent them from being laid- Washington DC. off, at least immediately. ECA Knowledge Brief Figure 1: Growth Rates of Registered Unemployment in ECA Countries, June 2008 to June 2009, in percent Source: Kuddo, A., "Labor Market Monitoring in Europe and Central Asia Countries: Recent Trends (Round Two)." November 2009. World Bank, Washington DC. Expanding unemployment insurance and works, 5,000 who received mobility grants, and 27,000 introducing unemployment assistance programs--in who received assistance in launching small businesses or particular, expanding the duration of benefits becoming self-employed. payments, providing benefits to some new Many ECA countries are also expanding existing labor categories of job seekers, or increasing both market programs and strengthening the capacity of the minimum and maximum ceilings for institutions that support these programs. Compared to unemployment benefit payments. 2008, Latvia and Slovenia tripled the overall budgetary Strengthening protective measures embedded in allocations for active labor market programs (ALMPs) in Employment Protection Legislation (EPL).4 2009. A good example of employment-related crisis response is Labor market policy measures can be divided into the the Anti-Crisis Program for 2009 that was adopted by the following main types of interventions: Government of the Russian Federation in December 2008. Measures to create new or temporary jobs--such as, This program earmarked an additional 43.7 billion rubles public works and public investment programs, (US$ 1.3 billion) in the federal budget to stabilize wage subsidies for new entrants, and start-up employment. Subsidies were to be provided for co- support and social security tax reductions. financing regional programs approved in accordance with established procedure. The following additional activities Measures to preserve and protect existing jobs-- were also included: (i) preemptive training of workers in such as, short-term wage compensation and wage case of a threat of collective layoffs; (ii) organization of subsidies/tax concessions, or retraining and public works, temporary employment, and study tours for preventive training. unemployed, especially youth; (iii) targeted support to Measures to enhance employability in case of job individuals, including organizing their migration to other loss--such as, job search assistance, training and areas to fill job vacancies; and (iv) assistance for small retraining; apprenticeship and internship programs; business development and self-employment of the and mobility allowances. unemployed. Income support programs--such as, an increase in As of July 2009, 1.061 million individuals were unemployment benefits and training stipends, participating in four Anti-Crisis Programs - including and/or extension in the payment duration, etc. 63,000 people in training programs, 966,000 in public 4 In 2009, only Belarus and Kyrgyzstan amended their employment protection legislation to make it more business friendly. ECA Knowledge Brief Table 1: Common Employment-Related Discretionary Policy Measures in Some ECA Countries Bulgaria Estonia Latvia Poland FYR Turkey Kazakhstan Russia Macedonia Measures to create jobs Public works/public investments X X X X Wage subsidies (for new entrants) X X X X Reduction/exemption from non-wage X X X X labor costs Start-up grants/support X X X X X Measures to protect jobs Support of short-time work or X X temporary layoffs Wage subsidy/coverage of training X X X X costs while employed Public loans/guarantees to firms X X Preventive training/retraining X X Measures to enhance employability Training/retraining X X X X X X Apprenticeship/internship X X X X Income tax reduction X X Provide income support to those unemployed Benefits increases X X X Changes in duration of payment X X X Source: Kuddo, A., "Employment-Related Mitigation Measures in ECA Countries Adopted in 2009 in Response to the Current Economic Downturn." November 2009. World Bank, Washington DC. The classification used above is, to some degree, that many of them do not receive any compensation arbitrary. For example, public works may fall both under while they are on leave. Several ECA countries--such as ,,job creation or ,,income support. Country examples Estonia, Latvia and Poland--have found additional funds from the ECA region are provided in Table 1. for entrepreneurship assistance. In Romania, enterprises are now exempt from tax on reinvested profits. Measures to Create Jobs One ECA country with a massive public intervention Measures to Preserve Jobs program is Kazakhstan. In March 2009, the Government FYR Macedonia, Latvia, and Ukraine have provided of Kazakhstan adopted the ,,Roadmap--an action plan to targeted assistance to certain sectors and enterprises support the regional employment and retraining of most affected by the crisis. For example, in Ukraine, a workers. The ,,Roadmap would add about 140 billion Memorandum of Understanding was signed between the tenge (around US$1 billion) to the national budget and Government and the mining and chemical industries in will be co-financed from local budgets. The ,,Roadmap which enterprises in relevant industries agreed not to emphasizes public investment and public works dismiss workers or lower wage levels and social benefits programs: construction and maintenance of piped water, in exchange for preferential credits, tax deductions and electricity and gas, and sewage facilities; and highways lower electricity costs. and local roads, schools, hospitals, and other socially Several countries are protecting jobs through social important facilities. The strategy also includes creating security tax reductions. In Turkey, as part of the so- up to 63,100 ,,social jobs (for a duration of six months, called Labor Package 2008, social security contributions with wage subsidies of 50 percent of wage costs) plus for employers were reduced by 5 percentage points. 34,400 fully subsidized jobs for six months for Also, social security contributions for the young and graduates. women were reduced, and social security contributions To stimulate job creation, several countries in the ECA for disabled workers will be paid by the Treasury. region--including Bulgaria, Estonia, FYR Macedonia, Kazakhstans ,,Roadmap anticipates training and Hungary, and Serbia - have introduced or expanded their retraining up to 146,500 workers. Preventive training of programs of wage subsidies, predominantly for youth. workers still on the payroll also plays an important role Belarus extended participation in paid public works in Russias Anti Crisis Program. programs to employees on administrative leave, given ECA Knowledge Brief Measures to Enhance Employability However, a few countries are tightening the regulations concerning unemployment benefits. In Hungary, the In 2009, the public employment services (PES) in Government is implementing a policy measure called Armenia, Croatia, and Estonia almost doubled the ,,The Way to Work which restricts the eligibility criteria budget for training, and FYR Macedonia significantly of welfare provisions for long-term unemployed who increased funding for programs on employment have already exhausted the duration of their incentives and on integration of disabled individuals. In unemployment benefit. The rationale behind this Latvia, training measures for the unemployed and job- measure is to encourage more effective training and job- seekers were expanded and co-financed by the European seeking activities. Social Fund using a voucher system. People participating in the measure are also eligible for training Reflecting also an increase in the number of registered grants. unemployed, benefit costs have multiplied. In August 2009, Estonia was forced to raise the unemployment In Belarus, a wage subsidy in the amount of the insurance contribution rate from 0.9 percent to 4.2 minimum wage paid to the employer for hiring percent - employees now have to pay 2.8 percent of apprentices, and compensation for payment of social wages towards unemployment insurance and the insurance contributions for these youth, was introduced. employers share is 1.4 percent of wage costs. However, the estimated number of beneficiaries of Although active labor market services are necessary to ALMPs (other than initial counseling) remains low in cushion the blow of an economic downturn, it is most ECA countries. necessary to note that they do not, on their own, create In many countries, the number of frontline jobs. ALMPs are much more effective at addressing counselors/advisers is totally inadequate for delivering structural rather than demand-deficient unemployment. ALMPs, in particular effective and personalized A large-scale direct job creation program is justified mediation services. In response to the increased during an economic downturn when aggregate demand workload on existing staff, and to improve the service is depressed and there are few vacancies. Interventions provision to job seekers, some ECA countries have to directly create jobs can have significant costs and expanded PES staff. For example, Estonia increased its uncertain benefits, especially beyond the short term. numbers of job counselors by one-third in 2009 and They are sometimes intended to increase demand in the Russia added 2,500 employees (an increase of 7 percent) economy or to provide work experience with a view to to its State Agency for Employment in the same year. improving employability, or achieving both of these objectives. Massive public investment programs tend to create only temporary jobs. Training can also play an Measures to Provide Income Support important role in combating skills shortages in specific sectors and occupations but only if it fulfills the needs of Unemployment benefit rules have been changed in the labor demand. several ECA countries. In Poland, the social unemployment subsidy was extended from 12 months to Resumption of economic growth is critical for easing the 18 months in 2009. However, unemployed persons who tensions in the labor market. In addition, the challenge of refuse to accept job offers from their local job offices job creation can only be addressed through a will lose their status and be removed from the comprehensive strategy that has both economic and unemployment register for 120 days after the first social elements and that addresses both labor supply and unjustified refusal, for 180 days after the second refusal, labor demand. and for 270 days after the third refusal. In Romania, the maximum duration of unemployment About the Author benefits was extended from six months to nine months, Arvo Kuddo is a senior labor economist working on and in Russia, the maximum unemployment benefit was labor market policies and institutions in the ECA region. increased to 4,900 rubles (around US$170). 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