Publication: Simulating the Impact of the 2009 Financial Crisis on Welfare in Latvia
Loading...
Date
2012-01-01
ISSN
Published
2012-01-01
Author(s)
Editor(s)
Abstract
This note details simulations of the distributional impacts of the 2009 financial crisis on households in Latvia. It uses household survey data collected prior to the crisis and simulates the impact of the growth slowdown. The simulations show that Latvia experienced a sharp rise in poverty, widening of the poverty gap, and a rise in income inequality due to the economic contraction in 2009. The 18 percent contraction in gross domestic product (affecting mainly trade hotels and restaurants, construction, and manufacturing) likely led the poverty head count to increase from 14.4 percent in 2008 to 20.2 percent in 2009. The poverty gap, which measures the national poverty deficit, was simulated to increase from 5.9 percent in 2008 to 8.3 percent in 2009. The analysis finds that the results are robust to most assumptions except post-layoff incomes, which substantially mitigated household welfare. The authors also simulate the impact of Latvia's Emergency Social Safety Net components and find that the Safety Net likely mitigated crisis impacts for many beneficiaries. The simulations measure only direct short-run impacts; hence, they do not take into account general equilibrium effects. Post-crisis income data from a different data source suggest that poverty rates increased by 8.0 percentage points between 2008 and 2009. As a result, the authors suggest that their ex-ante simulation performs reasonably well and is a useful tool to identify vulnerable groups during the early stages of a crisis.
Link to Data Set
Citation
“Haimovich, Francisco; Azam, Mehtabul; Ajwad, Mohamed Ihsan. 2012. Simulating the Impact of the 2009 Financial Crisis on Welfare in Latvia. Policy Research working paper ; no. WPS 5960. © World Bank. http://hdl.handle.net/10986/3245 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Geopolitical Fragmentation and Friendshoring(Washington, DC: World Bank, 2025-06-26)This paper examines the relationship between geopolitical fragmentation and friendshoring of foreign investments over time, countries, and sectors. The analysis uses comprehensive data on foreign direct investments covering greenfield projects, mergers and acquisitions, and stocks of affiliates, as well as data on four alternative measures of geopolitical distance between countries. The gravity estimations suggest that, first, geopolitical differences have a negative effect on foreign investments and the magnitude has heightened in the post-pandemic period compared to a decade ago. Second, it is primarily the companies from advanced Western economies whose foreign investment decisions are increasingly shaped by friendshoring forces. Finally, the paper shows that friendshoring is not only confined to strategic industries, implying that allocations of foreign direct investments may not solely reflect national security or resilience considerations.Publication Soaring Food Prices Threaten Recent Economic Gains in the EU(Washington, DC: World Bank, 2025-07-02)The surge in food prices following the 2021 economic rebound has become a significant concern for households, particularly low-income ones, in Bulgaria, Croatia, Poland, and Romania. Food price inflation, which surpasses general inflation rates, risks worsening poverty and food insecurity in these countries. This paper explores the distributional impacts of rising food prices and the effectiveness of government response measures. Low-income households, who allocate a larger share of their income to food, are disproportionately affected and are struggling to cope with unexpected expenses, leading to increased difficulties in accessing proper nutrition. Simulations indicate that rising food prices contribute to higher poverty rates and greater income inequality, especially among vulnerable populations. They also suggest that the main poverty-targeted social assistance schemes offer critical support for the extreme poor, but expanding both coverage and benefits is vital to shield all at-risk individuals. Targeted policies that balance immediate relief with long-term resilience-building are essential to addressing the challenges posed by escalating food prices.Publication Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs(Washington, DC: World Bank, 2025-04-03)This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Did Latvia's Public Works Program Mitigate the Impact of the 2008-2010 Crisis?(World Bank, Washington, DC, 2012-07)To mitigate the impact of the 2008-2010 global financial crisis on vulnerable households, the Government of Latvia established Workplaces with Stipends, an emergency public works program that targeted registered unemployed people who were not receiving unemployment benefits. This paper evaluates the targeting performance and welfare impacts of the program. It exploits the over-subscription of Workplaces with Stipends to define a control group. The paper finds that the program was successful at targeting poor and vulnerable people, and that leakage to non-poor households was small. Using propensity score matching, the paper finds that the program's stipend mitigated the impact of job loss and, in the short term, raised participating household incomes by 37 percent relative to similar households not benefiting from the program. The paper also finds that the foregone income for this program was less than foregone incomes estimated in other countries. This suggests a dearth of income-generating opportunities in Latvia; thus the program provided temporary employment opportunities and helped the unemployed mitigate the impact of the crisis. However, relative to the depth of the crisis in Latvia, the Workplaces with Stipends program scale was small, which meant long waiting periods for program applicants.Publication Simulating Poverty in Europe : The Potential Contributions of Employment and Education to Reducing Poverty and Social Exclusion by 2020(World Bank, Washington, DC, 2013-10)This paper sheds light on the impact of improving employment and education conditions on poverty and social exclusion indicators. More specifically, it answers the following question: Will achieving the Europe 2020 national targets on employment and education lead countries to achieve the Europe 2020 poverty and social exclusion target with no other policy interventions? The paper presents a simple partial equilibrium model that is flexible enough to be implemented in a number of different settings and uses widely available household survey data. The simulation model analyzes poverty and social exclusion outcomes in response to changes in education completion rates and employment rates. The model is applied to ten of the European Union's new Member States -- Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia -- and the model's performance is evaluated through a validation exercise. The Europe 2020 national employment targets are ambitious in many of the new Member States, given historical employment patterns in the countries. Especially in light of the slow and uncertain recovery, labor markets remain weak and employment rates in 2020 could fall short of rates targeted by national policy makers. In this eventuality, the poverty and social exclusion goals may not be reached in many of the new Member States without additional policy measures.Publication The Impact of Financial Crises on Labor Markets, Household Incomes, and Poverty : A Review of Evidence(World Bank, Washington, DC, 2002-01)The 1990s have witnessed several financial crises, of which the East Asia and Mexico tequila crises are perhaps the most well-known. What impact have these crises had on labor markets, household incomes, and poverty? Total employment fell by much less than production declines and even increased in some cases. However, these aggregates mask considerable churning in employment across sectors, employment status, and location. Economies that experienced the sharpest currency depreciations suffered the deepest cuts in real wages, though deeper cuts in real wages relative to Gross Domestic Product (GDP) were associated with smaller rises in unemployment. To some extent, families smoothed their incomes through increased labor force participation and private transfers, though the limited evidence available suggests that wealthier families were better able to smooth consumption. The initial impact of the crises was on the urban corporate sector, but rural households were affected as well and in some instances suffered deeper losses than did urban families. School enrollment declined, especially among poorer families, as did use of health facilities, but the impact on children's nutrition levels appears to vary. Crises have typically proved short-lived, but whether households plunged into poverty during a crisis is able to recover as the economy does remain an open question.Publication Minimum Wages and Social Policy : Lessons from Developing Countries(Washington, DC: World Bank, 2007)This report examines how minimum wages affect the income poverty of workers, their households, and the state. It does not question whether or not the minimum wage is a good policy: instead, it focuses on the tradeoffs in setting the minimum wage level. It takes as a starting point the literature on the wage and employment effects of minimum wages in Latin America and expands the discussion in three ways. First, the household is placed at the center of the debate. Poverty and inequality are measured at the level of the household, rather than at the individual level, to allow for employment and wage trade-offs among individuals who pool their income. Second, new research is presented on how the minimum wage affects groups whose labor market participation and success is considered "vulnerable": that is, youth, women, the low-skilled, and informal sector workers. Third, the implications of the minimum wage on wage and social expenditures of the government are measured. In the end, the report argues that the minimum wage by itself is not a sufficient tool for protecting the income of the poorest households, and that other social protection tools are necessary to complement it. The report has eight sections following the introduction. Chapter 2 presents a history of the minimum wage in LAC, the theory behind the functioning of the minimum wage, and empirical evidence from the OECD to lay a foundation for the Latin American experience. Chapter 3 presents an overview of the minimum wage in the Region, including a discussion of the definition of a minimum wage, institutional design, and who earns it. Chapter 4 focuses on the worker; it summarizes the existing literature, presents new evidence on the wage and employment effects of a minimum wage, and gives special attention to "vulnerable" labor market groups. Chapter 5 turns its attention to the household and presents the new (and only) evidence on the effects of the minimum wage on household poverty and inequality in LAC. Chapter 6 considers the state and discusses the cost of minimum wages to the government. Chapter 7 opens the discussion to the rest of the world and considers the lessons learned in other countries about setting, managing, and enforcing the minimum wage. Finally, chapter 8 concludes and presents policy considerations.Publication Minimum Wage Policy : Lessons with a Focus on the ASEAN Region(Washington, DC, 2013-07-30)As developing economies continue to mature and enter the next phase of reforms, labor market issues and key policy instruments such as the minimum wage increasingly come to the forefront. Increased globalization and wider competition compel countries to make labor markets more flexible so as not to hurt competitiveness. At the same time, policymakers face pressure to rethink labor market regulations (and social safety nets) to avoid disadvantaging workers, especially the most vulnerable who are more prone to employment insecurity. Evidence of the impact of minimum wage policies in the East Asian context and in Association of South East Asian Nations (ASEAN) countries, more specifically remains very limited. A thorough literature search identified only a few rigorous studies of the impact of minimum wages on important welfare outcomes in ASEAN countries, and some of the evidence was narrowly focused on one sector and period or from a time when the institutional setup and management of the policy was different from today. Given the relevance of the minimum wage policy in ASEAN economies, which are experiencing rapid economic growth accompanied by rising income inequality and persistent poverty among unskilled workers, having this evidence seems critical. The objective of this report is to contribute to the ongoing (and renewed) debate on the use of minimum wage policy as a tool for addressing various socioeconomic issues. It assumes minimum wages will remain in place, and the analysis seeks to address knowledge gaps on the policy's effects on worker outcomes and firm performance in order to provide guidance to policymakers in ASEAN countries (and similar contexts) on how to best manage the policy. This report consists of seven chapters and is divided into three parts. Part one focuses on the minimum wage policy, its historical evolution, and the current institutional context across ASEAN countries. Part two delves into the socio-economic impacts of the minimum wage policy on workers, households, firms, the economy, and the ASEAN region. Part three links the findings from each country to the ASEAN regional context and brings all the analysis together into a policy and operational discussion.
Users also downloaded
Showing related downloaded files
Publication Global Economic Prospects, June 2024(Washington, DC: World Bank, 2024-06-11)After several years of negative shocks, global growth is expected to hold steady in 2024 and then edge up in the next couple of years, in part aided by cautious monetary policy easing as inflation gradually declines. However, economic prospects are envisaged to remain tepid, especially in the most vulnerable countries. Risks to the outlook, while more balanced, are still tilted to the downside, including the possibility of escalating geopolitical tensions, further trade fragmentation, and higher-for-longer interest rates. Natural disasters related to climate change could also hinder activity. Subdued growth prospects across many emerging market and developing economies and continued risks underscore the need for decisive policy action at the global and national levels. Global Economic Prospects is a World Bank Group Flagship Report that examines global economic developments and prospects, with a special focus on emerging market and developing economies, on a semiannual basis (in January and June). Each edition includes analytical pieces on topical policy challenges faced by these economies.Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication Europe and Central Asia Economic Update, Fall 2024: Better Education for Stronger Growth(Washington, DC: World Bank, 2024-10-17)Economic growth in Europe and Central Asia (ECA) is likely to moderate from 3.5 percent in 2023 to 3.3 percent this year. This is significantly weaker than the 4.1 percent average growth in 2000-19. Growth this year is driven by expansionary fiscal policies and strong private consumption. External demand is less favorable because of weak economic expansion in major trading partners, like the European Union. Growth is likely to slow further in 2025, mostly because of the easing of expansion in the Russian Federation and Turkiye. This Europe and Central Asia Economic Update calls for a major overhaul of education systems across the region, particularly higher education, to unleash the talent needed to reinvigorate growth and boost convergence with high-income countries. Universities in the region suffer from poor management, outdated curricula, and inadequate funding and infrastructure. A mismatch between graduates' skills and the skills employers are seeking leads to wasted potential and contributes to the region's brain drain. Reversing the decline in the quality of education will require prioritizing improvements in teacher training, updated curricula, and investment in educational infrastructure. In higher education, reforms are needed to consolidate university systems, integrate them with research centers, and provide reskilling opportunities for adult workers.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.