Publication: Can Wage Subsidies Boost Employment in the Wake of an Economic Crisis?: Evidence from Mexico
Loading...
Published
2016-03
ISSN
Date
2016-04-26
Author(s)
Editor(s)
Abstract
The rise in unemployment during an economic crisis poses a significant concern to policy makers. This paper measures the effect of a program in Mexico that granted firms in certain industries wage subsidies if they decided to keep their workers instead of letting them go during the recent economic crisis. The analysis uses monthly administrative data on employment at the industry level, along with propensity score matching to construct groups of eligible and ineligible durable goods manufacturing industries that display statistically identical pre-program trends in employment. Difference-in-difference results show a positive but not statistically significant effect of the wage subsidies on employment during the program’s eight-month duration, ranging from 5.7 to 13.2 percent in magnitude, depending on the specification. The size of the effect increases to 24 percent after the program ended and the results indicate that employment after the program recovered faster in eligible industries than in ineligible industries.
Link to Data Set
Citation
“Bruhn, Miriam. 2016. Can Wage Subsidies Boost Employment in the Wake of an Economic Crisis?: Evidence from Mexico. Policy Research Working Paper;No. 7607. © World Bank. http://hdl.handle.net/10986/24149 License: CC BY 3.0 IGO.”
Digital Object Identifier
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 South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication The Evolution of Local Participatory Democracy in Nepal(Washington, DC: World Bank, 2025-11-05)Nepal is, according to its constitution, among the world’s most decentralized countries, with a long and complex tradition of local-level public participation. This paper traces the evolution of Nepal’s modern participatory institutions, examining the extent to which they are “induced” by external interventions versus being “organically” rooted in indigenous practices. The paper identifies three broad phases: an initial focus on participation in project implementation; a subsequent phase that expanded citizen engagement; and a third phase of citizen empowerment, culminating in the 2015 federal constitution, which granted unprecedented local autonomy. The analysis yields five key findings. First, over the past 50 years, successive reforms have progressively expanded opportunities for citizens to influence local decision-making. Second, these reforms have integrated traditional participatory mechanisms into formal institutions of local government. Third, although central-level initiatives exist, most participatory platforms continue to operate at the local level. Fourth, the federal constitution has created a new landscape of local democracy, embedding autonomy and accountability. Fifth, although they are still valued in many ethnic and territorial communities, traditional participatory practices are gradually disappearing. The paper concludes by offering policy recommendations to help donor agencies and governments strengthen Nepal’s democratic trajectory. It argues that effective interventions should build on Nepal’s deep participatory traditions while recognizing the constitutional reality of far-reaching local autonomy.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication Closing the Gender Gap in Entrepreneurship: Overcoming Challenges in Law and Practice for Female Entrepreneurs(Washington, DC: World Bank, 2026-01-07)Despite significant strides toward gender equality, women around the world continue to encounter systemic obstacles that hinder their entrepreneurial success. This paper systematically reviews the literature on the barriers female entrepreneurs face and the solutions proposed to overcome these challenges. It discusses institutional factors, financial factors, human capital factors, and social and cultural factors. The literature overview is complemented by a series of stylized facts that illustrate how overcoming some of these existing barriers is correlated with improved women’s entrepreneurship and female labor force participation, drawing on the World Bank’s Women, Business and the Law database as well as the World Bank’s Enterprise Surveys. The findings underscore the need for creating an enabling environment where women can thrive as entrepreneurs.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Activating and Increasing Employability of Specific Vulnerable Groups in Bulgaria(Sofia, 2014-05)The Bulgarian labor market has suffered from the economic crisis, and cyclical unemployment has turned into structural unemployment. The labor market crisis is amplified by demographic change as the young and skilled labor force emigrates, aggravating a skills mismatch. Vulnerable groups are served by up to five different agencies, depending on the type of services required: the (1) public employment service; (2) social assistance agency; (3) national security institute; (4) ministry of education; and (5) national and territorial expert medical commissions. Cooperation between the labor offices, the social assistance directorates and municipalities is focused mainly on administrative functions and rule enforcement, rather than on labor market inclusion and promotion. This report reviews the design and implementation of activation policies for social assistance recipients and other highly disadvantaged groups in Bulgaria. The report starts by providing an overview of recent labor market trends, including the impact of the economic crisis on the labor market, in general, and on vulnerable groups, in particular. Chapter two describes and analyses the institutional setting for the design and implementation of Bulgaria's activation strategy and policies, as well as institutional capacity and cooperation between institutions. Chapter three analyses the impact of the benefit system on activation. Chapter four reviews the activation process and the implementation of the mutual obligation principle and the targeting of services provided to disadvantaged groups. Chapter five reviews active labor market programs and investigates to what extent these programs are targeted towards disadvantaged groups, which types of programs are prioritized, as well as reviewing the development of funding for active measures and programs.Publication Labor Market Inequalities in FYR Macedonia(Washington, DC, 2015-06)The study includes an analysis of inequality patterns in terms of labor force participation as well as a review of policy responses, and areas for possible further policy action. In particular, the report looks at the two main dimensions of inequality that characterize Macedonia’s labor market: gender and ethnicity. Almost half the female working age population is inactive, whereas male inactivity is considerably lower. Labor market outcomes also vary significantly with ethnicity. In particular, a strong interaction exists between gender and ethnicity, with ethnic minority women forming a particularly vulnerable group. Hence, it is worthwhile to investigate in more detail how gender and ethnicity shape the Macedonian labor market, and how public policy could be used to increase labor market participation and job opportunities for women and ethnic minorities. This report is organized as follows. First, the report describes the main characteristics of the Macedonian labor market, emphasizing the most important patterns of inequality in terms of labor market participation (section two). Section three addresses the possible causes of these inequality patterns. Section four discusses potential policy responses and concludes.Publication Active Labor Market Programs for Youth : A Framework to Guide Youth Employment Interventions(World Bank, Washington, DC, 2010-11)Youth are three times more likely to be unemployed than adults, even in economies with strong economic growth. This note is a tool to provide policymakers and youth-serving organizations with a framework to better diagnose short- to medium-run constraints facing the stock of unemployed youth and to design evidence based youth employment interventions. The note only addresses youth employment; strategies to affect wages, productivity, underemployment, or job quality are not directly discussed. This note presents youth-oriented Active Labor Market Programs (ALMPs) that conform to one of two criteria. Each intervention either has been shown to have predominately positive impact, as measured by rigorous impact evaluations, or has weaker evidence of impact-rigorous evaluations with mixed evidence of impact or strong positive monitoring data-and is theoretically sound. Cost-effectiveness information is presented when available. The note focuses on programs that are appropriate to address constraints faced by youth from disadvantaged backgrounds.Publication Employment Creation and Social Protection in the Middle East and North Africa(Cairo: American University in Cairo Press in association with the Economic Research Forum and the World Bank, 2002)This book describes and analyzes critical aspects of the labor market and social protection in the Arab world. The authors address the interrelationship between labor, human development, and social well-being in the Middle East and North Africa region -- an interaction that is viewed against the backdrop of a globalization process that is a crucial shaping factor in national and international relations alike. The authors scrutinize the implications for workers of the new forms of insecurity being ushered in by the globalization era. At the forefront is the issue of social protection, which creates several dilemmas for policymakers, since formal social security covers only a small percentage of the labor force. The idea of social reinsurance, which would integrate the informal sector and allow for social dialog, emerges at various levels, and there is general agreement that any such dialog, or new social contract, must include government, the private sector, and civil society.Publication Arab Republic of Egypt : Gender assessment 2010(World Bank, 2010-01-01)The objective of this policy note is to examine the gender dimension of the Egyptian labor market, with a focus on identifying the scope for policies to improve female labor force participation. An update to the Egypt gender assessment report of 2003, it is envisioned as a contribution to programmatic work on gender and inclusion in Egypt, helping build evidence which can inform policy aimed at improving the participation and retention of women in the labor force. Analytical and investigative in nature, it is the hope that this note will motivate discussion and debate among stakeholders in the country. The questions to be addressed in the note are also relevant for policy discussions and Bank operations in other countries, especially those in the Middle East North Africa (MENA) region where females face similar challenges to labor force participation. Besides laying out the underlying correlates of gender gaps in these areas, the report recommended a comprehensive list of 'strategic interventions' by sector for the government and other development actors, in areas such as investment in women's education, the re-examination of certain discriminatory provisions in the country's legal system, and the promotion of cultural norms that value women as equal partners to men. In the sphere of women's economic opportunities, the report pinpointed vulnerabilities such as high unemployment rates (particularly among the more educated), and a disproportionate dependence on an already shrinking public sector. Highlighting the need for creating productive and sustainable jobs for women in the private sector, the report suggested initiatives such as increasing women's access to training, technology, land, credit and information.
Users also downloaded
Showing related downloaded files
Publication Adolescent Health(Washington, DC, 2002-11)More than a quarter of the world's population is between the ages of 10 and 24. Most (86 percent) of the world's 1.7 billion young people live in developing countries, where they are often 30 percent or more of the population. At first glance, youth appears to be a relatively healthy although not hazard-free period of life. Young people account for 15 percent of the disease and injury burden worldwide and over one million die each year, mainly from preventable causes. Nonetheless, roughly 70 percent of premature deaths among adults can be linked to behavior initiated during adolescence, such as tobacco use, poor eating habits, and risky sex. Investing in health and development of young people is not only the right thing to do, it's the smart thing for countries that want their economies to grow faster: 1) reducing HIV infection in young people will reduce the devastating economic impact of HIV/AIDS; 2) when young people postpone marriage and childbearing, family size falls and population growth slows. Combined with investments in health and education, these changes contribute to higher economic growth and incomes; and 3) investments to head off negative behaviors such as tobacco use and drug abuse will pay off later for individuals and for society.Publication Assessing National Achievement Levels in Education(Washington, DC: World Bank, 2008)This introductory book describes the main features of national and international assessments, both of which became extremely popular tools for determining the quality of education in the 1990s and 2000s. This increase in popularity reflects two important developments. First, it reflects increasing globalization and interest in global mandates, including Education for All (UNESCO 2000). Second, it represents an overall shift in emphasis in assessing the quality of education from a concern with inputs (such as student participation rates, physical facilities, curriculum materials, and teacher training) to a concern with outcomes. This emphasis on outcomes can, in turn, be considered an expression of concern with the development of human capital in the belief (a) that knowledge is replacing raw materials and labor as resources in economic development and (b) that the availability of human knowledge and skills is critical in determining a country's rate of economic development and its competitiveness in an international market. The purposes and main features of national assessments are described in chapter 2. The reasons for carrying out a national assessment are considered in chapter 3, and the main decisions that have to be made in the design and planning of an assessment are covered in chapter 4. Issues (as well as common errors) to be borne in mind in the design, implementation, analysis, reporting, and use of a national assessment are identified in chapter 5. In chapter 6, international assessments of student achievement, which share many procedural features with national assessments (such as sampling, administration, background data collected, and methods of analysis), are described.Publication Gender in South Africa(World Bank, Washington, DC, 2018-06)Despite strong representation in national politics and their higher levels of enrollment in secondary and higher education, South African women face numerous constraints that prevent them from fully contributing to poverty reduction and shared prosperity. Many of these constraints are underpinned by social norms that cause women to: have less time for productive activities; avoid science, technology, engineering, and mathematics (STEM) subjects in their formal education; enter lower paid jobs and sectors; accept the use of violence (including by their male spouses and partners); have less access to productive assets. These norms, while seen across many countries around the world, were not formed in a vacuum. Thus, it is important to recognize the role that specific factors in the history of South Africa have played in the development and entrenchment of certain social norms and practices. The legacy of exclusion emanating from colonialism and apartheid disrupted family structures, aiding transactional sex and the spread of human immunodeficiency virus and acquired immunodeficiency syndrome (HIV and AIDS), and leaving children vulnerable to abuse and without male role models. Similarly, apartheid was characterized by the creation of a large low skilled population, and the legacy of this can still be seen with poorer access to health, education, and economic opportunities among the African and colored population. Evidence suggests that the frustrations that young men feel as a result of not being able to meet commonly held expectations of manhood (such as providing for a family) may result in high rates of crime and gender-based violence. This note reviews available research on gender in South Africa for the South Africa systematic country diagnostic.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Financial Incentives to Increase Utilization of Reproductive, Maternal, and Child Health Services in Low- and Middle-Income Countries(World Bank, Washington, DC, 2021-10)Financial incentives for health providers and households are increasingly used to improve reproductive, maternal, and child health service coverage in low- and middle-income countries. This study provides a quantitative synthesis of their effectiveness. A systematic review was conducted of the effects of performance-based financing, voucher, and conditional cash transfer programs on six reproductive, maternal, and child health service indicators, with eligible evidence coming from randomized controlled trials and studies using double-difference, instrumental variables, and regression discontinuity designs. Four literature searches were conducted between September 2016 and March 2021 using seven academic databases, Google Scholar, development agency and think tank websites, and previous systematic reviews. Random effects meta-analysis was used to obtain mean effect sizes. From 58 eligible references 212 impact estimates were extracted, which were synthesized into 130 program-specific effect sizes. Financial incentives increase coverage of all considered reproductive, maternal, and child health indicators, but mean effects sizes are of modest magnitude. Effect size heterogeneity is typically low to moderate, and there is no indication that study bias risk, baseline indicator levels, or a combination of provider- and household-level incentives impact effect sizes. There is, however, weak evidence that mean effect sizes are somewhat smaller for performance-based financing than for voucher and conditional cash transfer programs, and that the increase in income, rather than the incentive itself, drives coverage improvements. Financial incentives improve reproductive, maternal, and child health service coverage. If future research confirms the preliminary finding that performance-based financing has smaller effects, voucher and conditional cash transfer programs are the preferred policy option among incentive interventions to achieve higher reproductive, maternal, and child health service coverage. The relative effectiveness and efficiency of incentives compared with unconditional increases of provider and household incomes, however, need to be studied further.