How should the world respond to the current economic crisis in order to avert a large-scale human crisis? This report assesses the implications of the current situation for poor and vulnerable populations. It argues that responses must be comprehensive and should involve many sectors of the economy. They should focus on young people, the low-skilled, women, older workers, and immigrants. Recommendations include demand-side education programmes, an emphasis on adequate nutrition and HIV-related funding, public works programmes in rural areas, and a comprehensive package of support for workers.
The economic crisis will reduce labour demand in developing countries through two main channels, restricted access to credit and reduced trading opportunities, leading to a fall in real wages and employment.
- Household labour supply will be severely affected. Poor households may be forced to increase working hours, put children to work, or migrate.
- The financial sector, construction, and transportation activities, as well as urban areas in general, are expected to be the hardest hit. While changes in aggregate employment could be small, wages are likely to bear the brunt of the adjustment together with rising unemployment and underemployment.
- Real wages will plunge in the formal and in the informal sector, harshly affecting those who are able to remain in their jobs. Employment in agriculture and in the informal non-tradable sector is expected to increase during the crisis.
- Young people will be disproportionally affected by reduced job creation and increased dismissals. Older workers face greater obstacles in re-entering the labour market. The crisis will also affect unskilled workers, migrants and women particularly severely.
Responses to the economic crisis should be tailored to the specific country circumstances and focus on young people, the low-skilled, women, older workers, and immigrants. In order to strengthen safety net systems there must be more donor funding and greater efficiency. There should also be greater inter-governmental coordination as well as capacity building and knowledge sharing.
- Demand-side programmes in education could cushion the worst effects of the economic crisis. Some of the most effective programmes include conditional cash transfers, school feeding programmes, and student fellowships.
- Public spending should target adequate nutrition for the most vulnerable groups. Low-cost social insurance programmes and other financial protection measures could be very cost effective in reaching the poor.
- For countries receiving emergency budget support, an appropriate base level of funding for HIV should be included as part of the social protection package.
- Low-income countries could use public works programmes, especially in rural and isolated areas.
- To address the multiple challenges faced by workers, policymakers should move away from ad hoc implementation of individual programmes towards a comprehensive package of training, income support, internship and re-employment services.
- In terms of pension systems, abrupt policy changes and poorly designed short-term responses should be avoided: they would have negative long-term consequences on reliable and adequate levels of retirement income.
