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Fewer Jobs or Smaller Paychecks? Aggregate Crisis Impacts in Selected Middle-Income Countries

Gaurav Khanna

University of Michigan at Ann Arbor - Department of Economics

David Locke Newhouse

World Bank

Pierella Paci

World Bank

IZA Discussion Paper No. 5956

This paper reviews evidence from 44 middle income countries on how the recent financial crisis affected jobs and workers' income. In addition to providing a rare assessment of the magnitude of the impact across several middle-income countries, the paper describes how labor markets adjusted and how the adjustments varied for different types of countries. The main finding is that the crisis affected the quality of employment more than the number of jobs. Overall, the slow-down in earning growth was considerably higher than that in employment, and the decline in GDP was associated with a sharp decline in output per worker, particularly in the industrial sector. In several counties, hours per workers declined and hourly wages changed little. But both the magnitude and nature of the adjustments varied considerably across countries. For a given drop in GDP, earnings declined more in countries with larger manufacturing sectors, smaller export sectors, and more stringent labor market regulations. In addition, overall employment became more sensitive to GDP growth. These findings have implications that go beyond the recent financial crisis as they highlight (i) the limitations of focusing policies responses on maintaining jobs and providing alterative employment or replacement income for the unemployed and (ii) the critical role of fast-track data systems, capable of monitoring ongoing labor market adjustment during economic downturns, in supporting the design of effective policy responses.

Number of Pages in PDF File: 24

Keywords: middle-income countries, labor markets, recession

JEL Classification: E24, E32, J21

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Date posted: September 18, 2011  

Suggested Citation

Khanna, Gaurav and Newhouse, David Locke and Paci, Pierella, Fewer Jobs or Smaller Paychecks? Aggregate Crisis Impacts in Selected Middle-Income Countries. IZA Discussion Paper No. 5956. Available at SSRN: http://ssrn.com/abstract=1929656

Contact Information

Gaurav Khanna (Contact Author)
University of Michigan at Ann Arbor - Department of Economics ( email )
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
David Locke Newhouse
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
Pierella Paci
World Bank ( email )
Washington, DC 20433
United States
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