Avoiding the Eye of the Storm: How to Deal Effectively with Job Crises

Although economic crises are difficult to predict, their recurrence is a salient feature of emerging market economies. Nevertheless, many developing countries continue to lack an effective policy infrastructure that can mitigate the impacts of economic downturns on employment opportunities without affecting long-term growth prospects. This was painfully highlighted by the hasty reactions implemented by many countries in response to the global downturn of 2008–9, and by the ad hoc and reactive nature of many of the policies implemented. The weak ability of governments to systematically foresee, monitor, and offset adverse labor market impacts of economic downturns is of particular concern in developing countries where poverty incidence is high and labor is typically the only asset for the majority of the population (Lustig 2000). The main objectives of this note1 are (i) to highlight the need for policies that limit earnings volatility and (ii) to guide policy makers through the challenges inherent in crafting effective and comprehensive policy packages.