The Great Recession of 2008-2009: Causes ... - Index of - IZA

output gap leading to higher fiscal expansion)
*Initial conditions constrain size of fiscal
expansion
OECD OECD economies 3.4 *Although size appears large, impact not
significant enough to offset output gap
*Diversified approach, but evidence is that
‘spending multipliers’ bigger than ‘tax
multipliers’
* Negative relationship between ‘automatic
stabilizers’ and size of fiscal expansion
Source: ILO/IILS (2009), IMF (2009d, e), Khatiwada (2009), OECD (2009), and Prasad and Sorkin (2009).
4.2 Labour market and social policies as part of the response to the crisis
In addition to macroeconomic policy, specific labour market measures also have a role in
mitigating the impact of the crisis on workers, helping reduce the lag between economic
growth and job creation, as well as preventing the risk of unemployment persistence, longterm
unemployment and human capital deterioration. Formulating appropriate policy
interventions requires recognizing how the labour market adjusts as a result of the credit
squeeze and collapse in aggregate demand, which is discussed further in section 3. In this
respect, the degree and form of adjustment will depend on the magnitude of the crisis in their
country and region, and the level of labour market flexibility. The latter is influenced by the
institutional arrangements in the labour market (such as wage setting institutions,
unionization, employment protection legislation, etc.).
In light of the various labour market adjustment mechanisms discussed above (section 3.2),
the labour market policy response to the crisis has centred around four main areas:
maintaining and increasing labour demand; improving the match between demand and
supply; providing income support; and targeting of vulnerable groups. Drawing on the
findings of a range of recent surveys on the policy response to the global financial crisis of
2008-2009, a large number of high-income countries have utilized policy measures that
address these different goals (Figure 11). 41 The most commonly used intervention in highincome
countries is training for both those threatened by layoffs and the unemployed
(including work experience and apprenticeship initiatives) (27 countries), followed by work
sharing (24 countries), increased resources for public employment services, including job
41 See Cazes et al. (2009). For similar analysis, see ILO (2009a) and OECD (2009).
43