Commonalities and variances between countries of different income groups

A key determinant of social security responses to the financial and economic crisis is the pre-existence of social security schemes. To effectively address this crisis as well as the future ones governments need to have in place a set of instruments and institutions allowing immediate reactions aimed at providing at least partial replacement income to those who are loosing employment or whose income is reduced. To work to their full potential, income support measures should be combined with a range of other labour market policies supporting existing or creating new jobs and increasing employability of people through training and other measures.

The situation which we are facing in the current crisis is that many higher income and some middle-income countries are relatively well equipped in the above instruments and institutions. But this is far from being a case in most other countries of the world where we face a massive coverage gap. Many of the lower income countries still miss larger scale initiatives which would provide income support coupled with adequate job creation and employability enhancing measures to all those who are – even without a global crisis – unable to find employment remunerated sufficiently to prevent them and their families from extreme poverty and destitution.

This context forms one of the backdrop of the following discussion on trends and variances in national crisis response. But, naturally each country has been affected by the crisis in a slightly (or very) different way. This can be studied in greater detail in the country examples from (National Responses). This section on the other hand, will provide a overview on diverging trends between countries in different income groups, with particular respect to income replacement schemes such as unemployment benefits. The following table summarizes the distribution of measures taken on national level.

Table 1. Distribution of national responses

High income countries
The most common responses in high-income countries are modifications of the existing unemployment schemes. For example, the United States  (US country report) have increased benefit duration periods and levels. As past recessions had led to higher structural unemployment in some Western European countries, in this crisis the governments’ strategy in a number of countries, i.e. in Germany (German country report), the Netherlands and France, aims at the avoidance of full unemployment by expanding application, eligibility and coverage of partial unemployment benefits (more information on this instrument can be found in the country report on Germany). Partial unemployment benefits allow workers to stay in their employment relationship, but at reduced working hours. It aims at preventing loss of skills and discouragement of workers, which may occur when they become fully unemployed.

As mentioned above, any income replacement scheme can work to its full potential only when it is combined with and linked to other labour market instruments increasing employability, such as training. The crisis will lead to structural changes in many economies, therefore measures which aim at the future employability of nowadays unemployed workers are crucial. Training and related measures are part of stimulus packages introduced in most European countries (often in combination with partial unemployment benefits) and also, for example, in the Republic of Korea, where workers who undergo training are entitled to higher benefits. Korea has also decided to invest in tools aimed at providing better information on jobseekers, qualifications and open positions, which should help avoiding long-term unemployment through.

Middle-income countries
Partial unemployment benefits are also being added to the existing unemployment benefit schemes or are extended in a number of middle-income countries such as Poland and Turkey. But while in most middle-income countries in Europe these scheme potentially cover majority of the employed, in many middle-income countries in Asia and Latin America self-employment and informal employment shares are high and thus the existing unemployment schemes are not accessible for many of those whose labour incomes are affected by the crisis and thus they would need some forms of income support (see the coverage gap for more information). When formal labour markets are small, coverage extension of the existing schemes solves only part of the problem and thus additional special measures for both the formal and the informal sector become necessary. 

In Brazil (country report), for example, the crisis responses target the workers in the formal sector in the most crisis-ridden sectors for whom unemployment benefits have been prolonged by two months. The extension in the benefit payment duration of the unemployment insurance will reach around 103,000, or 20 per cent of the schemes’ beneficiaries. Additionally, those who lack formal income opportunities will be targeted through extended access to the Bolsa Familia programme. The government will extend the programme, which covered 11.1 million families at the end of 2008, to another 1.3 million families this year, and has raised the income threshold determining eligibility from BRL 120 to BRL 137 per capita.

The most common form of response in middle-income countries is extension of public employment schemes or creating new ones. Such discussions are e.g. under way in India (country report), where an extension of the successful National Rural Employment Guarantee Act (NREGA) to urban areas is currently discussed. Although this is not the case in India, public employment schemes often have an ad hoc character and they may therefore be implemented quicker than social security schemes, and discontinued once the crisis is over. This may certainly beneficial in crisis situations, but past experience advises caution on public work schemes. Such schemes are often praised for their “self-targeting”, as low remuneration they provide attracts only those in dire need. With respect to targeting, they may therefore be easier to implement in the contexts were social security infrastructure and expertise is limited. Their ad hoc character however often prevents them from delivering sustainable and reliable support in form of adequate income to those in need, and they also often exclude indirectly (e.g. through the schemes design) more vulnerable groups such as women.  

Low-income countries
Availability of measures of crisis response is clearly the most limited in low-income countries, in the reviewed sample above and in general. Additionally, low-income countries face a number of special challenges. The existence and coverage of social security schemes is so limited that one cannot expect sufficient response from them, even where they have been set up a few years ago e.g. the unemployment protection schemes in Vietnam and Bangladesh.
But in each of the countries in the sample (Bangladesh, Kenya, Nepal, Tanzania and Vietnam), and many others that have not been reviewed, small-scale pilot income support schemes of various nature providing cash benefits and/or employment to various targeted groups of population do exist. As a response to the crisis, they have been shored up, sometimes with the help of donors (this is e.g. the case in Pakistan). The crisis response of low-income countries is discussed in greater detail here.

Some lessons on social security from current crisis response
This crisis’ detrimental social impact can be effectively cushioned by social security if its foundations based on solidarity are strengthened. With respect to the higher- and middle income countries it can be said, that despite the talk of over-burdened welfare states in the past decades, this crisis gives new visibility to the crucial role of social security in weathering economic storms, now and in the future. Also in developed economies, comprehensive and state-organized social security based on the principle of solidarity may not be treated as a relict from the past – they are powerful tools for economic and societal development in the future. It is thus of central importance to sustain the fiscal space for public social security schemes through government policies. In low-income countries on the other hand, the crisis highlights the indispensable need to extend the access to at least basic levels of social protection to all and to develop effective instruments to prevent poverty. 

• National Responses
• Crisis response in low income countries
• International initiatives in crisis response