schemes, resulting in 2020 employment rates that were largely unchanged from 2019. This was observed, for example, in Hungary, Poland, and Romania, as well as in some Western Balkan economies, including North Macedonia and Serbia. In contrast, employment rates fell and unemployment rose sharply in 2020 in many countries in Eastern Europe, the South Caucasus, and Central Asia, where employment retention schemes were smaller or absent. In many of these countries, where informality tends to be high, increases in unemployment were somewhat stemmed by shifts from wage and salaried work to selfemployment (ILO 2022a).

The labor market recovery since 2020 has been similarly uneven across and within countries, as well as across sectors. In Türkiye, Poland, and Kazakhstan—ECA’s second, third, and fourth largest economies, respectively—employment has returned to prepandemic rates, and in the Central European economies labor market slack has returned to or fallen below pre-pandemic levels.<sup>13</sup> In contrast, the recovery has been more sluggish in some economies in South Caucasus and Central Asia. In some cases, labor market recoveries have been shallower than unemployment data suggest because employment losses have been offset by increases in people outside the labor force—reflecting, for example, job seekers that have become discouraged from long spells of unemployment. High-frequency World Bank Household Survey data indicate persistent financial concerns among the poor and vulnerable, as pandemic-related job and income losses have disproportionately affected them, particularly in lagging regions within countries (World Bank 2022h).<sup>14</sup> As a result, the erosion of human capital from pandemic-induced unemployment has varied in ECA, which could lead to divergences in potential growth over the coming years.

The pandemic has highlighted not only the critical role of digital connectivity for the continuity of public service provision and economic activity, but also the digital divide across income groups and geographic regions. Although access to broadband internet has expanded over the past decade in ECA, with almost all households having access by 2018, a large share of the population still lacks basic digital skills and does not use digital technologies. In 2021, fewer than half of Central and Eastern Europeans had basic digital skills. This has limited the use of the internet for e-commerce and interaction with public authorities to levels much lower than in the rest of Europe.<sup>15</sup> Moreover, it has been much easier for highly skilled and high-wage workers to work remotely compared to low-skilled workers. Thus, low-skilled workers experienced a significantly larger drop in employment,

> 13 Labor market slack is measured by Eurostat and is defined as unemployed, inactive, unavailable, and underemployed people as a share of the labor force and potential additional labor force (that is, those inactive and unavailable).

> 14 As measured by Eurostat’s NUTS 2 and NUTS 3 regions, which comprise Bulgaria, Hungary, Montenegro, Poland, Serbia, Romania, and Türkiye.

> 15 In 2021, ECA countries ranked among the lowest in the EU in the European Commission’s Digital Economy and Society Index. Low rankings reflect weakness in digital connectivity (for example, in Bulgaria, where only 59 percent of households subscribe to broadband services, well below the EU average of 77 percent), online public service delivery (Bulgaria, Romania), and digital skills (for example, in Bulgaria, Poland, and Romania; only 29 percent of Bulgarians aged 16 to 74 years have basic digital skills compared to the EU average of 56 percent).