The impact on _sectoral shares in employment_ is more significant, since the crisis does not affect all sectors equally. In 2010, the share of industry in total employment is projected to be lower in the crisis scenario by 1.4 percentage points, while those of services and agriculture are expected to be 0.8 and 0.5 percentage points higher, respectively (Table 2).

# **_4.4 Impact on household income, poverty and distribution: results from micro‐simulation_**

It is important to note that the results of the simulation exercise are entirely dependent on the macroeconomic projections (in Section 4.2 above), which can change as more information becomes available. If the actual impact of the crisis on remittance growth in 2010, for example, were to be less than the projections shown in Table 1, the impact on poverty and household incomes will also be lower than what is estimated here. The primary purpose of this exercise should therefore be seen not as an attempt to definitively predict future poverty in the highly uncertain environment of a global economic crisis, but rather as _illustrating the kinds of results and insights this simulation model can yield, given the most recently available projections of macroeconomic impact of the crisis_ .

_Average household income_ is expected to be 0.7% lower in 2009 and 2.4% lower in 2010 as a result of the crisis (compared to the benchmark case), applying the micro‐simulation method described in Section 3. The drop in 2009 income is attributed to a 0.5% drop in labor income and 1.5% drop in non‐labor income, while in 2010 labor and non‐labor income is projected to drop by 1.5% and 5% respectively. The significantly higher loss in non‐labor income in 2010 is due to a 9% loss in remittances in 2010 compared to 3% in 2009 (see Annex 2, Table B for the detailed estimates on household income).

**Impact on poverty and inequality.** As expected, and consistent with the impacts on household income, the impact of the crisis on poverty measures is low in 2009 and more significant in 2010. Table 3 shows the projections for poverty and inequality measures for 2009 and 2010 with crisis and the projected impact of the crisis for each year **Table 3: Impact of financial crisis on poverty and inequality indices** (i.e. the difference between crisis Impact of Crisis Baseline With Crisis _<u>(Crisis – Benchmark)</u>_ and benchmark scenarios).

|**Table 3: Impact of finan**|**cial crisis**|**onpover**|**ty and ine**|**quality indi**<br>Impact|**ces**<br>of Crisis|
|---|---|---|---|---|---|
||Baseline|With|Crisis|_(Crisis – B_|_enchmark)_|
||2005|2009|2010|2009|2010|
|**Moderate poverty**||||||
|‐Headcount rate (%)|40.0|28.6|25.8|0.4|1.2|
|‐Poverty gap|9.0|6.0|5.3|0.1|0.3|
|‐ Squared poverty gap|2.9|1.9|1.6|0.1|0.1|
|**Extreme poverty**||||||
|‐Headcount rate (%)|25.1|16.7|14.8|0.2|0.9|
|‐Poverty gap|4.7|3.0|2.5|0.1|0.1|
|‐ Squared poverty gap|1.3|0.8|0.7|0|0.1|
|**Inequality per‐cap. Exp**||||||
|‐Gini|0.31|0.34|0.32|0.02|0|
|‐Theil|0.19|0.22|0.19|0.02|‐0.01|

The poverty headcount rate **Moderate poverty** (based on the upper poverty line) ‐Headcount rate (%) 40.0 28.6 25.8 0.4 1.2 and extreme poverty rate (based ‐Poverty gap 9.0 6.0 5.3 0.1 0.3 on the lower poverty line) are ‐ Squared poverty gap 2.9 1.9 1.6 0.1 0.1 expected to be 0.4 and 0.2 **Extreme poverty** percentage points higher in 2009, ‐Headcount rate (%) 25.1 16.7 14.8 0.2 0.9 respectively, as a result of the ‐Poverty gap 4.7 3.0 2.5 0.1 0.1 crisis. In 2010, the poverty ‐ Squared poverty gap 1.3 0.8 0.7 0 0.1 headcount rate is expected to be **Inequality per‐cap. Exp** 1.2 percentage points higher and ‐Gini 0.31 0.34 0.32 0.02 0 the extreme poverty rate 0.9 ‐Theil 0.19 0.22 0.19 0.02 ‐0.01 percentage points higher due to _Source_ : Micro‐simulations using macro projections (see Table 1) and HIES (2005) the crisis. The impacts on poverty gap (depth of poverty) and squared poverty gap (severity) are small 18