25 average number of years that have been lost in terms of GDP per capita, household consumption per capita, equity prices, and unemployment. The lost time for each indicator is computed as the number of years between the year in which a country recorded the worst crisis value and the year when a worse value was last observed.<sup>56</sup> The overall measure of lost time shows that the peripheral European countries that have been hardest hit by the global financial crisis lost more than a decade of economic development—Greece lost 14 years, Iceland 12 years, Portugal and Ireland about 10 years, and Spain about 9 years (figure 17, panel a). In the United States and the United Kingdom, the epicenters of the global financial crisis, the economic clock turned back by more than 8 years. Regionally, Western European and North American countries lost more than six years of economic time on average. Central and Eastern Europe and South Asia lost on average more than four years (figure 17, panel b).

From the perspective of individual indicators, the biggest loss of economic time has been in terms of unemployment, with almost a third of all countries turning back in time by more than 10 years (figure 18), and high income OECD countries reversing employment, on average, by ten years). High income countries lost the most time in terms of GDP per capita, unemployment, and equity wealth, while low income countries relapsed the most in terms on household consumption per capita. Regionally, Western Europe lost the most time in terms of GDP per capita, asset prices, and household consumption per capita, where Africa and South Asia followed very closely. North America saw the largest reversal in unemployment (figure 19).

# **6  Summary and Policy Implications**

Available evidence from the global financial crisis suggests that financial crises can have significant short-term and long-term social costs. Through product and labor markets, financial crises weaken economic activity, dampen consumption and investment demand, and result in sustained falls in economic growth, loss of jobs, reduced wages and benefits, and higher unemployment. Reduced asset values lower wealth through the financial market channel, and deceleration of capital inflows, foreign aid, or remittances increases the scarcity and cost of credit that dampens economic activity and employment. Coping strategies by the public sector can affect its ability to lessen the pain inflicted by the crisis through continued provision of social protection and essential public goods and services. Costly coping strategies by individuals can limit the quantity and quality of food intake, increase working hours at jobs with limited benefits, result in engagement in crime or violence, sale of productive assets, or pulling children out of school—all with long-term development consequences. Migration, informal credit from relatives, friends, and neighbors, and diversifying assets can help cushion the blow. Available evidence suggests that these channels have been at work during the global financial crisis.

As a result, economic and social indicators have deteriorated significantly since 2007. The loss of 28 million jobs since 2007 brought the pool of globally unemployed people to an estimated 197 million in 2012. The unemployment rate increased sharply, especially in high- and uppermiddle income countries that have been at the epicenter of the crisis or had close economic and

> 56 The analysis does not account for each country’s business cycle development. To include all countries for which full time series are available since 1990, a varying sample of countries is taken for each indicator: for GDP per capita the sample includes 180 countries, for household consumption per capita 134 countries, for unemployment 79 countries, and for equity indices 73 countries.