Stating that significant misallocation of investment occurred in the region during the pre-crisis period, the report said jobs linked to misallocated investment were clearly at risk.

Much of the job loss since the crisis onset in the region was in over-expanded construction and financial sector.

Misallocation of investment was unwise in itself, the report said that it also sowed seeds of 'fragility' into job creation, which in turn had high social costs when jobs were lost. The crisis revealed strong weaknesses in institutions dealing with enterprise restructuring and masslay-offs.

Further, comprehensive information systems to provide advance warning of and to monitor, mass lay-offs did not exist, which proved to be a severe handicap to formulation and implementation of countervailing measures.

The report revealed these countries had very limited capacity to facilitate re-deployment of laid-off workers including job-search assistance, re-training and mobility assistance. Although these measures applied to formal sector, this did not mean it should be neglected.

The role of modern or formal sector would continue to grow in the pre-crisis period and with it the need for a stronger institutional capacity to design and implement active labour market policies, it said. On development of institutions, the report suggested creation of stronger capacities to monitor and evaluate employment implications of overall economic policies.

This would involve strengthening research and policy analysis functions of central and state labour ministries and establishment of close workinglinks between labour and economic ministries.