Labor Market Regulation Methodology

Figure 1 - What do the labor market regulation indicators cover?

Doing Business has historically studied the flexibility of regulation of employment, specifically as it relates to the areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor market regulation indicators by adding 16 new questions, most of which focus on measuring job quality (figure 1).

Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market regulation indicators (formerly the employing workers indicators) with the letter and spirit of the International Labour Organization (ILO) conventions. Ten of the 189 ILO conventions cover areas now measured by Doing Business (up from four previously): employee termination, weekend work, holiday with pay, night work, protection against unemployment, sickness benefits, maternity protection, working hours, equal remuneration and labor inspections. The ILO conventions covering areas related to the labor market regulation indicators include two of the eight ILO core labor standards.

Between 2009 and 2011 the World Bank Group worked with a consultative group—including labor lawyers, employer and employee representatives, and experts from the ILO, the Organisation for Economic Co-operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research (1). A full report with the conclusions of the consultative group, along with the methodology it proposed, can be downloaded here.

Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website. The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy.

To make the data comparable across economies, several assumptions about the worker and the business are used.

Assumptions about the worker

The worker:

  • Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.
  • Is a full-time employee.
  • Is not a member of the labor union, unless membership is mandatory.

Assumptions about the business

The business:

  • Is a limited liability company (or the equivalent in the economy).
  • Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.
  • Has 60 employees.
  • Is subject to collective bargaining agreements if such agreements cover more than 50% of the food retail sector and they apply even to firms that are not party to them.
  • Abides by every law and regulation but does not grant workers more benefits than those mandated by law, regulation or (if applicable) collective bargaining agreements.

Rigidity of employment

Data on employment cover three areas: hiring, working hours and redundancy.

Data on hiring cover five questions: (i) whether fixed-term contracts are prohibited for permanent tasks; (ii) the maximum cumulative duration of fixed-term contracts; (iii) the minimum wage for a cashier, age 19, with one year of work experience; (iv) the ratio of the minimum wage to the average value added per worker;(2) and (v) the availability of incentives for employers to hire employees under the age of 25 (3).

Data on working hours cover nine questions: (i) the maximum number of working days allowed per week; (ii) the premium for night work (as a percentage of hourly pay); (iii) the premium for work on a weekly rest day (as a percentage of hourly pay); (iv) the premium for overtime work (as a percentage of hourly pay);(4) (v) whether there are restrictions on night work; (vi) whether nonpregnant and nonnursing women can work the same night hours as men;(5) (vii) whether there are restrictions on weekly holiday work; (viii) whether there are restrictions on overtime work;(6) and (ix) the average paid annual leave for workers with 1 year of tenure, 5 years of tenure and 10 years of tenure.

Data on redundancy cover nine questions: (i) the length of the maximum probationary period (in months) for permanent employees; (ii) whether redundancy is allowed as a basis for terminating workers; (iii) whether the employer needs to notify a third party (such as a government agency) to terminate one redundant worker; (iv) whether the employer needs to notify a third party to terminate a group of nine redundant workers; (v) whether the employer needs approval from a third party to terminate one redundant worker; (vi) whether the employer needs approval from a third party to terminate a group of nine redundant workers; (vii) whether the law requires the employer to reassign or retrain a worker before making the worker redundant; (viii) whether priority rules apply for redundancies; and (ix) whether priority rules apply for reemployment.

Redundancy cost

Redundancy cost measures the cost of advance notice requirements and severance payments due when terminating a redundant worker, expressed in weeks of salary. The average value of notice requirements and severance payments applicable to a worker with 1 year of tenure, a worker with 5 years and a worker with 10 years is considered. One month is recorded as 4 and 1/3 weeks.

This year Doing Business introduces new data on job quality that cover 12 questions: (i) whether the law mandates equal remuneration for work of equal value; (ii) whether the law mandates nondiscrimination based on gender in hiring; (iii) whether the law mandates paid or unpaid maternity leave; (7) (iv) the minimum length of paid maternity leave (in calendar days);(8) (v) whether employees on maternity leave receive 100% of wages; (vi) the availability of five fully paid days of sick leave a year; (vii) the availability of on-the-job training at no cost to the employee; (viii) whether a worker is eligible for an unemployment protection scheme after one year of service; (ix) the minimum duration of the contribution period (in months) required for unemployment protection; (x) whether an employee can create or join a union; (xi) the availability of administrative or judicial relief in case of infringement of employees’ rights; and (xii) the availability of a labor inspection system.


--------------------

1. For the terms of reference and composition of the consultative group, see World Bank, “Doing Business Employing Workers Indicator Consultative Group,” http://www.doingbusiness.org.
2. The average value added per worker is the ratio of an economy’s GNI per capita to the working-age population as a percentage of the total population.
3. This component is new in Doing Business 2016.
4. This component is new in Doing Business 2016.
5. This component is new in Doing Business 2016.
6. This component is new in Doing Business 2016.
7. If no maternity leave is mandated by law, parental leave is measured if applicable.
8. The minimum number of days that legally have to be paid by the government, the employer or both.