DOING BUSINESS 2009 - JOHN J. HADDAD, Ph.D.

North Africa1(19 economies)FIGURE 4.3Rigid labor regulations are associated with high Note: informality A reform is counted and as 1 high reform unemploymentper reforming economy per year.Source: Doing Business database.SizeOverviewof informal sector (% of GDP)Female unemployment (%)30Starting a business12 FIGURE 4.1Dealing with construction permitsEconomies with rigid labor regulations have fewer business start-upsAverage entry rate, 2000–04 (%)81520Employingworkers10Registering property10Getting 0 credit0Least rigid Most rigid Least rigid Most rigidProtecting investorsEconomies ranked byEconomies ranked byPaying rigidity taxes of employment index, quintiles 5 rigidity of employment index, quintilesNote: Trading Relationships across are borders significant at the 1% level for size of the informal sector and at the 10% level for female unemployment, and remainsignificant when controlling for income per capita.Source: Enforcing Doing Business contracts database; WEF (2007); World Bank, World Development Indicators database.Closing a business0New Zealand Slovakia Sweden Norway Georgia Germany Bolivia PeruFIGURE 4.4Most reforms in Eastern Europe & Central AsiaAissa, a successful designer, Number of owns reforms a businessexporting traditional Senegalese have to follow a particular order of se-increasing which flexibility workers of labor to regulations dismiss; she wouldby Doing Business report yearDB2005 DB2006 DB2007 DB2008 DB2009Eastern handwoven Europefabrics to upscale internationalCentral brands Asia like Hermès and Christian her industry is suffering a slowdown. 19niority. And she would have to prove that&(28 economies)Lacroix. Demand is growing, so much This is nearly impossible, since SenegalOECD so that Aissa would have to quadruple lacks reliable statistics on industrywidehigh income16(24 production economies) to meet it. But that would trends. Besides, there are no formal criteriaon what constitutes a slowdown. Themean hiring more workers—and thatSub-SaharanAfrica seems too risky. 1 What if demand 4 should labor inspector decides.(46 economies)decline? It would be difficult to downsize Senegal’s restrictive labor laws makeLatin again. America “People can sue you and say you it difficult to adjust to demand. Besides& Caribbean3(32 have economies) fired them illegally,” Aissa explains. the burdensome dismissal requirements,East “You Asia have to give them a letter and then employers face tight restrictions on& a Pacific long process begins.” 2working hours and a ban on using fixedtermcontracts for permanent tasks. All(24 economies)That process would involve multipleSouth letters Asia to the labor inspector, all requiringa formal response. Aissa would have many of her competitors circumventthis leads to another problem for Aissa:(8 economies)2Middle to give East specific & reasons for dismissing labor regulations altogether by operatingNorth workers Africa and prove 1 that she had tried in the informal sector.(19 economies)other solutions. She could not choose Aissa is not alone. A study of 1,948Note: A reform is counted as 1 reform per reforming economy per year.Source: Doing Business database.retail stores in large Indian cities findsTable 4.1that 27% see labor regulations as a problem.2 The study also finds that makingWhere is it easy to employ workers—FIGURE 4.1and where not?Economies with rigid labor regulations have fewerlaborbusinesslaws morestart-upsflexible could increaseEasiest Rank Most difficult RankRigidity of employmentAverage entry rate, 2000–04 (%)employment in stores by 22% index on in DB2005 average.This is substantial: the retail sector 45United States 1 Panama 17215Singapore 2 Sierra Leone 173is India’s second largest employer, providingjobs to 9.4% of workers. Similarly,Marshall Islands 3 Angola 174Maldives 4 Congo, Dem. Rep. 17510a study in Brazil finds that enforcement 30Georgia 5 Guinea-Bissau 176Brunei 6 Paraguay 177Tonga 7 Equatorial Guinea 178Source: Doing Business database; Djankov, Ganser, McLiesh, Ramalho and FIGURE Shleifer 4.5(2008).of rigid labor regulations limits firm sizeand reduces employment. 3Employment regulations are needed 15Australia 58 São Tomé and 179PrincipePalau 9 Bolivia 180 to allow efficient contracting betweenDenmark 10 Venezuela 181 employers and workers and to protect0workers from discriminatory or unfair 0Note: Rankings are the average of the economy rankings on thedifficulty New of Zealand hiring, rigidity Slovakia of hours, difficulty Sweden of firing Norway and firing Georgia treatment Germany by employers. BoliviaIn its Peru indicatorscost indices. See Data notes for details.Source: Doing Business database.on employing workers, Doing BusinessSource: Doing Business database; Djankov, Ganser, McLiesh, Ramalho and Shleifer (2008).419Rigidity of employmentindex in DB2005Top 4 reform features inemploying measures flexibility workers in the regulation ofReforms hiring, including working feature hours since and DB2005 dismissal (%) in amanner consistent with the conventions 36%Made of the working International hours more Labour flexibleOrganization(ILO). An economy can have the mostflexible labor regulations as 29% measured byEased restrictions on fixed-term contractsDoing Business while ratifying and complyingwith all conventions directly relevantto the factors measured by Doing15%Reduced dismissalBusiness 4 costsand with the ILO core laborstandards. 11% No economy can achieve aRemoved better score requirements by failing for dismissals to comply withthese conventions.Note: A Doing reform may Business include several supports reform features. the ILOSource: Doing Business database.core labor standards—the 8 conventionscovering the right to collective bargaining,the elimination of forced labor, theabolition of child labor and equitabletreatment in employment practices. Respectfor these standards helps createan environment in which business canFIGURE 4.2Rankings on employing workersare based on 4 subindicatorsFixed-term contracts,minimum wageregulationsMandatory legalrequirements for dismissalsfor economic reasons453015Nonstandard work schedules,paid vacation days25% 25%Difficultyof hiringindex25% 25%Difficulty Firingof firing costindexNote: See Data notes for details.Rigidityof hoursindexAs weeks of salary;includes notice periodand severance payments0FIGURRankare bFixedminimregulaMandarequirefor ecoNote: Se(c) The International Bank for Reconstruction and Development / The World Bank