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

66 Doing Business 2009workers and comply with all relevant ILOconventions (specifically, the 4 related toDoing Business)—and no economy canachieve a better score by failing to complywith these conventions.The ILO conventions covering areasrelated to the employing workers indicatorsdo not include the ILO core laborstandards—8 conventions covering theright to collective bargaining, the eliminationof forced labor, the abolition ofchild labor and equitable treatment inemployment practices. Doing Businesssupports the ILO core labor standardsand this year includes information ontheir ratification. Doing Business doesnot measure or rank ratification or compliancewith ILO conventions.The data on employing workers arebased on a detailed survey of employmentregulations that is completed by locallawyers and public officials. Employmentlaws and regulations as well as secondarysources are reviewed to ensure accuracy.To make the data comparable acrosseconomies, several assumptions about theworker and the business are used.Assumptions about the workerThe worker:• Is a 42-year-old, nonexecutive, fulltime,male employee.• Has worked at the same company for20 years.• Earns a salary plus benefits equal tothe economy’s average wage duringthe entire period of his employment.• Is a lawful citizen who belongs to thesame race and religion as the majorityof the economy’s population.• Resides in the economy’s largestbusiness city.• Is not a member of a labor union,unless membership is mandatory.Assumptions about the businessThe business:• Is a limited liability company.• Operates in the economy’s largestbusiness city.• Is 100% domestically owned.• Operates in the manufacturing sector.• Has 201 employees.• Is subject to collective bargainingagreements in economies where suchagreements cover more than half themanufacturing sector and apply evento firms not party to them.• Abides by every law and regulationbut does not grant workers morebenefits than mandated by law,regulation or (if applicable) collectivebargaining agreement.Rigidity of employment indexThe rigidity of employment index is theaverage of 3 subindices: a difficulty ofhiring index, a rigidity of hours indexand a difficulty of firing index (table12.4). All the subindices have severalcomponents. And all take values between0 and 100, with higher values indicatingmore rigid regulation.The difficulty of hiring index measures(i) whether fixed-term contractsare prohibited for permanent tasks; (ii)the maximum cumulative duration offixed-term contracts; and (iii) the ratioof the minimum wage for a traineeor first-time employee to the averagevalue added per worker. 4 An economyis assigned a score of 1 if fixed-termcontracts are prohibited for permanenttasks and a score of 0 if they can be usedfor any task. A score of 1 is assigned ifthe maximum cumulative duration ofTable 12.4What does employing workers measure?Difficulty of hiring index (0–100)• Applicability and maximum duration of fixed-term contracts• Minimum wage for trainee or first-time employeeRigidity of hours index (0–100)fixed-term contracts is less than 3 years;0.5 if it is 3 years or more but less than 5years; and 0 if fixed-term contracts canlast 5 years or more. Finally, a score of 1is assigned if the ratio of the minimumwage to the average value added perworker is 0.75 or more; 0.67 for a ratio of0.50 or more but less than 0.75; 0.33 fora ratio of 0.25 or more but less than 0.50;and 0 for a ratio of less than 0.25. In theCentral African Republic, for example,fixed-term contracts are prohibited forpermanent tasks (a score of 1), and theycan be used for a maximum of 4 years (ascore of 0.5). The ratio of the mandatedminimum wage to the value added perworker is 0.62 (a score of 0.67). Averagingthe 3 values and scaling the index to100 gives the Central African Republic ascore of 72.The rigidity of hours index has 5components: (i) whether night work isunrestricted; (ii) whether weekend workis unrestricted; (iii) whether the workweekcan consist of 5.5 days; (iv) whetherthe workweek can extend to 50 hours ormore (including overtime) for 2 monthsa year to respond to a seasonal increasein production; and (v) whether paidannual vacation is 21 working days orfewer. For each of these questions, if theanswer is no, the economy is assigned ascore of 1; otherwise a score of 0 is as-• Restrictions on night work and weekend work• Allowed maximum length of the workweek in days and hours, including overtime• Paid annual vacation daysDifficulty of firing index (0–100)• Notification and approval requirements for termination of a redundant worker or group of redundantworkers• Obligation to reassign or retrain and priority rules for redundancy and reemploymentRigidity of employment index (0–100)• Simple average of the difficulty of hiring, rigidity of hours and difficulty of firing indicesFiring cost (weeks of salary)• Notice requirements, severance payments and penalties due when terminating a redundant worker, expressedin weeks of salarySource: Doing Business database.(c) The International Bank for Reconstruction and Development / The World Bank