World Bank’s Doing Business 2013: Unfounded claims about deregulation

The 2013 edition of the World Bank’s Doing Business report, released today, makes unfounded claims that weakening labour regulations will stimulate job creation. It states that countries that reduce dismissal notice periods or severance pay “are addressing one of the main factors deterring employers from creating jobs in the formal sector”. (Doing Business 2013, p 100)

This claim contradicts one of the finding of the Bank’s World Development Report 2013, launched earlier this month, which stated, “New data and more rigorous methodologies have spurred a wave of empirical studies over the past two decades on the effects of labor regulation…. Most estimates of the impacts on employment levels tend to be insignificant or modest.” (WDR 2013, p 261)

ITUC General Secretary Sharan Burrow called on the World Bank, under President Jim Yong Kim, to develop a new balanced approach to labour market issues and in favour of decent work inspired by the recommendations of the WDR 2013, and to remove the theme of labour from Doing Business once and for all.

Burrow expressed surprise that Doing Business has reverted to promoting elimination of workers’ protection rules: “We were hopeful that with WDR 2013 the Bank would finally recognize that labour regulations play an important role in providing protection to workers faced with job loss or exploitation by employers. Instead, the Bank’s highest-circulation publication is again claiming that labour market deregulation creates jobs, an assertion which the Bank’s own Independent Evaluation Group (IEG) already declared to be without foundation in a study it did on Doing Business in 2008.”

The World Bank followed up on the IEG report in 2009 by ordering Bank staff to stop using the Doing Business “Employing Workers Indicator” for policy advice or loan conditions. Doing Business 2013 mentions neither the staff directive on the failings of its labour indicator, the IEG report, nor the findings of WDR 2013.

“I find particularly reprehensible,” said Burrow, “that Doing Business2013 condemns Sub-Saharan Africa for ‘its very restrictive approach’ by requiring 3.67 months’ severance pay on average for workers who permanently lose their jobs, because it is above the average in rich countries. The Bank knows fully well that with the exception of South Africa, state-provided unemployment benefits are practically non-existent in Sub-Saharan Africa, contrary to the situation in high-income OECD countries.”

Doing Business 2013 makes the further erroneous claim that “only 4 of the 188 ILO conventions cover areas measures by Doing Business” (p 127). In fact, more than 30 of the ILO’s 189 Conventions deal with the labour regulations measured by Doing Business, which concern hours of work, minimum wages, employee termination conditions, weekend work, night work and paid holidays.

Doing Business 2013 also asserts that its labour regulation measures “are consistent with the conventions of the ILO”. Burrow stated, “I would be astounded that any ILO ‘seal of approval’ of Doing Business exists. There is certainly no ILO convention that states that minimum wages must be less than 25 per cent of value added per worker, which is the level Doing Business deems acceptable.”