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The World Bank: facing both ways on labour market regulation

Mike Waghorne, 24 October 2012

The 2013 edition of the World Bank’s Doing Business report (DBR 2013), just released, 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”. ( DBR 2013, p.100)

This claim flatly contradicts one of the findings of the Bank’s own World Development Report 2013 on jobs, 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)

The Doing Business report no longer includes an Employing Workers Indicator in its league table of national investment environments, although the data that would provide the rankings against that indicator remains available on the Bank’s website. The report itself no longer includes that ranking because the International Labour Organisation (ILO)  and the International Trade Union Confederation (ITUC) pointed out that it was encouraging lower labour standards.

ITUC General Secretary Sharan Burrow has called on the World Bank 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.

Following publication of the DBR 2013, 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.”

Like the ILO and ITUC, the IEG criticised the methodology and the data used in the Employing Workers Indicator. The World Bank followed up on the IEG report in 2009 by ordering Bank staff to stop using that indicator for policy advice or loan conditions. Burrow is concerned that Doing Business 2013 mentions neither that staff directive, the IEG report, nor the findings of WDR 2013.

As well as being severely criticised by the IEG, the ILO and  the ITUC, the indicator was challenged by the Trade Union Advisory Committee (TUAC) to the Organisation for Economic Cooperation and Development (OECD). In fact, I represented TUAC at an OECD meeting that discussed a policy paper from the OECD (whose title I forget) that same year in which the OECD cited Doing Business in its comments on investment and labour regulations.

TUAC argued that, in the light of the IEG, ITUC and ILO comments, it would damage the reputation of the OECD to note without comment such a discredited document. Better either to include a health warning or simply to omit the citation. The lame excuse from the OECD secretariat was that it was ‘inappropriate for the OECD to criticise another intergovernmental organisation’, so it stayed there.

Burrow notes that Doing Business 2013 makes the further erroneous claim that “only 4 of the 188 ILO conventions cover areas measured by Doing Business” (p 127). In fact, she says, 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”. In view of what I have noted above about the ILO’s rebuttal in 2007, that seems an astonishing claim, and as the ILO and the World Bank have been reviewing the indicators together, it is hard to attribute the mistake to ignorance.

It also seems that the Doing Business team simply ignores at least the spirit of the instructions of the Bank’s leadership, making one wonder just who is running the Bank. As the Bank is about to begin a 10 year review of the DBR, its new president Jim Yong Kim has an early opportunity to answer that question.

Mike Waghorne is former assistant general secretary of Public Services International

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