Composite indicators of labour market regulations in a comparative perspective

Mariya Aleksynska,Sandrine Cazes

doi:10.1186/s40172-016-0043-y

Abstract

Abstract Technological progress and the internet brought about new possibilities of creating, storing, exchanging, replicating, and using various kinds of data for research. This paper discusses some of the dangers embedded into the reuse of data produced by some institutions by other institutions through the combination and aggregation of initial data into various data products. To this end, we use an example of labour market regulations’ indicators developed by the World Economic Forum, the International Institute for Management Development (IMD), and the Fraser Institute, which are all partly based on the World Bank Employing Workers Indicator. We document how these three indicators compare and identify both their common and specific limitations. For each of these indicators, the choice of subcomponents and of aggregate techniques results in different pictures of labour market regulations, despite the use of the overlapping initial sources of data. Our comparative exercise calls for continuous efforts to improve the indicators of labour market regulations, as well as for cautious use of such indicators for research and policy advice. JEL codes: J00, J8, Y1

Highlights

The past decades witnessed a significant burgeoning of empirical studies examining the effect of labour market institutions on various measures of economic and labour market performance.1 This burgeoning was naturally propelled by the global economic crisis and the need to seek empirically grounded policy responses to persisting unemployment and widening inequalities
It was facilitated by the development of cross-country timeseries composite indicators of labour market institutions. Some of this development was facilitated by technological progress and the widespread use of the internet that brought about new possibilities of creating, storing, exchanging, replicating, and using various kinds of data for economic research
While previous research has already highlighted several problematic areas with the composite indicators that we consider, the wide recent use of subcomponents measuring labour market regulations for ranking countries and providing policy advice calls for a more in-depth overview of such specific components based on the post-2005 data

Summary

Introduction

The past decades witnessed a significant burgeoning of empirical studies examining the effect of labour market institutions on various measures of economic and labour market performance. This burgeoning was naturally propelled by the global economic crisis and the need to seek empirically grounded policy responses to persisting unemployment and widening inequalities. Do the methodological notes accompanying the three indicators under the review of this paper not acknowledge these important debates and they use the EWI data to construct their own composite indicators and to rank countries, disregarding significant recommendations and the decisions taken by the World Bank itself. While previous research has already highlighted several problematic areas with the composite indicators that we consider (for example, Ochel and Röhn 2006 review the overall IMD, WEF, and Fraser indices prior to 2005, not just their labour regulations subcomponents), the wide recent use of subcomponents measuring labour market regulations for ranking countries and providing policy advice calls for a more in-depth overview of such specific components based on the post-2005 data.

Comparative overview of selected composite indicators

Findings

Conclusions